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Can you trust Corporate Actions notifications?

05 June 2015 1 comment

Retired member

Twenty years ago I had to help put together an exchange’s solution for broadcasting corporate actions notifications to the world. That was before everyone used email, so we had to rely on faxes from issuers. To ensure that responsibility and liability for accuracy remained clearly with the issuer, and not with the exchange or any data vendor or wire service acting as a distributor, we entered the notification into the exchange’s system and then sent a copy of that text back to the issuer. Only when we received confirmation from the issuer that the content was complete and accurate did we send out the notification to the world.

In that “pre-digital” world, we acted like a notary, validating content before it was published to protect the issuer, the end-recipient and all parties in the distribution chain. This week, a service provider in the Corporate Actions sector told me that they had validated a set of corporate actions notifications received against the original notifications created by the issuers. 8% of all notifications received were factually inaccurate and 25% were incomplete or missing. So – how would the end-users of corporate actions services be aware of that problem, and what could they do about addressing it?

In today’s digital world, a “digital notary” provides the kind of service that’s needed. Just as a legal notary establishes and certifies the validity and completeness of a physical document, a digital notary does the same for electronic data content. That helps an issuer of a corporate action notification to ensure that what the world receives is what was originally issued, completely and accurately. It enables the Investor Relations firms involved to protect both their clients and themselves. And it enables end-recipients of notifications to validate that what they received is a complete and accurate version of what the issuer sent out originally.

I’ve just had to use a legal notary to certify the contents of a physical document, because people who receive that document will be making important business decisions based on its contents. Are you using a digital notary to validate corporate actions notifications?

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Comments: (2)

Andrew Chilcott Systems Integration Consultant at stpsolutions

08 June 2015

Chris

I agree entirely with your analysis as I too spent a great deal of time dealing with corporate action notifications. However, a digital notary is not the answer as this does not get to the root of the problem. A whole industry has grown up to cleanse and golden copy the data (usually structured theses days either ISO15922 or ISO20022) but has never sorted out the root cause problem.

This is that the Issuers (or rather the PIPS) publish this data as raw text without structure. The problems arise downstream when a myriad of intermediaries such as data providers, custodians and sub-custodians introduce transcription errors when keying the raw data into a structured format. These the get exponentially magnified as each of them sends out notifications to their clients.

The LSE which still accounts for some 70% of corporate action notifications provides its issuers with a template to publish the notice. Why has this template not been amended so that issuer input would produce structured output. Together with Gary, I have been banging on about this for the past decade, but still no action.

The regulators, in the form of the UK Listing Authority, should mandate that every public company must issue all regulatory news in a structured format.

In the US they have grasped this and the DTCC now mandates that all corporate notifications are published in XBRL format (in conjunction with SWIFT and XBRL-US) so the technology is there it just needs the will to do it.

I demonstrated this in action nearly ten years ago and found then, probably as now, that the people who understand the problem and its consequences have little or no clout when it comes to allocating budgets and getting consensus for industry-wide initiatives. Unfortunately, corporate actions come a long way down the pecking order when other more high-profile projects are considered

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A Finextra member

08 June 2015

Fully agreed, Andrew - though I think that this is not just an issue for a UK Listing Authority and that this should be a EU-wide regulatory requirement for all listing authorities. And the industry should consider this not just for exchange-listed instruments either. The Digital Notary approach would give everyone a positive result today for this problem that has existed for so long and that will continue to exist in the future.

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