Buy-side Perspective: Corporate Actions Still a Priority?

With an increasing pressure on revenue and margins, corporate action losses are becoming more difficult to absorb within the business. The risk profile has not changed, but the ability to absorb these losses is now substantially different. It should therefore be a high priority for 2009/2010.

Standardisation and automation is key to preventing losses from missed deadlines or misinterpreted data. Since the capture and interpretation of time sensitive information is critical to the process, automation lies at the centre of an organisation’s ability to mitigate risk.

There are, however, two distinct processes that need to be considered together to ensure effectiveness:

-       Automating the process of data capture, cleansing and validation

-       Automating to reduce market risk between internal processing and instructions

The distinction has to be made between automation and straight-through-processing (STP). There are very few parts of a corporate actions life-cycle that lend themselves to STP, there are however critical stages that will yield significant benefits through automation.

If we look at XBRL tagging, there will always be points where manual intervention is required. By having issuer information referenced at the point of need would be a significant innovation. However, we need to look at adoption of the basic messages to see how this added value will get incorporated into the process. While XBRL is at its genesis for inclusion in corporate actions processing, we are probably 2-3 years away from seeing any impact that is widely adopted, especially when the standard it is interoperable with has not yet been embraced by operations today.

Corporate actions automation is still in the adoption phase. We need to consider how to achieve broader adoption in the asset management community. In-bound message processing capabilities are essential to remove the need to rely on fax machines. There must be levels of sophistication to manage complex validation, and intelligently deal with narrative when it occurs within a structured message.

I agree with the point made by Drew Douglas at HSBC (see article). Co-existence of standards not only increases cost, but additionally leads to inactivity since investment in today’s standard may be viewed as sunk cost. Waiting for full coverage on a new standard may be seen as preferable, history however shows that adoption is often slow, and it is better to take advantage of solutions today, in order to reap the business benefit, than to wait for the promises of future innovation.