The automation of corporate actions processing has traditionally posed a serious challenge, remaining an elusive goal within the industry. ISO standardization initiatives, over the past few years, have led to a fair amount of automation. However, due to the slow adoption of standards and lack of harmonization across markets, data quality issues are hindering Straight-Through Processing (STP) within Corporate Actions.
Specifically, the lack of standards at the issuer level, and varying interpretations of event data can lead to operational inefficiencies. Standards and market practice guidelines do not cover all corporate action event types, data elements, or apply consistently across all countries. Hence, its usage continues to remain inconsistent across the value chain--from announcements to payments.
Initiatives with a larger reach have more impact
While there could be a geographical focus for the following initiatives, the three major industry initiatives that have the potential to have maximum impact in streamlining corporate actions include the SWIFT/ISO15022- 20022 adoption, the DTCC, XBRL - US and SWIFT led XBRL initiative, and SMPG-created Event Interpretation Grid and STaQS framework. While these are currently running as parallel initiatives, being standards based, there is a tremendous potential for the convergence of the underlying concepts driving them.
ISO 15O22 was initiated with the objective of standardizing message formats, including those in corporate actions processing. This has helped accelerate the level of standardization and automation while eliminating costs and turnaround times associated with proprietary message formats in Europe and certain other parts of the world. A large market like the USA is yet to pick up speed in adopting the ISO standard – this should change in the near future. The migration to ISO20022 would also plug the gaps on issuer/agent side of communication and provide enhanced coverage of event types and data elements in the standardization process. On the technical front of ISO 20022, the XML format for messaging eases the integration cycle.
The second initiative tackles one of the most complex tasks in CA processing: the creation of a golden copy of event announcement capture processing. This is set to be simplified in the US markets if all goes well with the XBRL initiative to improve communications from issuer to investor. Initiatives such as unique identifier program would promote Straight-Through Processing (STP) by enabling consistent identification of events across market participants. Beyond the USA, the development of issuer/agent messages by Euroclear also addresses the data issues at the source level.
SMPG’s effort of clearing national level differences through its initiatives has achieved some success. The Event Interpretation Grid and D vs E guidelines, which focus on harmonizing the differences in corporate actions messages and clarifying and defining all event types, has been one of SMPG’s key dimensions in moving forward. On the similar lines, the STaQS framework, which enables testing the compliance of IT systems with ISO specifications, market practice rules and regulatory requirements, would also benefit the participants immensely.
Some bottlenecks still remain...
While focused initiatives are being rolled out in specific geographies, there is a need to replicate them on a global basis depending on the rates of successes and the learning obtained. However, questions remain both around the acceptance and the time for adoption at the local market levels, as the execution of event continues to be governed by local market conventions and regulations. The absence of global market standards and lack of uniformity in the regulatory environment will continue to be a greater challenge in terms of standardizing notifications and distributions at the local market level. Local custodians/sub-custodians and CSDs, especially in emerging markets, will take time in adopting the global standards and could continue to be driven by proprietary formats, basically from an ROI perspective with respect to investments in global standards. The adoption of the 15022/20022 in the USA also needs to be watched closely.
Further, there could be reluctance on part of institutions that have recently invested in and completed integration and migration of ISO15022 to ISO20022 on an immediate basis due to the resultant mapping efforts and constraints required on investments.
One of the key dimensions to look forward to would be the convergence of various industry initiatives based on their success. One of them is the interoperability of XBRL syntax with ISO standards across markets. As the template gets developed in the US market, it could be adopted by issuers across global markets for communication with the CSDs, investors and other interested parties. The regulatory bodies at the local level will play a crucial role in enforcing the adoption of the global standards. China’s adoption of XBRL for certain event types is a case in point.
Lastly, for the various initiatives to be effective there is a need on the part of all the stakeholders in the CA community to focus on increasing the market efficiency and risk mitigation of the CA eco-system as a whole rather than focusing on the return on short-term investments.
To know more about how TCS BaNCS can help you with your Corporate Actions processing, email us at firstname.lastname@example.org.