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Corporate Actions Represent Major Risk to Global Marketplace

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New research estimates that incomplete or incorrect corporate actions information poses a front-office trading risk of between EUR1.6 billion and EUR8 billion annually, while firms individually may face back-office processing risks amounting to tens of millions of euros from mishandling a single, complex corporate action event. The research was conducted by U.K. analysts Oxera, and was sponsored by DTCC. The report found two primary areas of risk facing all market participants. First, errors in the downstream flow of information. This is due to the lack of a standard way for issuers to announce events, the lack of a single securities identification system, the fact that different sources of information are often inconsistent, and that processing details and terminology are often highly specific to a particular market or instrument. Second, errors in the upstream flow of instructions. Here, the report said, “the sheer number of different financial intermediaries (custodians, fund managers, broker/dealers, and depositories) involved in any one event requires a complex chain of communications (with many instructions delivered via phone, fax, telex or unformatted e-mail, and processed manually).”

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