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ISITC’s CAWG Finally Releases Long Awaited Corporate Actions US Market Practice Guide

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Following two years of revisions since the first draft was first released in October 2007, ISITC’s Corporate Actions Working Group (CAWG) has finally released its best practice guidelines for the corporate actions market in the US. As the Securities Market Practice Group’s (SMPG) designated US market representative, the ISITC group has been charged with compiling, reviewing and amending these best practices, which cover the complete lifecycle of a corporate action, from the notification of an event to final confirmation of a payment.

Genevy Dimitrion, chair of ISITC, explains: “Since our inception, we have been working toward improving trade processing across the industry. As part of these efforts, our CAWG has continued to push forward on putting forth industry best practices in order to benefit the global market as a whole. As the financial services industry continues to undergo change, ISITC is committed to effecting positive change in the industry through the cooperative efforts of our member firms.”

The group completed its final review of the guide during the association’s member conference in September, although it notes that the document will be reviewed and updated on an ongoing basis to reflect future industry changes. Currently, the market practice guide covers the corporate action announcement, instruction, status, processing advice and payment confirmation flows. It defines the roles of all players in the corporate actions lifecycle and provides details on the data flows between these parties.

Moreover, the document provides templates for communications between parties for different steps in the corporate actions chain, including codes and their meanings. This level of detail should go some way to harmonising market practices across the US and eliminate some of the costly data reconciliation work required due to firms using different formats, or so the logic goes.

Given that ISITC has some clout in the market (unlike its European counterpart) and has been endorsed by the SMPG to carry out this work, these best practice guidelines should hopefully be taken on board by some of the larger firms in the space. However, it has taken two years to produce this document and corporate actions is a particularly complex and, surprisingly, changeable part of the financial services market, so these best practices may need updating sooner rather than later.

Moreover, the work required to harmonise practices for one country doesn’t bode well for the future of global corporate actions standardisation. If it takes this long to come to an agreement on one country’s best practices, how much longer would it potentially take if you throw international disparity and political disagreements into the mix?

If you take the opinion of Werner Frey, chairman of the European Securities Services Forum (ESSF), as gospel, these future market practices should be developed irrespective of the current models being used by each individual country. But as we all know, theories such as these are wonderful but putting them into practice is another kettle of fish entirely.

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