The Securities Market Practice Group (SMPG) and the Corporate Actions Joint Working Group (CAJWG) have come forward leaps and bounds in their endeavours to harmonise the industry’s corporate actions messaging formats, according to Christine Strandberg, global product manager for the Asset Servicing division of Nordic financial group SEB. However, the standards may be in place and corporate actions categories defined, but the benefits are all in the implementation, she told delegates to CorpActions 2010 last week.
Fellow panellist Dean Hogan, executive director of Worldwide Securities Services for Asset Servicing and transaction processing head at JPMorgan, added that he was feeling positive about the progress made so far overall but that standards are taking too long to be adopted. “There is a need for the consistent application of standards to close down the gaps and apply the rules that have already been drawn up. We need to be clear on the business case for applying these standards in order to achieve significant progress,” he contended.
Hogan and Strandberg suggested using the lessons learned during the financial crisis about better risk management to push forward the corporate actions standardisation and automation business case. “We could also work with market players such as Swift to force firms to use certain message standards by no longer accepting them,” said Hogan.
“Taking away older message types is moving in the right direction,” added Strandberg. “As well as making sure that firms do not use misuse current formats such as adding in free format text to certain fields.”
Justin Chapman, global head of strategic implementation for Asset Servicing at Northern Trust, suggested that there were two ways to get firms on board: make change mandatory or make it so firms can’t afford not to adapt their practices.
A lot of work has certainly gone into drawing standards together thus far. As reported by Reference Data Review in November last year, the US focused ISITC led Corporate Actions Working Group (CAWG) also finally released its best practice guidelines to the US market for adoption, after its final review of the guide during the association’s member conference in September. The work of the SMPG and the CAWG, along with similar endeavours going on across the globe within the various national market practice groups, is a great first step towards getting greater STP into the corporate actions processing flow, but much more needs to be done. Defining and agreeing the standards is merely the start of the process, warned Strandberg, who is an active member of the SMPG.
“At the SMPG, we have been looking at establishing standards for the processing of corporate actions events and the first order of the day was to establish categories for these events that were as simple as possible,” she explained. The group then set about defining European standards for the processing of these categories of events, including such considerations as key dates and information flows. The processing standards for the events related to movements of cash and securities were endorsed last year and are now in the process of implementation, said Strandberg.
At a more international level, there are also a few other initiatives going on within the market that will impact the corporate actions space, added Paul Bodart, executive vice president and head of EMEA global operations at Bank of New York Mellon Asset Servicing. This includes the European Central Bank’s proposed (ECB) Target2-Securities (T2S) settlement system and the work being conducted by the International Securities Market Advisory Group (ISMAG) around Eurobonds processing.
ISMAG’s work around defining the process of structuring Eurobonds was prompted by these instruments’ increasing complexity in the post-crisis market, said Bodart. “Investment banks and law firms have become increasingly creative in the process of creating these structures and this has had a significant impact on the processing of the related corporate actions events,” he explained.
Of course, with so many different initiatives going on across the world in the corporate actions space, there is potential for both duplicative efforts and competition with regards to standards. Sophie Bertin, head of Asset Servicing and Custodians at Swift, however, noted that despite this possible competition, there is also a lot of complementary work going on. “Corporate actions is a large and complex area and it is possible to look at it from a number of different industry perspectives, not necessarily competing ones,” she contended.
However, the challenge is getting firms to use these standards now that they are ready for implementation. Bodart suggested that a gap analysis was vital for all these efforts in order to assess where the biggest changes are needed and levels of urgency at a country level. “The European Commission should get involved in this monitoring process and although it is not an ideal solution, I would not rule out some form of legislation to be imposed on those countries that are lagging behind,” he said.
Chapman added that the “smaller gaps” should be tackled first in order to ensure that some changes are made quickly. This would help during a time when competing pressures, such as those stemming from regulation, are holding back corporate actions budgeting and effort. “The most important thing that needs to be communicated is a roadmap for change and the benefits of these changes. There is some degree of certainty needed before any firm will make the investment,” he said.
Bodart noted that the Commission has already expressed some interest in the corporate actions process and would likely expect the industry to get on board with the standardisation timetable over the next two to three years. Regulation certainly adds certainty to proceedings…
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