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Can Corporate Actions Automate Without Wave of Regulatory Stick?

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Despite a myriad of available software solutions aimed at automating corporate actions processing, industry participants can relish the prospect of unreliable data and manually intensive processing for some time to come.

That’s among the findings of new research from TowerGroup that suggests that corporate actions processing remains one of the major roadblocks standing in the way of the industry achieving straight-through-processing (STP) and the operating efficiencies it has long promised but so far failed to deliver.

That said, the research group believes that global revenues for vendors offering automated corporate actions processing platforms will rise from $75 million this year to around $120 million in 2010. Key drivers, it reckons, will include the realization of benefits from mitigating operating risk and implementing process efficiencies, rather than the continual quest for compliance with midterm regulations.

TowerGroup has just issued two new reports on the subject, both authored by Matt Nelson, a senior analyst in the research company’s investment management group: Update on Corporate Actions: Progress in the Face of Apathy on the STP Battlefront; and Corporate Actions Automation Software: Tools for the March Toward STP.

Through his research for the reports, Nelson concludes that: “The best possible solution to the corporate actions issue starts with bilateral industry-wide adoption of data standards, and ends with industry-wide agreement on best practices.” He believes that by collaborating to achieve a single, central set of best practices, the industry can move toward STP in corporate actions.

With 67 corporate action types currently in use globally, according to the International Securities Association for Institutional Trade Communication, it has to be said that achieving such a level of collaboration among competing vendors and their various competing clients seems like a shot in the dark.

Nonetheless, Nelson urges all North American custodians to adopt data standardization and common message formats, arguing that this can facilitate automation in the corporate actions space. Nelson points out the fact that only 2% of all Swift network traffic consists of instruction messages from investment managers to their custodians, which he says illustrates that many custodians are no accepting message-based instructions.
Nelson isn’t optimistic. He says that while operational risk mitigation should be a major driver, it’s often overlooked in favour of immediate regulatory drivers, of which none currently focuses on corporate actions processing.

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