The Depository Trust & Clearing Corporation (DTCC), SWIFT and XBRL US today announced the results of a business case advocating a transformation in the way corporate actions announcements are communicated in the United States, allowing investors to receive information on such corporate actions as mergers, dividends, stock splits and other events in a more timely, accurate and less costly way, directly as specified by the issuer or offer or.
The business case, developed with key stakeholders from across the corporate actions processing supply chain – issuers, intermediaries and investors – documents the existing announcement process, highlights current problems, and provides recommendations to solve those issues.
The recommendations call for, among other things, a single set of global standards for corporate actions processing, which, according to the business case, will bring greater accuracy, reduced risks and lower costs by improving transparency and communication between issuers and investors. A pilot program will be initiated late this year to implement the recommendations and further evaluate costs and benefits, with participation from issuers, intermediaries and investors.
The business case makes clear that use of the global standards by issuers will allow them to provide their key messages directly to investors or potential investors without the delays or potential errors inherent in the reliance, under today’s process, on interpretation by financial intermediaries. It also examines, for the first time, the complete corporate action process from announcement to completion, using a case study of Pfizer’s acquisition of Wyeth in 2009.
Specifically, the business case highlights four critical issues raised by issuers, intermediaries and investors in today’s corporate action announcement process that the proposed solution is designed to address:
• Interpretation risk: Issuer messages are “free text”, e.g., news releases and regulatory filings that must be interpreted, transformed and summarised by the financial services industry with no input from the issuer on the data conveyed.
• Timing risk: The need for manual interpretation and intervention by intermediaries results in delays in communicating information to the investor.
• Accuracy risk: Multiple parties extracting, manually rekeying and disseminating the same information increases the potential for errors delivered to the investor.
• Significant costs in the current system: The lack of straight-through-processing (STP) throughout the corporate action chain results in cost and liability being absorbed by the financial services industry.
To address these issues, the business case makes three principal recommendations:
1. All parties to the process should adopt a single set of global information and technology standards, while continuing to support the current disclosure process;
2. Issuers should “tag” corporate action documents with XBRL (based upon the global ISO standard followed by the financial services industry), permitting easy, automated extraction of the data, and
3. Intermediaries should consume and seamlessly disseminate the electronic version of the corporate action information as close to real-time as possible or within a timeframe as requested by investors.
James Anderson, Manager Financial Reporting at AGL Resources, said, “Implementing these recommendations would result in corporate action information that is computer-readable, eliminating the need for intermediaries to interpret and transform our messages into structured data. This allows us to remain in control of these important disclosures, and ensure they are communicated exactly as we intended. This enables greater transparency, accuracy and timeliness of our data that is extracted from regulatory filings and press releases that we issue, giving our shareholders more time to make decisions. We believe our investors and those who receive our corporate action information will embrace this initiative.”
Survey results and discussions with members of the stakeholder group yielded expected benefits of implementation including:
• Direct savings to investors and their investment managers of $172 million annually.
• An estimated total cost savings of $400 million per year for the industry.
• A 60% improvement in fully automated dissemination of data on Mandatory corporate action events to investors, which represent an estimated 80% of all U.S. corporate actions.
Elisa Nuottajarvi, Manager, at the Securities Industry and Financial Markets Association – Asset Management Group, said: “The Issuer-to-Investor: Corporate Actions Business Case is a major effort which makes it very clear that there is a need to automate the corporate actions process by using new technologies and standards, such as XBRL and ISO. Industry-wide collaboration on this effort is a key step in the process of resolving this age-old and very costly problem.”