The Depository Trust & Clearing Corporation (DTCC) launch of its Global Corporate Action (GCA) validation service at the beginning of the month will “reinvent the way corporate action announcements are managed” through the elimination of redundant operations and technology.
The development of the service could, if widely adopted, spell bad news for some of the players in the market for corporate action automation software, which a recent survey shows is already overcrowded. By providing a centralised ‘industry utility’ approach, the DTCC service threatens all the companies that offer such software simply by reducing the size of the potential market, particularly as because of the custodian relationship many will already have the necessary links to DTCC to make implementation relatively straightforward.
GCA provides an automated, centralised source of scrubbed corporate action announcement information, aimed at streamlining communications, reducing costs, lowering operational risk and improving the quality of information distributed, according to the DTCC.
The service analyses a broad array of corporate action information eliminating the need for end-user firms to perform this work itself. Data is sourced directly from “most” commercial information providers. A spokesperson for the DTTC says that these include FT Interactive Data, Standard & Poor’s, Telekurs and Xcitek. By the end of the year, elements of the Japanese Nikkei service will be incorporated, the spokesperson says.
DTCC teamed with Accenture to build the new service. Accenture provided program management support, helped to implement GCAs underlying technology solution and is continuing to work with DTCC in enhancing the operating environment. GCA validates data through a process of mapping, normalising and consolid-ating the information using a customised version of XcitekSolutionsPlus’s XSP corporate actions data management module.
DTCC also plans to enhance the data with follow-up by research professionals and information from custodian banks. The custodian verification component of GCA is planned for later this year.
“Our goal is to provide a seamless corporate action announcement solution, so that all financial institutions can receive the accurate and comprehensive information they need at the same time,” says Donald Donahue, DTCC’s chief operating officer. “With GCA, we’ll deliver better data quality and huge economies of scale to banks, broker/dealers and other financial institutions worldwide.”
The scrubbed data is available through an FTP connection, or through the Web. “The implementation process is not so much a question of how the data is delivered, as how the institution incorporates it into its workflow,” says the DTCC spokesperson.
In April, DTCC launched a pilot of GCA with an unnamed major global securities firm. Several other firms that are high-volume processors of corporate actions will follow shortly, it says. Over the past year, these firms have been working closely with DTCC to define requirements for GCA, which is targeted for full production by year-end. Initially, GCA is covering securities traded in the Americas and Europe. Worldwide coverage is scheduled for completion by the end of the year. It applies a broad definition to corporate actions to include both straightforward mandatory events and more complex voluntary offerings.
“Corporate action processing is an area of significant risk in the securities processing business,” says James Femia, managing director, DTCC Asset Services. “The exposure associated with an individual corporate action event potentially involves millions of dollars.”
In 2002, DTCC’s depository processed a record volume of corporate actions, including reorganizations, redemptions, dividend and interest transactions, with a value of nearly $2 trillion. Each corporate action has a multiplier effect. A single event may involve hundreds of financial firms, which then results in thousands of communications sent and/or payments allocated to investors.
“Rather than have each bank and broker/dealer maintain its own operation to collect and verify corporate action announcement information, we’ll provide the single right answer,” says Femia. Custodian verification, he says, is an important part of what will set GCA apart from other service providers in this market space. “We recognize the vital role that custodians play in the process. We’ll act on our participants’ behalf, going to their custodians to verify data, while protecting the proprietary nature of the custodians’ data.”
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