Following the announcement last month that the Securities and Exchange Commission (SEC) has issued rules requiring large publicly held US companies to adopt extensible business reporting language (XBRL) for their financial reporting, the Depository Trust & Clearing Corporation (DTCC) has released plans to spearhead a campaign for semantic interoperability between XBRL and ISO message types for corporate actions.
The DTCC has been talking to the US branch of XBRL about corporate actions automation for two years, says Campbell Pryde, chief standards officer for XBRL US. “The recent release of the US GAAP taxonomies and their proposed endorsement by the SEC has made using XBRL for corporate actions a possibility,” he says.
XBRL US has recently released the US GAAP taxonomies for financial reporting using US GAAP and the International Accounting Standards Board (IASB) will be releasing the XBRL International Financial Reporting Standards (IFRS) taxonomies in the next couple of months. “The information represented in these taxonomies is strongly correlated to the information also reported in a large number of corporate action disclosures. Rather than having companies learn and implement one standard for financial reporting and another for corporate actions we decided to assess using XBRL for corporate action announcements,” Pryde explains.
There is certainly a need for greater automation in the area of corporate actions, given the disconnected STP chain, says David Hands, product management director for DTCC. The issuer largely provides information in a paper format and the process is costly and prone to error due to the manual inputting of data.
“We have improved the standards of corporate actions within ISO 15022 to a point now where we have a pretty good idea of what a corporate announcement should be and all the variants thereof between market types. We can go back to the issuer and ask them to get involved in the process,” he says. “We can specify how they should announce a corporate action – in this manner and with this data, for example.”
DTCC is currently looking at where the industry’s pain points are with regards to corporate actions and, as it is in throes of a reengineering process, Hands reckons it is an opportunity for the DTCC to “think outside the box”. DTCC is currently undertaking a major initiative to reengineer how it processes corporate actions with the goal of creating an integrated, common platform based on industry standards for corporate actions through the complete asset servicing lifecycle.
“ISO is also moving from 15022 to 20022, so there are a lot of things coming together,” adds Hands. “Most importantly, the SEC has decided to advance into the internet age by mandating XBRL to tag financial information. The SEC has pursued this quite strongly and helped to establish XBRL in the US.”
Hands explains that the industry has long been pondering how to get issuers involved in the method by which their information is disseminated into the market. “But issuers will not do this without a significant driver to do so. So we looked at an area that they were particularly concerned about – tenders and mergers – because the SEC regulates it and they have to follow its guidelines.”
The plan is to focus on those events covered by the SEC – out of the 60 to 70 corporate action event types, the SEC regulates around five or six – and DTCC is hopeful that this will give it traction in the market.
Hands reckons that the argument for the introduction of XBRL in the corporate actions space is a compelling one. “It seems fairly simple to create an XBRL document as it doesn’t create a whole new workflow on the issuer’s side – XBRL data can be embedded in a Word or an Excel document. It is not costly or time consuming.”
XBRL’s Pryde adds: “A public filer will have to use XBRL to report the information in their financial statements, if this infrastructure is already in place in their organisation, they can also use this infrastructure for reporting corporate action data.”