Financial institutions that require accurate, timely and cost-effective corporate actions information could derive significant benefits from outsourcing some functions to independent firms that offer high-quality global corporate actions information and validation services.
This view is expressed in a white paper – Building the Business Case for Outsourced Corporate Actions Validation – that was prepared for The Depository Trust & Clearing Corporation (DTCC) by the A-Team Group. The A-Team Group is a leading independent online news and consulting service for IT professionals in the financial services industry. DTCC’s Global Corporate Action Validation Service (GCA VS) tracks, validates and distributes corporate actions information on more than 2.5 million securities globally in 200 countries in 15 languages.
Corporate actions are events such as mergers, dividends, stock splits and other events that may require an action to be taken by an investor or financial shareholder. They often touch many parts of the trade cycle and are notoriously difficult to manage.
While many leading financial institutions “are reaping operational benefits and avoiding unnecessary financial exposures by ensuring the quality and timeliness of their corporate actions data,” the paper states, other “institutions of all sizes continue to struggle with corporate actions data quality.”
The paper describes the many challenges associated with processing corporate actions, including:
- The ever-increasing volume of corporate actions messages: “Pressure on firms for greater returns is forcing them to seek out new markets, each bringing with it a new corporate actions data stream.”
- Costs associated with maintaining in-house platforms and professional staff: “Practitioners concede that corporate actions validation is an expensive business. On top of the cost of systems and data sources…you need quality people…You need the right people and you need to train them and keep them.”
- The need to deal with manual exceptions, which can overwhelm a firm’s corporate actions team:DTCC’s GCA VS reported processing more than 14,800 manual actions in just one week in 2011.
- Relying solely on a single source of corporate actions data: “It is not enough to rely on a single un-validated source of corporate actions from a broad data service provider for quality corporate actions data. Metrics show that no single vendor has the breadth of coverage for the global market.”
- Understanding local nuances: “Challenging situations may originate from any marketplace, and their resolution requires detailed understanding of the market’s particular nuances.”
The paper also provides a comprehensive checklist of requirements that will help in constructing a business case, and also describes the tasks and expertise needed to ensure an effective validation service.
“As corporate actions data grows ever more complex and voluminous, companies’ corporate action teams are increasingly stretched and the risk of error continues to rise,” said Andrew Delaney, editor in chief of the A-Team Group. “By outsourcing the acquisition and validation of corporate actions data to an established provider and ensuring performance through rigorous service-level agreements, firms can ensure the accuracy, timeliness and breadth of coverage they need for corporate actions information,” he said.
According to the paper, DTCC’s GCA VS “is a completely outsourced data validation service, providing a centralized source of ‘scrubbed’ corporate action announcement information for more than two million active securities.” The cleansing process for the information “comprises data mapping, data normalization, consolidation and verification.”
“More than 50 leading global buy- and sell-side firms trust GCA VS with their corporate actions validation process,” said Daniel Thieke, DTCC vice president, Asset Services. “GCA VS provides comprehensive, round-the-clock coverage across all event types and all global markets with offices and local staff in New York, London and Shanghai.
“We continually work to ensure the accuracy and data flow while reducing risks associated with corporate actions,” he said. “With detailed metrics, experienced staff and an active working group, GCA VS works to promote straight-through processing in corporate actions while offering customer firms accurate and timely data.”
In 2010, GCA VS provided more than 972,000 corporate actions announcements and more than 9.5 million announcements on scheduled payments for fixed income securities to its clients. The service also handled about 125,000 announcements from 175 custodians to its clients on those securities.