Following the development of its nine principles for corporate actions best practices last year, the International Securities Services Association (ISSA) is now engaged in an issuer and issuer agent market outreach programme to promote these principles. Speaking at yesterday’s corporate actions seminar organised by the Association for Financial Markets in Europe (AFME), Peter Gnepf, secretariat of ISSA and director at UBS, indicated that ISSA’s intent is to better coordinate all of the work going on across the corporate actions space, so that groups are aligned and redundancy is avoided.
To provide a little background on the group itself, ISSA is hosted by Gnepf’s firm UBS in Zurich and is a not for profit organisation focused on fostering best practices in the global asset servicing industry. This particular corporate actions focused project has involved the participation of 12 specialists from Europe, North America and Japan and 50 markets were consulted in the drafting phase, according to Gnepf.
ISSA first took up the corporate actions mantle with a view to improving efficiency and mitigating risk across the industry back in 2008, spurred on by the rise in complexity and variety of corporates actions, as well as increasing volumes. The trend towards a shortening of the timescales involved for obtaining investor decisions was also a motivating factor.
In a member survey presented during the 2008 ISSA symposium, corporate actions harmonisation and standardisation therefore emerged as the top priority item where the association’s members thought that it could create value for the industry. The association’s board then drafted terms of reference and scope for an ISSA working group on the subject.
“At the start of the process we examined the best practices where they already existed in the market and the work of other groups such as the Corporate Actions Joint Working Group (CAJWG) to see how all of the pieces fit together. We then looked at where gaps still exist in terms of best practices,” explained Gnepf.
The rationale of the group was therefore to eliminate and avoid duplicative efforts and to direct attention towards areas of importance that still need to be tackled in the corporate actions space. “The corporate actions lifecycle involves a longer intermediary chain than in clearing and settlement, but there is even less integration due to the fragmented processing steps involved,” he said. “We need to improve the end to end view.”
Gnepf provided a brief overview of the corporate actions best practices as they stand across the various regions at the moment, which he explained was used as input into the group’s nine principles. “We did not want to reinvent the wheel, so the idea was to identify existing best practices and recommendations that could merit global adoption,” he explained.
The building of these connections across the various initiatives, such as those of the various central securities depository (CSD) associations, the Association of Global Custodians (ACG), Swift, the International Securities Market Advisory Group (ISMAG), CAJWG and AFME, took around three or four months, according to Gnepf, at which point the first draft of the principles was released. The nine principles were therefore made available for public comment in May 2010, based on the analysis of five topical baskets: automated information exchange, event creation, event communication, event processing and transaction management.
“This project is not about creating yet another set of recommendations, it is about bringing together valuable efforts that already exist locally and putting them to use on a wider scale, in dialogue with the groups who articulated them,” said Gnepf. To this end and in terms of regional coverage and input on the principles themselves, the CSD associations and ACG indicated a strong interest in participating in this effort and offered to act as regional coordinators, he explained. Similarly, Swift, which participates in the ISSA core working group, offered to involve its Asia Pacific Asset Servicing Group.
The principles comprise:
1. STP and ISO standards. Communication should be electronic to ensure an STP flow along the intermediary chain from the issuer to the investor and vice versa. Messaging must in ISO format and in structured standardised data form. ISO standards are a key enabler for information quality and content. They should be used across the issuer to investor chain. The push to converge XML-based standards and ISO should be endorsed. In implementing ISO standards, local market practice will be adopted as defined by national market practice groups (NMPGs), and ISO ‘extensions’ adopted if agreed local market practice cannot be accommodated within the existing global standard.
2. Message content. The content of messages must be clear, limited to key information and unambiguous. In particular, all key dates affecting an event must be carried in the event announcement.
3. Issuer sourced key information. Key summary information must be created by the issuer. It should be, at a minimum, consumable and accessible using the ISO repository of data elements and subsequently usable in structured ISO format and should be simultaneously published to the local exchange and CSDs, regulators and the open market. Issuers should also make prospectus documents available on public websites.
4. Required information. Subject to compliance with legal requirements, only information that is required for the event type should be carried in the announcement: only data functionally necessary for processing in an electronic, structured way, as defined by one organisation in each market determining standards consistent with global ISO standards. This information must be unambiguous. Other optional information should be retained and accessible at source.
5. Unique identifiers. Required information must include a unique global event identifier that is assigned at the earliest possible point and remains with the event throughout its lifecycle, despite updates. Issuer and security codes should uniquely identify the issuer as well as the listing location, for example using an ISIN and market identifier code (MIC).
6. Timelines of notification. Notifications to the chain of intermediaries and to the end investor must be made in a timely manner and as close as possible to the issuer’s announcement date and time. Sufficient notice to execute the event, including amendments to the event, must be given to allow all parties to complete the process effectively before the event deadline.
7. Process harmonisation within and across markets. Each market should agree its market standards for corporate actions processing and, in parallel, harmonise such standards across markets. Standard election option identification conventions will be adopted to facilitate the election process.
8. Publication of event rules. Each event type has processing rules which are to be adhered to. These rules should be published for global consumption and adherence.
9. Protecting investors’ rights. Clear rules concerning the protection of benefits due to the beneficiary must be prescribed and adhered to. The concepts of market claims and buyer protection should be endorsed by industry associations and infrastructures to ensure that beneficiaries receive the benefits expected.
The first six of the nine principles relate to the start of the corporate actions lifecycle and therefore are highly relevant to the issuer and issuer agent community, although getting the attention of this community is a serious challenge. Hence the focus of ISSA at the moment is to demonstrate the benefits of adoption of these principles to this community.
“We have two key messages for the issuer community, the first is that they need to create certainty in the accuracy of corporate actions information by acting as a golden source for this data. They therefore need to provide full key data at the start of the process and not rely on intermediaries to produce golden copies. Second, they need to establish an electronic communication channel to investors such as by using ISO standards and enabling STP from the point of creation,” said Gnepf.
In order to get this message across, the group is aiming to focus on the existing practical approaches and educating the wider issuer community about these. Thus far, Gnepf indicated that it has been quite a challenge even locating and reaching the right parties as a result of the lack of a global association or body for issuers. The most “promising access points” have been stock exchanges, CSDs and, in some markets, national issuer associations, he added.
More information about the outreach programme and the ISSA working group is available to view on its website here.