XBRL for US corporate actions was the talk of Sibos this year and it seems that the industry is gradually getting behind the idea, as Swift, the Depository Trust & Clearing Corporation (DTCC) and XBRL US continue to push forward with their initiative. This month, Sifma’s Asset Managers Forum (AMF) Corporate Actions Committee demonstrated its support for the plan to automate the issuer to investor information process based on a combination of Swift ISO 20022 messaging standards and XBRL tagging by sending a letter confirming its commitment to the Securities and Exchange Commission (SEC).
The AMF committee stated that it supports this initiative because it addresses a common issue that it believes all market participants face: the effective processing of corporate reporting, such as issuer announced corporate actions. The letter, addressed to Meredith Cross, director of the SEC division of corporate finance, highlights the areas that the group feels will benefit from the initiative to require issues to use XBRL tagging.
The AMF established the Corporate Actions Committee in response to what it calls “the ongoing risk exposure confronting market participants in the current corporate actions processing environment”. The goal of the committee is therefore to identify solutions to reduce financial, operational and reputational risk for the asset managers, custodians and vendors that are members of the AMF. To this end, the committee is focused on identifying standards and best practices that these firms should implement in order to effectively manage the processing of corporate actions; hence its interest in XBRL.
Swift, DTCC and XBRL US are currently engaged in putting together the business case for the initiative and the industry is keenly awaiting the results to be able to weigh up the costs alongside the benefits of moving to XBRL. The three key players have established a stakeholder group to work on the project and this group has been subdivided into three focused areas: issuers, intermediaries and investors. The three firms and three stakeholder sub-groups have also set themselves a number of milestones to achieve over the next couple of years.
These milestones include building an XBRL corporate actions taxonomy that is aligned with ISO 20022 repository elements, which will enable issuers to electronically capture key data items within a corporate action document. They must also make all DTCC corporate action announcements available in the ISO 20022 format beginning in 2010 as part of plans to complete the migration of all corporate actions processing to ISO 20022 in 2015.
The AMF committee has identified a list of the risks involved in the corporate actions issue to investor space that could be resolved as a result of the initiative, comprising: interpretation, accuracy, timeliness, standards and cost. In its letter, the group highlights the difficulties around intermediaries’ interpretation of issuers’ intentions, such as whether all intermediaries have understood the type of event the issuer announced, the options and payouts required and the transmission of the correct information. “This situation then leaves asset managers to further interpret and reconcile several feeds to determine the best and most accurate version, in absence of definitive source data,” says the letter.
In terms of accuracy, the committee highlights the number of hands via which the data has to be passed as it makes its way from the issuer to investor accounts. “With each entity checking and changing data there are points where that data could be incorrectly re-keyed, therefore adding to the possibility of errant and adverse investment decisions being made,” is states. This process also has a knock on effect with regards to timeliness due to the need for data consistency checking.
“Inevitably, the investing community is negatively affected as the checked information can be delivered to us, the investor, considerably later than intended by the issuer. Further, for events that require a response from the investor, custodian deadlines are significantly compressed to accommodate the manual work undertaken to resolve discrepancies when aggregating elections/instructions. Ultimately, these delays have a detrimental impact when it comes to ensuring investors have access to the same information at the same time,” says the letter.
The XBRL initiative is seen as a positive step forward for the industry with regards to standards setting in a space that lacks a cohesive set of common standards, according to the committee. This should also have a knock on effect in bringing down technology costs and headcounts for firms required to deal with the corporate actions data, it contends.
“To overcome the communication shortcomings for corporate actions the AMF member firms are forced to allocate considerable resources to enter, validate and manage information that could be reduced or even avoided if there was an increased certainty of the accuracy of the data we received from our custodians and data vendors. Preferably the key data elements of corporate action announcement information should be provided electronically and in a standard format from the source (the issuer), to allow asset management firms to maximise any benefits associated with straight through processing, without wasteful and risky manual interpretation, rekeying, and reconciliation,” it states.