When I found out this week which European country is furthest ahead with regards to the adoption of the Corporate Actions Joint Working Group’s (CAJWG) standards it certainly surprised me. But when you realise the role and the approach that the central securities depository (CSD) in the country has adopted, it all makes sense…
And the answer is: Italy.
Rather than go down the business case route, Italian CSD Monte Titoli opted to make the new corporate actions standards mandatory for issuers making announcements in the country. The CSD therefore built a tool to enable these issuers to input their corporate actions data directly into the system in the correct format. As indicated by Werner Frey, managing director of the Association for Financial Markets in Europe (AFME), at the association’s seminar this week, this allowed items such as the key dates and sequencing to be checked and kept in the correct order (check out the rest of Frey’s speech here).
The CSD then convinced the Italian regulator, the Commissione Nazionale per la Società e la Borsa (Consob), to make these standards and this issuer announcement electronic submission process mandatory.
Ergo, on 1 April this year, Monte Titoli sent the last 720 messages using the old corporate actions format and on 4 April the 720 messages were sent using the new format. As of 4 April, the MT-X platform was therefore made available exclusively for new corporate actions announcements for electronic assembly (the equivalent paper models are accepted only in case of contingency and are published on the CSD’s website) and shareholder data communications were mandatorily required to be submitted via the new platform and using the new dividend payment and right issue (FIS) format.
To that end, clients had to check beforehand whether they could correctly validate and process the new information required and the CSD drew their attention to the fact that it was now necessary to specify the record date.
Now, the notifications sent by the intermediaries are automatically checked and matched, before being made available for the intended issuers, with the creation of a log file detailing the result. The correct notifications are then automatically processed and made available to the issuers. Notifications containing formal mistakes are registered in standby status and may be corrected or forwarded to the issuers, at the intermediaries’ choice. Online alerts are automatically created, for intermediaries and issuers, in order to keep track of the deadlines to monitor when sending the files (intermediaries) and when receiving them (issuers). The CSD also offers facilities to allow the intermediaries to send partial notifications and to send notifications on behalf of downstream correspondents.
On 6 April, the CSD indicated that it would also be moving to electronic submission for foreign securities deposited by other CSDs. This meant that fax submissions for stock dividend transactions and corporate events would no longer be accepted and 704 messages were instead required, which could be sent via the RNI system or via the new MT-X platform (see the Monte Titoli website for more here).
Frey indicated that this approach has been so successful because of its combined market driven and regulatory supported model. The CSD worked with the market to adapt the standards and electronic formats, then the regulator provided a stick to force the issuers to comply. “In many markets communications between issuers and other parties in the corporate actions chain are a real challenge,” he added. “By getting the data right at the start of the corporate actions lifecycle, the CSD has enabled adherence to key dates and golden source transmission of standardised data.”
There was some discussion amongst attendees about whether such an approach was appropriate for every market and Andy Callow, senior manager for global capital markets at issuer agent Computershare, noted a number of “red flags” with regards to mandatory adoption in the UK. He pointed to challenges related to securities distribution dates resulting from the tension between longer timescales for voting purposes and the potential negative impact of a lengthier deadline for key dates on share prices. These must be balanced and mandatory deadlines could therefore throw off this balance. The cost of mandatory adoption for issuers must also be taken into account, he added.
So, although it might not be suitable (or from the point of issuers and issuer agents, desirable) for every market, mandatory adoption is one way to skin the corporate actions cat. It will be interesting to see whether any other markets go down the Italian route in the future.