Corporate Action Automation

Corporate Action AutomationCorporate Action AutomationPhilippe Chambadalpp

SmartStream Technologies - CEO

SmartStream at a glance

18 global offices, with development facilities located in the UK, Europe and India

Leading software vendor focused on middle & back office operations

Successfully expanding its offering to capture an increasing portion of the post-trade processing value chain, upstream and downstream of reconciliations

Solutions and services to generate improved operational efficiency and ROI

Serving 1,500 customers globally, including:

70 of the worlds top 100 banks

7 out of the 10 largest asset managers

8 out of the 10 largest global custodians

The Market Drivers

Focused on reducing operational risk and cost through automation

Delivering software solutions and powering utilities that address strategic requirements

Growth in trading complex financial products (especially derivatives)

Increasing volumes, trade exceptions and failures

Driving down the cost of transaction processing through utilities

Managing regulatory pressures e.g. Basel III, Dodd-Frank…

Replacing manually intensive tasks

Supplementing weak/legacy infrastructure

Improving operational transparency and customer service

Customer focus has always enabled SmartStream tolead innovation

Unrivalled value proposition for customers S tSt i th l d ith th bilit t li k f d t

SmartStream’s solutions cover the entire post-trade lifecycle, enabling customers to manage the process through a common architecture

Overview of solutions R ili ti l ti ili ti ith t t d i f SmartStream is the only vendor with the ability to link reference data

management to reconciliations to further increase its customers’ STP rates

central RDU aimed at proactively preventing broken trades

The adoption of SmartStream’s solutions allow users to realisemarket-leading match rates in excess of 95%, compared to the

Reconciliations: real-time reconciliation with automated repair of trade exceptions and failures caused by incorrect data, manual errors or inconsistencies between systems and counterparties. This solution is available on-premise, on-demand and as a Business Process Outsourcing (“BPO”) service

Cash & Liquidity Management (“CLM”): automated global, real- g , pindustry average of 84%1

q y g ( ) gtime management of all money movements, cash and liquidity positions

Trade Process Management (“TPM”): co-ordinates and controls the allocation, confirmation, clearing and settlement process whilst applying a rich exceptions management capability

Note:1. Tower Group

Flexible delivery to meet customer needsManaged service On-premiseOn-demand

Corporate Actions: delivers a streamlined and automated approach to complete, timely and accurate event processing

Central Reference Data Utility (“RDU”): provides a single and externalised approach to data management, delivering automatic cleansing of vendor and exchange data required to execute trades from front- to back-office

Managed service On premiseOn demand

Treasury Confirmations

TPM

Aspire

from front- to back-office

Fees & Invoicing: provides an automated service for managing brokerage fees and invoicing for banks, brokers and inter-dealer-brokers

TLM OnDemand (Software as a Service (“SaaS”) model): enables customers to access a hosted version of the reconciliation solution

CLM

TPMTrade Finance

Exception & Investigation

Reference Data Utility

Reconciliations

Fees & Invoicing Corporate

4

customers to access a hosted version of the reconciliation solution through a web browser user interface

Client Money

Invoicing Utility Actions

SmartStream’s industry-changing Utility services

Financial institutions cannot address all processing inefficiencies by automation in isolation from their trading partners. Industry utilities are becoming a requirement. Utilities that enable the adoption of a single common process, underpinned by a single data model, fuelled with a single data set will eventually become industry standard

Clean data into reconciliations

Exception raised

SmartStream’s Utility services Linking reference data and post-trade processing

Market complexity and the need to reduce costs are driving the need for shared, standardised delivery of post-trade processing functions

Reference Data Utility

Publicdata

DataAnomalies

Matching &Cleansing Public

data

Research &

Data

DataAnomalies

Matching &Cleansing

Update data Auto match fix and update

Through the RDU, SmartStream is providing the first shared common source of reference data to financial institutions worldwide, minimising trade breaks arising from compatibility issues between customers

Fees & InvoicingAnomalies Data

Analysis

Trade exceptions and failures are reduced as participants use

Manual fixupdate

TLM OnDemand (SaaS model)

P id l bl h t t ti ili ti h t

A new collaborative Utility service to expedite the fees and invoicing process between banks, brokers and inter-dealer brokers (“IDB”). The service is currently being piloted for both OTC and exchange-traded instruments across all asset classes

Aspire

Beyond its SaaS on-demand offering, SmartStream has partnered to create the industry’s first BPO service for reconciliations The Aspire service provides the

shared reference data to:

reduce cost of middle- and back-office operations

improve service for customers (hedge fund and asset managers)

reduce associated market and operational risks

Provides a scalable approach to automating reconciliations where customers are rapidly on-boarded to a delivery model that adapts to their processing requirements at a lower Total Cost of Ownership (“TCO”) than they could achieve with an on-premise application

5

industry s first BPO service for reconciliations. The Aspire service provides the hardware, software and staff to deliver a completely outsourced reconciliations operation

Continuous feedback loop will guarantee ongoing quality improvements for all customers

Large, diversified and blue-chip customer base

SmartStream is focused on serving financial institutions and currently has over 1,500 customers across the globe

Overview of the customer base

The Company’s customers are principally banks and other financial institutions, including more than 70 of the world’s 100 largest banks, the top 10 largest asset managers and the top 10 largest custodians

Key clients by segment

Banks and Brokers

Asset Managers and Hedge

Funds

Custodians, Fund Fund

Administration and Clearing

Houses

Corporates and Insurance

6

Insurance

Comprehensive post-trade lifecycle management solutions

Reducesoperational

cost

Proven ability to apply STP to reduce risks and costs

Overview of key solutions

Reducesregulatory

risk

Reducesreputational

risk

Reducesoperational

risk

Increases revenue

Reducesfinancial

risk

Reconciliations: real-time reconciliation with automated repair of trade exceptions and failures caused by incorrect data, manual errors or inconsistencies between systems and counterparties. This solution is available on-premise, on-demand and as a BPO service

� � � � �

CLM t t d gl b l l ti g t f ll �

�

� � �

� � �

CLM: automated global, real-time management of all money movements, cash and liquidity positions

TPM: co-ordinates and controls the allocation, confirmation, clearing and settlement process whilst applying a rich exceptions management capability

� � �Corporate Actions processing: delivers a streamlined and automated approach to complete, timely and accurate event processing

Centralised RDU: provides a single and externalised approach to data management delivering automatic cleansing of vendor and � � � � �

� �

data management, delivering automatic cleansing of vendor and exchange data required to execute trades from front to back-office

Fees & Invoicing Utility: the electronic management of invoices between provider and customer

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� � �Trade Finance: automation of manual and paper-based trade finance activities �

The reality of automating Corporate Actions

"The Challenges and Opportunities of Automating Corporate Actions Processing."

Financial institutions are facing a unique challenge; they are expected to reduce operational risk while reducing operation costs, all at a time when many industry experts expect a swell of activity in Corporate Actions activity due to many factors. The automating of corporate action processing has many advantages; it enables an operations team to greatly reduce risk whilst being much less susceptible to processing volume peaks. Additionally, with the removal of repetitive, manual tasks and the attainment of STP, where achievable, corporate action staff is freed up to concentrate on adding value to the service they provide and spend their time focusing on complex voluntary events, where the greatest risk truly lies.

Corporate Actions – why automate?

Corporate actions is consistently regarded as the MOST risk intensive and manualcomponent of back and middle office processing, regardless of the financial institution type.Corporate Actions automation projects are still being driven by the need to:

Significantly reduce operating costs Remove manual processing around mandatory and less complex

voluntary events Focus on exception management Focus on exception management Facilitate seamless integration with external systems, and

automated messaging

Si ifi tl iti t th i k f lCustodians

Hedge Funds

Asset Managers

Broker/ Dealers

Significantly mitigate the risk of loss Ensure event data is accurate and complete Manage elections process, including multiple custodian

deadlines, via an integrated diary

Custodians

Stock Exchange

Significantly improve customer service Improve time to market of event information Maximise event deadlines Maximise event deadlines Enhance arbitrage trading opportunities

Where are these drivers represented in the event lifecycle?

11UsersUsers Corporate Actions Diary Corporate Actions Diary

Client

Notifications

Client

Notifications

Custodians11

11Vendors

ClientsClients22

Data Cleansing

Reputation

Instruction Election Capture33

Custodians33

Risk

O ti C t44

55 Back55

Entitlement Calculation

Operating Costs

Position Reconciliation

A t P ti

55Custodians

66 Back

Office

Back

Office

R i Account Posting OfficeReputation

Corporate Actions Processing

Many financial institutions still process corporate actions manually

Lack of a single, scalable automated event management process

The Current Situation

Legacy systems are expensive to maintain, inflexible andcannot scale

Paper based files create inefficiency and are prone tobeing misplacedbeing misplaced

The use of Excel for diary entries, entitlement calculation and reconciliation is clumsy and is not a justifiable long term solution

Manually driven client notifications are time consuming especially Manually driven client notifications are time consuming, especially where bespoke formats are required for each client

Manual processing of SWIFT, paper, email, fax, letter and phone elections are unmanageable in a growth environment

The lack of reconciliation throughout the event lifecycle can generate unnecessary exceptions and claims processing

Manual processing of entitlements is not maintainable during d kunexpected peaks

Corporate Actions Processing

Mitigate the risk of loss due to missing an event/election,mis-interpreting event details or not processing an election

Automate the entire lifecycle of a corporate action

The Opportunity

Automate the entire lifecycle of a corporate action,in particular data capture and entitlement calculation

Use the latest standards such as ISO15022 to communicate

Focus on exception management processes to mitigate risk Focus on exception management processes to mitigate risk

Enable full STP of multiple data feeds, elections and entitlement posting

Decrease opportunity costs of election decisions by maximising the Decrease opportunity costs of election decisions by maximising the decision period

Mitigate the risk of loss due to missing an event/election, mis-interpreting event details or not processing an election

Solution to manage multiple global processing hubs

Enhanced measurement and reporting from a single database of all corporate actions Manage custodian / data vendors SLA’s

Automated Processing Available Today

Operating Costs Reduced

Risk Reduced

Customer Service Improved

Data capture and cleansing of event information Information can be received in electronic format and rationalised with all

other available sources

The Facts

Maturing Industry Standards continue to drive and facilitate automation

Transform a paper based, manually intensive process into a task based exception management process

Operating Costs

– Reduced through the reduction of manual intervention and the transformation of the process to exception managementtransformation of the process to exception management

Risk

– Reduced, automated event creation eliminates the risk of missing events

Customer Service

– Improved through the freeing up of corporate action professionals time



Risk Reduced


Diary population and event management Automate the recording of event critical dates, milestones and date

driven actions

The Facts

Operating Costs

– Reduced through the elimination of manual overhead of recording and updating these dates

Risk

– Reduced through the automated task and alert creation. Eliminates the risk of missing key dates and deadlinesthe risk of missing key dates and deadlines.

Customer Service

– Improved through the freeing up of corporate action professionals time and increased efficiencies



Risk Reduced


Position capture and stock record reconciliation Event level position management and reconciliation can be centralised

Early warning alerts can help to resolve potential problems before they

The Facts

Early warning alerts can help to resolve potential problems before they escalate

Operating Costs

– Reduced through the centralisation of all eligible balances and transactions against the event master record

Risk

– Reduced through the early resolution of reconciliation breaks

Customer Service

– Improved through the enhanced messaging as clients buy into or sell out of the stock affected by the corporate actionsell out of the stock affected by the corporate action



Risk Reduced


Communication Standard email, fax and letter templates can be adopted to impart any

information anytime

The Facts

y

SWIFT, ISO, XML messages can be created to distribute information throughout the event lifecycle

Operating Costs

– Reduced through the elimination of manual processing

Risk

– Reduced, clients will be informed instantly as soon as event information is received or updated

Customer Service

– Levels are improved through the automated communicationLevels are improved through the automated communication triggers

– Enhanced features such as related holdings can be included on event broadcasts

E l tifi ti f t f ilit t bit t di– Early notification of event facilitates arbitrage trading



Risk Reduced


Election management Election instruction can be automated via SWIFT messaging, using

standing instructions, online by the client using self service web portals b d di tl th h th UI

The Facts

or by end users directly through the UI

Extended decision windows

Automated custodian elections and deposit state management

Operating Costs

– Reduced through the reduction of manual processing

Risk Risk

– Reduced via automated alerting where client elections are outstanding

– Automated reminders and chasers

– Application of Standing Instruction

Customer Service

– Levels are improved through extended deadlines

– Enhanced messaging and confirmations though automated communication triggers



Risk Reduced


Entitlement calculation & posting Auto generation of Entitlement Transactions

– Stock & Cash movements

The Facts

Stock & Cash movements

– Charges & Fees

– Withholding Tax & Treaty reductions

– Claims

Operating Costs

– Reduced through the reduction of manual processingg p g

Risk

– Eliminated via automated processing of entitlements

Customer Service

– Enhanced with automated confirmation advices



Risk Reduced


Reporting Measure & Manage

Single corporate action depository enables the generation of multiple

The Facts

Single corporate action depository enables the generation of multiple MIS reports

– Metrics of seasonal volumes, key performers

– Manage custodian and data vendor SLA’s

Operating Costs

– Reduced through the identification of poor performance

Risk

– Reduced via trend analysis

Customer Service

– Enhanced with increased information

Market Size & Growth


Growth is predicted to be largely driven by increased spending on automation software

WHY? New Data Standards

DTCC leadership

XBRL Initiatives

SEC Enforcement


Standardisation of the Corporate Actions format in North America and Asia Pacific brought on by regularity

freform should lead to spending growth starting in 2012.

Firms Investing in Corporate Actions Processing

A majority of firms plan to invest in corporate actions improvements in the next two years

Automating the corporate actions workflow reduces direct costs fromdirect costs from processing failures and provides indirect benefits to the front-office.

Specifically, automating the corporate actions process provides investment managersinvestment managers with a richer information window to analyse data, improving individual productivity.productivity.

Real life stories:

Clients that have automated their Corporate Action processing with SmartStream’s p p g

TLM Corporate Actions

Preservation or improvement of reputation

The actual or perceived quality and timeliness of corporate actions processing canhave a huge impact on a firm’s reputation.

Inaccurate, inefficient event notifications and elections processing was the keydriver behind the project for a major investment bank.

Front office staff did not have access to accurate start of day cash and stock positions Front office staff did not have access to accurate start of day cash and stock positions,and consequently experience a high rate of failed trades.

Custody operation consistently failed to win new business and lost existing clients Custody operation consistently failed to win new business and lost existing clients,due to the lack of an automated corporate actions system.

Largest custody client, ceased using outsourced corporate actions service and brought itin house – using TLM Corporate Actions.

Trends, Themes and Competitive Advantage

Risk Mitigation Remains the Key Corporate Actions is all about reducing the risk

It does not make the press but there are still big losses against Corporate Action processing It does not make the press but there are still big losses against Corporate Action processing –Leading financial institutions have dropped appx 20mm over the last couple of years

Capital adequacy rules

Enhanced service level

ROI and FTE reduction

Turning Corporate Actions into a profit-generation or profit-optimisation tool has started to become a theme Investment Banks benefit here, whereby injection of timely CoAc data into the trading arms of the

organisation is perceived as a competitive advantage

Hedge Funds where they deliver event notifications with details of Related Holdings to the trading desks to ensure all event impacts & investment opportunities are researcheddesks to ensure all event impacts & investment opportunities are researched

Metrics and Reporting Measure to manage

Why Automate – A real life story:

SmartStream Data Management Services



Business Unit of SmartStream Technologies, the leading software vendor focused on middle & back offices operations

Data Management Services, based on our Universal Data Model, that provides high quality, consistent reference data, pricing, corporate actions and indices services across all data types

Operations staff in Santa Clara, Bristol and MumbaiServices

Focused on improving quality and reducing costs of delivering consistent reference Powering utility -like services leveraging shared people, content , IT infrastructure and processes

driving down the cost of transaction processing through utilities

What we do improve quality of reference data to meet client’s compliance and new regulatory requirements scalable solution, using consistent business rules across all data type flexibility to provide various delivery mechanisms, protocols and formats clients required subscription service allowing clients to pay only for the data they need, when they need it minimize the time it takes process new data feeds and sources to 2-4 weeksp

Services

Reference Data Management Services and Symbology Cross Reference Pricing Data Management and End of day Pricing History Corporate Actions Event Cleansing Financial Data Dictionary

AvailableFinancial Data Dictionary

Global Market Calendar Service Indices and ETF Data Management and History Legal Entities and Hierarchies

Investment Banks/Primary Dealers

Target Clients Asset Managers/Hedge Funds Custodians Exchanges Corporations

Service Model

Data Quality, Scalability, Efficiencies

Single relational data model combining: Securities data SSIs

L l tit d t

Works with any client’s proprietary or existing third party technologies

Handles any data vendor feeds 5-tier Quality Control Processes

Exception Management

Operating Model

Legal entity data Corporate actions Roles

Operating Model

Exception Management Inherent in computing platform Helpdesk and Monitoring technologies

Vendor Mgmt SLA Customer Services Operations Mgmt Process Innovation Processing Agent g p g g g

Capture Client Feedbacks Root Cause Analysis Quality Control Client Adaptation

Acquisition Reconciliation Enrichment Distribution

Services and Integration areas addressed

From customized services to niche services to providing enterprise wide data management services, we will cater to your requirements:

Reference Data ManagementReference Data Management

Equities, Equity Derivatives, Fixed Income

Index Re-Computation constituent identifiers, price, shares and weighting of the individual constituents and intraday corporate actionsindividual constituents and intraday corporate actions

ETF family composition; ETF constituent identifiers, price, shares and weighting of the individual constituents in the ETF, ETF history

Granular Corporate Actions scrubbingGranular Corporate Actions scrubbing

Symbology Cross Referencing

Financial Data Dictionary

G CGlobal Market Calendar

What does SmartStream Reference Data Services deliver?

Clean reference data files

Eliminating the need for expensive resources dedicated to maintaining custom data loaders to extract transform and load data from vendor filesto extract, transform and load data from vendor files

SmartStream Utilities acts as your agent, providing custom data services to

Sourcing data from exchanges, vendors, end users etc.

Aggregate, normalise, cleanse using proprietary Universal Data Model (UDM)

Produce customised data feeds

Driven by business rules, custom data files are constructed to the clients specification

Files/messages populate a centralised Security Master File (SMF)

Files are generated for: accounting, compliance performance measurement, reporting, billing, order generating systems, trading and portfolio management

Each file is uniquely created for the specialised needs each systems

SmartStream runs quality controls and manages the exceptions, minimising resourcing requirements

The Data Process

Acquisition Validation Enrichment Distribution

Manage receipt or acquisition of data

Categorise and Identify data Rules-based acquisition of data sources

Manage changes to data formats

Parse, interrogate and normalise data

catalog data

Rules based reconciliation

Raise exceptions

completeness and supplement where needed

Notify data management team

composition

Support for delivery mechanisms

Support for delivery and normalise data

Measure consistency, conformity and competences

Measure and

and notifications of incomplete or inaccurate data

Measure and store data quality for

management team of process, results and vendor issues

Measure effectiveness of

protocols and formats

Measure and store metrics for delivery incl timings quantity Measure and

manage service levels

data quality for service level management

vendor data and enrichment

incl. timings, quantity and composition

Vendor Level Quality ControlVendor Level Quality Control

•Completeness•Format/Structure•Timeliness

Asset Type Level Quality ControlAsset Type Level Quality Control

•Mandatory Fields•Business Rules•Corporate Actions Applications

• 4-eyes

Fields Level Quality ControlFields Level Quality Control

•Intra-Vendors Recon

•Business Rules•Corporate Actions Applications

Data SupplementationData Supplementation

•Manual Interventions

•Data Extractions from original sourcesB i R l

Clients SpecificationsClients Specifications

•Business Rules•Distribution Rules•4-eyes•Client Rules

•Client Rules •4-eyes•Clients Rules

•Business Rules•4-eyes

SmartStream Corporate Action Services

Cleanse data at the inception of the event announcement to facilitate and expedite the next sequential stages of the event lifecycle – thus improving quality, reducing operating costs and increase STP rate Capture Announcement

– Market level event data

Golden Record creation

– Normalize, cleanse & enrich data

– Early notification of validated event master record

Combining vendor, custodian and exchange feeds into a single cleansed data feed delivered in any format

Use proprietary 5-tier Quality Control Processes to cleanse, refine, and enhance data quality that is under-pined by measure and tangible SLAs

“Because the data matches between data sources do not mean the data is correct 2 bad data doesBecause the data matches between data sources do not mean the data is correct – 2 bad data doesnot equal good quality”

SmartStream Corporate Action Services

Event Announcement Ex Date Instruction Deadline Date Record Date Pay Date--

-- --

----

-- --

----

--

- -- --

Corporate Action Event Lifecycle

Required fields are constantly monitored/researched with exchange Capture Announcementwebsite and issuer until completeness

Mandatory and Important Fields Data Cleansing Matrix based on corporate action types

Exceptions Management

p

Market level event data

Golden Record creation

Normalize, Exceptions Management

Logical/Relational Relationship of fields

Threshold Calculation

Trends and patterns Algorithm

o a e,cleanse & enrich data

Early notification of validated event master record

Holiday/Weekend/Business Day Rulesmaster record

SmartStream Corporate Actions Services

1. Vendor Level Quality Control: All Corporate Actions are collected as they are announced

File validity verification (format, structure, etc.)

Monitor vendor performance against pre-defined service level agreement

Manage receipt or acquisition of vendor and proprietary data sources

Measure consistency, conformity and completeness of data

2 Asset/Corporate Action Type Level Quality Control2. Asset/Corporate Action Type Level Quality Control Data Enrichment for missing values

Determines the accuracy and completeness according to MDS and client-defined business rules

3. Fields Level Quality Control Business Rules, Logical Verification, Threshold Calculation, Fields relational Validation, Holiday Rules, Weekend Rules,

Business Day, 4-eyes principle, Data Overwrite and Locking, Delta verifications

4. Data Supplementation Manual Interventions/ Exceptions Management Exchange Websites Management Monitoring of Corporate Action Manual Interventions/ Exceptions Management, Exchange Websites Management, Monitoring of Corporate Action

Announcements and/or corrections, Data extraction via screen scrapping, Data down load via pdf or flat file, Logical attributes relationship, Market Specifications , Pattern Extrapolation/Extension

5. Clients Specifications File Distribution Rules Client Profile/Subscription Proprietary Business Rules File Distribution Rules , Client Profile/Subscription, Proprietary Business Rules

SmartStream Corporate Actions Services

Feed Information Any vendor feed supported regardless of format

Any custodian feed supported regardless of format

Client specific ‘Securities of Interest’ file uploaded Client specific Securities of Interest file uploaded

ISO 15022 and 20022 supported

XBRL supported

Capability to store issue conditions, cash flows (distribution, redemption), mergers, acquisitions, legal di li id ti / l it l hproceedings, liquidation/sale, capital change

Service Information Automated data loading

Data cleansing and completeness checking leading to event creationg p g g

Exception Management workflows determine exceptions for resolution

Cleansed data feed output in any format, at any frequency

GUI or data feed output option

Message Information All standard ISO event types supported, additional non-standard event types supported

All Mandatory and Voluntary event data provided

Core, cleansed event information including all dates, terms and options are normalized, g , p

Industry Direction & Initiatives

On premise vs. Cloud-based

ISO20022 & XBRL Move to XML based and tagged messaging is gathering momentum

XML based ISO 20022 messaging is the way forward but with so many institutions just completing ISO 15022 projects the speed of adoption will be interesting

Value Add services: Value Add services: Class Actions and Tax Reclaim processing as a service

OCR processing

Corporate Actions Automation – The real questions

How much capital do you put aside to offset risk of processing corporate actions

How do you manage season peaks in processing volumes

Do you know what your current of future exposure is to corporate action losses

Attrition rate of quality, experienced corporate action staff

Questions?Questions?

Documents

Corporate Action Automation