CorporateActions - SunGard

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Catching Up with EventsThis time last year, corporate actions professionals appeared to have a lot of work ahead of them. There were pressures to process corporate actions information faster, manage new types of taxation information as part of the actions, and achieve better accuracy even with that greater timeliness.

The upgrade of the ISO standards for corporate actions messaging from 15022 to 20022 remains a stand-

off between North America and Europe. This is despite the difficulty current messaging protocols have in keeping pace with new and more complex corpo-rate actions event structures, as Fidelity ActionsXchange chief operating officer Deborah Culhane points out in the Virtual Roundtable beginning on page 8 of this report.

But the corporate actions space has seen some progress in the past year. Swift has been working on evolving those messaging protocols, as Culhane also notes. Initiatives are also gaining steam in Asia, according to Standard Chartered Bank’s Jyi-chen Chueh. The Asia-Pacific region is catching up by moving away from manual announcements to the 15022 message format, he says.

Volumes are growing, however, as Culhane, Chueh and Thomson Reuters’ Paul Fullam all acknowledge. US tax-rate changes drove an increase in dividends at the end of 2012, which created more corporate actions volume, while Chueh has seen Singapore become a top 10 country in Swift corporate actions traffic. Event types, says Fullam, are bound to increase with greater specificity—requiring more tracking and a greater understanding of income, returns and taxation potential related to the corporate actions. So, while some challenges have become clearer and methods to address them are being developed, even more lie ahead.

Yours sincerely,

Michael ShashouaEditor, Inside Reference DataEmail: [email protected] Tel: +1 646 490 3969

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NEWS6 Information Mosaic Integrates

Thomson Reuters Data

6 Danish Bank ChoosesSmartStream Tool for CorporateActions Processing

7 Confronting Hurdles toAutomation

7 News Download

FEATURES8 Virtual Roundtable

Inside Reference Data gatherstogether leading industry professionals to discuss the latest developments in the corporate actions space

18 Q&A Inside Reference Data speakswith John Kirkpatrick, managingdirector, global asset servicing, inthe transaction services unit atCiti in London, about efforts toimprove corporate actions processing

Contents

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Information Mosaic, a post-trade soft-ware vendor, has integrated Thomson Reuters’ ISO-based corporate actions datafeed into its corporate actions prod-uct, to help clients reduce the time and money they spend on data integration.

Thomson Reuters’ corporate actions data spans 94,000 companies in more than 93 countries and is provided in ISO 15022 and ISO 20022 formats. Gerard Bermingham, Information Mosaic’s New York-based senior vice president of business strategy, says

the fact the data is in ISO formats means it can immediately be added, updated and applied within IMActions, Information Mosaic’s corporate actions automation application.

Tim Lind, Thomson Reuters’ Boston-based head of middle office and entity data, agrees the partnership between the two companies will help customers reduce the time it takes to integrate the corporate actions data into their soft-ware products.

Nicholas Hamilton

6 May 2013 irdonline.com

News Review

Information Mosaic Integrates Thomson Reuters’ Data

Ringkjøbing Landbobank, a Danish bank, has chosen the Transaction Lifecycle Management (TLM) Corporate Actions product from SmartStream Technologies to help it mitigate risk and reduce its reliance on manual intervention.

The bank has been using a number of disparate systems in its back office for corporate actions management and now wants a centralized approach that will highlight only exceptions, rather than

requiring manual searches for those exceptions, according to Alan Jones, SmartStream Technologies’ London-based product manager.

Ringkjøbing Landbobank plans to use the reference data management, event management, election management, entitlement calculations and posting modules that are available from TLM Corporate Actions, says Jones.

Nicholas Hamilton

Danish Bank Chooses SmartStream Tool for Corporate Actions Processing


News Download

A UK-based data management executive for a global asset management firm with more than $600 billion in assets under management says he has problems with custodians only notify-ing his firm once their local custodian does. He would like to see Swift notices that could feed directly into company systems, deadlines for responses to actions that are consistent for all parties, and custodians using direct feeds for corporate actions data, he says.

Swift sets a high priority on accuracy and timeliness of corporate actions notification information and automation, according to Malene McMahon, senior business manager at Swift in New York. “The faster the informa-tion about an event is known to the service providers—mostly custodians—the faster they can disseminate the information to their clients,” she says. Automation can hit roadblocks if information is not interpreted correctly and consistently, explains McMahon. Both custodians and data providers are leading discussions and initiatives to improve corporate actions processing, she says.

Citi has found success in automation when data flows from a direct custody agent to a global custodian, then to a financial institu-tion and, lastly, to a beneficial owner, says John Kirkpatrick, managing director, global asset servicing at Citi in London [see page 18].

Michael Shashoua

SunGard Acquires XSPSunGard’s acquisition of corporate actions services provider XSP will give the financial services software and technology provider a more complete corporate actions offer-ing for capital markets, says John Grimaldi, executive vice president of the North American securities business unit at SunGard. XSP will keep its brand and indepen-dence, but with the backing of SunGard’s resources and reach, says Brendan Farrell, chief exec-utive of XSP.

Jyske Bank Implements TLMJyske Bank has implemented the Transaction Lifecycle Management Corporate Actions service from software provider SmartStream Technologies to avoid the errors and risks associated with the firm’s previous manual approach.

The Danish bank had previ-ously managed corporate actions in a “manually intensive, paper-based” process, which created the possibility of missing elec-tion deadline dates and corporate actions events. Troels Linderoth Lolck, Århus-based director and head of securities services at Jyske, says TLM Corporate Actions was easy to implement.

Confronting Hurdles ToAutomation

What functions within the process-ing of corporate actions can be auto-mated effectively or cannot be?Deborah Culhane, chief operating officer, Fidelity ActionsXchange: The industry has made significant progress in moving towards higher levels of straight-through processing (STP) within the announce-ments messaging and automating match-ing process, given the ongoing industry efforts to establish common markets standards, including evolving Swift protocols. However, the pace of change affecting corporate actions makes it diffi-cult for market practices and messag-ing protocols, which assist in achieving higher levels of automation, to keep pace with the introduction of new and more complex event structures. These event structures include the growing number

of options, qualifiers and new attribute information we see being introduced in the marketplace.

Timeliness and accuracy remain the standards by which STP efforts are being driven, but we believe the complexity of announcements today means there is a critical need to focus equally on completeness of information. Incomplete events can result in significant risk in terms of controlling entitlement risk, as it will vary by investor, jurisdiction, market and tax qualification. To miti-gate this risk, we must ensure that an announcement is complete, and fully understand the nature of the event and the complexity of the market—often requiring further analysis and event enrichment. We suggest a complemen-tary pairing of technology-enabled

CorporateActions:Processing ProgressInside Reference Data gathers together leading industry professionals to discuss the latest developments in corporate actions

Virtual Roundtable


processes with access to highly skilled analysts. These analysts must be fully trained in the complexities of global event structures so they can appropriately interpret and enrich the announcement. This is key to ensuring the information is timely, accurate and complete in terms of the number of issues that can impact ultimate entitlement risks.

Jyi-chen Chueh, director and global prod-uct manager of asset servicing and settle-ment, I&I Services, Standard Chartered Bank: Most of the corporate actions lifecycle stages can and have been auto-mated to a large extent within the indus-try. Initial efforts have focused on events capture and announcements, but other areas, such as instructions management and payment confirmations, have also benefited from significant automation.

Tax processing could be the next auto-mation frontier. Tax certification and documentation processes remain highly manual due to the complexity of regula-tions and lack of harmonized common practices. The Financial Transaction Tax in Europe is a clear example of automation challenges. In Asia, some markets have introduced rules that considerably reduce the ability to benefit from double taxation agreements.

Brendan P. Farrell, executive vice presi-dent,XSP,SunGard:Thecommontenden-

cy is to frame the discussion of corporate actions automation strictly around the announcement capture and manage-ment process. But the overall automated corporate actions process begins long before the event is announced. Likewise, the corporate actions lifecycle can termi-nate at multiple points, depending on how the data is treated by the stakehold-ers in the lifecycle.

For instance, despite extensive tools


“Timeliness and accuracy remain the standards by which

STP efforts are being driven,but there is a critical need to

focus equally on completeness of information”

Deborah Culhane, Fidelity ActionsXchange

Deborah Culhane,Chief Operating Officer,Fidelity ActionsXchange+1 (877) 777 [email protected]

for data management, cleansing and reference data, exceptions are common-place. These exceptions are generally compounded when data from a multi-tude of disparate sources are combined. For the time being, the validation of the data requires manual intervention—we say “for the time being” because we recognize that the tools and tech-niques for capturing and managing corporate actions data are maturing and improving with the introduction of ISO 20022 and the application of domain-specific languages and standards such as XBRL, which facilitate the automa-tion of data management and cleansing.

Most of the corporate actions event lifecycle can also be automated success-fully—from the point where the data has been cleansed and normalized onward, through the matching against positions and trades, the notification to respon-sible parties, the capture of instructed positions and the subsequent posting

of entitlements to books and records systems or via Swift to custodians or counterparties.

Finally, no discussion concerning automation of the corporate actions life-cycle is complete without mentioning automating the notification and response capture. It is not enough simply to iden-tify that a corporate action exists on a particular security. Notification must be done with respect to meaningful context regarding the corporate action, which implies that there is a relationship between the corporate action, the under-lying security and the account holding a position on the corporate action. After all, effective automation implies taking the notification out of the back office and making it available directly to the responsible party, or even to a general retail customer in some cases, in such a way that the corporate action has been transformed from a simple statement of activity on a particular security to a statement of activity with context to a stakeholder.

Paul Fullam, head of corporate actions, Americas, Thomson Reuters: Automation can occur for all functions of corporate actions processing, but manual inter-vention will likely remain a necessity to capture exceptions. The majority of soft-ware providers have the ability to process the full corporate actions lifecycle from

Virtual Roundtable


Brendan P. Farrell,Executive Vice President,XSP, SunGard+1 (646) 300 6800

[email protected]/xsp

announcement through to allocation. However, industry issues such as multi-listed securities and government regula-tions can present a challenge not only to the operations team, but also to the soft-ware providers who need to develop func-tionality that can quickly adapt to market and industry changes. For firms processing corporate actions, this means they need to follow the 80/20 rule in automation and accept that some manual intervention will be needed for complex events.

Where is the greatest potential for discrepancies and exceptions in the process?Culhane: Exceptions and discrepancies can occur at any stage of the process, includ-ing the original announcement capture. ActionsXchange announcement services rely on multiple sources of proprietary and commercial announcement informa-tion, which puts us in a unique position to understand that no single source of infor-mation will avoid discrepancies or excep-tions. We believe a cost-effective approach to validate announcement information in the original point of announcement capture is the best way to avoid discrepancies and exceptions from the very start. Once you ensure that you have captured validated and complete announcement information, automated processes can best control the end-to-end lifecycle of the event and avoid further discrepancies and exceptions.

Many firms employ more manual processes or less-integrated automated processes to support the processing of a corporateactionevent,but this lackofauto-mation and/or a more fragmented support model can lead to additional discrepancies, exceptions and errors. Ultimately, the best way to detect and avoid discrepancies and exceptions in the processing of corporate action events is to use a fully automated and highly integrated process which controls and monitors the full lifecycle of event information—from the original notification to election and confirmation of the entitlement.

Chueh: The absence of a true, official “golden” record for corporate actions events has a snowball effect throughout the entire processing chain, whereby each intermediary revalidates the same informa-tion over and over again. This adds unnec-essary buffers in delivering information to end-investors and can create differences in interpretation between various institutions.


“It is not enough simply to identify that a corporate action exists on a particular security.

Notification must be done with respect to meaningful context

regarding the corporate action”Brendan P. Farrell, XSP, SunGard

For instance, as there is no offi-cial numbering of event options, each providermayannounce itsownsequence. Imagine the challenge for investors who appoint multiple custodians: “option one” for the same event may have a totally different meaning depending on who they send their instructions to.

Farrell: The greatest potential for discrepancies or exceptions lies in the continued practice of manual processing, particularly when passing information to interested parties using archaic tools such as fax or manually input emails. The magnitude by which corporate action events are growing in volume (around 14% per year) and complexity means the level of risk is naturally heightened and the potential for great losses becomes a frightening reality for many firms.

Consider, too, the compliance risk inherent to any manual process, where audit trails are missing or instructions are buried deep within email chains. Once again, the industry is relying on a loose set of non-automated procedures to control risk and exposure in a highly complex process.

Fullam: There are many areas that are prone to discrepancies within corpo-rate actions processing. From the start of the process, timeliness and quality of data is of critical importance, and firms

can have issues just creating the actual event because of security cross-reference issues, incomplete data and receiving conflicting data from multiple sources. Moving further along the process to the increasing complexity of trades, process-ing “as of” trades can create major exceptions, which can result in incor-rect allocations to client accounts. With more countries implementing transac-tion taxes, this will be a major source for discrepancies as firms will need to determine if a specific security is eligible for this specific tax. Firms will need to rely on data vendors and local agents to provide this information.

What level of progress do you see, or believe exists, in automating corpo-rate actions processing?Culhane: Industry participants are making progress, particularly around standardizing market practices and the

Virtual Roundtable


“Corporate actions initiatives have gained momentum in

the past three years, especially in Asia. Local exchanges are increasingly switching from

manual formats to ISO 15022 announcements”

Jyi-chen Chueh, Standard Chartered Bank

evolution of messaging protocols like those set by Swift. But a number of factors continue to hamper this progress, includ-ing lack of standards adoption by financial market participants, fragmented underly-ing processing systems and controls, and the increasing complexity of corporate actions events, requiring more interpreta-tion and enrichment to fully mitigate their inherent processing risk.

Chueh: Corporate actions initiatives have gained momentum in the past three years, especially in Asia. Local exchanges are increasingly switching from manual formats to ISO 15022 announcements. At Standard Chartered, we anticipated this trend by launching a global, single corporate actions platform across our network. The platform currently oper-ates across 20 markets in Asia, the Middle East and Africa, accounting for 90% of our total corporate actions volume. Being ISO 15022 compliant, we have integrated it with all available local exchange feeds (Singapore, Indonesia, Thailand, India, and so on) along with exclusive rapid feeds from data vendors, providing faster and better content to our customers.

Farrell: As an industry-wide initiative, the DTCC is working towards introduc-ing a platform for the development of standardized messages, moving to the ISO 20022 messaging format. Although

some firms are already taking steps to adopt ISO 20022, many global firms have yet to even embrace the existing ISO 15022 format. The DTCC Corporate Actions Reengineering Initiative will be implemented in phases this year and next with the goal of retiring all legacy systems on or before 2015.

SunGard’s XSP is committed to helping the industry address the DTCC changes for a seamless transition. XSP, a Swift-certified solution, fully supports the DTCC Reengineering Initiative and is already working with several organiza-tions to help prepare them for the new standardized system. We are testing live messages and bringing ISO 20022-based messages into applications. This will allow end-users to capture the new ISO 20022 DTCC messages, match them to in-house positions for internal processing and client notifications and manage response capture for optional and volun-tary events, then automate the posting of the elections back to the DTCC.

How has the scope and volume of corporate actions data been growing, and what are some of the causes?Culhane: Continued market uncertainty, low-yield environments and regulatory


Jyi-chen Chueh, Standard Chartered Bank

agendas—including active and uncer-tain tax and fiscal policies—are among several factors that continue to influ-ence the scope and volume of corporate actions. We have seen several recent examples of this, including the signifi-cant increase in special dividends during year-end 2012 in anticipation of US tax-rate changes. While the volume of corpo-rate actions events has never been highly predictable, post-crisis market events and global regulatory policy now make it very difficult for firms to adequately predict the resources they will need to support the type of unusual volume fluctuations we have experienced in the last few years. Firms seeking significant improvements in the management of their overall corporate actions require-ments and expense structure will be looking for better options like strategic outsourcing to address complexity, risk

and access to predictable and cost-effec-tive support models.

Chueh: Corporate actions volumes have grown considerably across our regions, combining increased issuers’ activi-ties and the influx of investments into emerging markets. Last year, Singapore entered the top 10 countries in terms of the volume of corporate actions Swift traffic. Singapore is the second Asian market, after Japan, to have direct repre-sentation at the global forum that recom-mends the yearly corporate actions messaging enhancements. This is great for the region, as it not only gives us better opportunities to advocate for Asia-specific issues, but also allows us to tap best practices adopted by more mature markets in Europe or the US.

Farrell: In a 2010 whitepaper, Swift stated that it saw the growth of corpo-rate actions notifications increasing at roughly 14% year on year. Since then, the industry has witnessed some of the most complex and scrutinized events in recent history, such as the Sara Lee 1:5 reverse stock split/spin-off/name change and subsequent recapitalization, or the Dell Computer leveraged buyout. Couple the trend of increasing complex-ity with surging M&A activity and you have an environment fraught with risk

Virtual Roundtable


“The magnitude by which corporate action events

are growing in volume and complexity means the level

of risk is naturally heightened and the potential for great

losses becomes a frightening reality for many firms”Brendan P. Farrell, XSP, SunGard > continued on page 16

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and exposure—an environment primed for automation.

As to the drivers behind the volume and complexity, it is partly in response to the state of the market on the heels of the historic upheaval and change we have experienced since 2008. It is also a response to the market emerging from those dire conditions, subsequently reaching record-high trade volumes and market value.

Fullam: Corporate action volumes have been rising over the past few years. Investors, fund administrators and custo-dians who monitor corporate actions have an increasing need for transparency and timeliness. ISO standard corporate action events now provide investors with a range of event information, from basic dividends to class actions, meeting agen-

das, fixed-income calls and redemptions in near real time. These event types will no doubt become more specific, allowing investors and regulators to accurately track shares based on issue, income and risk exposure. Any portfolio administra-tor, whether monitoring their own book or acting as a custodian, is now obliged to understand the income, return and taxation potential and implications of specific investments before committing, and corporate actions provide the data to back those decisions.

Is greater consistency needed for corporate actions announcement and processing methods? If so, how may this be addressed?Culhane: The industry as a whole can certainly benefit from more consistency and standardization in the announce-ment and processing of corporate actions. Many industry participants and asso-ciations, such as ISITC, the Securities Market Practice Group (SMPG) and Sifma, are working diligently to address standardized announcements and broad-er adoption of messaging protocols. While significant progress has been made, these efforts are affected by issuers who applied and continue to apply imagination when constructing their events, along with active and uncoordinated global regula-tory and tax policy. Firms—either directly or in concert with their service partners—

Virtual Roundtable


Paul Fullam,Head of CorporateActions, Americas,Thomson Reuters+1 (646) 223 [email protected]

thomsonreuters.com

need to remain educated and aware of the evolving risks and opportunities to further greater consistency and adoption of stan-dards in the market.

Chueh: Absolutely, but a major barrier is the cost-benefit conundrum of corporate actions automation: how do you convince issuers to adopt costly standards while it mostly benefits downstream consum-ers? Better vertical alignment within the corporate actions chain can help. In Asia, Standard Chartered actively participates in a regional corporate actions forum facilitated by Swift that aims at great-er standards consistency across Asia, rather than just locally. It is premature to predict its success, but involving almost every possible stakeholder (exchanges, custodians, broker-dealers, investment banks and vendors) sends a strong signal that corporate actions effectiveness is a priority for all of us.

Farrell: A significant number of indus-try practitioners would agree that there is a need for improved consistency in announcement and processing methods. Each instance of incomplete or invalid data in an announcement breaks the automated workflow chain, as does each non-automated participant that sends a fax with instructions to their custodian. Risk is introduced and compounded, requiring exception processing and costly manual intervention. All of these breaks can be addressed today by SunGard’s technology and services work-ing in conjunction with the DTCC and Swift to bring solutions to all industry participants, regardless of their size and/or scale.

Fullam: Where there are proscribed corporate action events and event types, then clearly there is a need for consis-tency in timeliness and dissemination. User groups such as the APAC Corporate Action Working Group and the London-based Market Data Provider User Group, and industry groups such as ISITC, are actively involved in surveying members and suggesting methods of achieving consistency. When it comes to making changes, we would look to organiza-tions such as Swift or SMPG to provide an industry standard that will allow software vendors and users to develop processing methods with confidence.


“With more countries implementing transaction taxes, this will be a major source for discrepancies as

firms will need to determine if a specific security is eligible for

this specific tax”Paul Fullam, Thomson Reuters


How has the management of data flows allowed Citi to successfully automate its corporate actions processing?A few local markets are providing more automated corporate event data, and several more have plans in place to provide automation.

However, there is still a long way to go, with many markets providing limited or manual information. Where central securities depositories (CSDs) are sending ISO standard electronic events, we are able to receive them straight-through into our systems and pass on to our clients.

What needs to happen regarding messaging standards in order to better support corporate actions processing?

There needs to be consistent messag-ing standards across all CSDs. This can be achieved by broader adoption of the ISSA (International Securities Services Association) Principles for Global Corporate Action Processing published in June 2012.

How would you characterize the level of manual exceptions for corporate actions? Is it still far higher than it should be?The level of manual exceptions contin-ues to be very high. In many markets, information is passed to participants in a physical format and subsequent elec-tions have to be delivered physically. Differences in market conventions, standards and formats lead to potential confusion, add risk and increase manual processing.

Q&A

Standard for ActionInside Reference Data speaks with John Kirkpatrick,managing director, global asset servicing, in the transaction services unit at Citi in London,about efforts to improve corporate actions processing

John Kirkpatrick, Citi

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