Bringing Corporate Actions Out of the Dark Ages

OLYMPUS DIGITAL CAMERAGuest Contributor: Kevin Cullen, vice president, sales solutions specialist, SunGard’s XSP

On Wednesday, October 9, the Financial Technologies Forum (FTF) held its annual corporate actions event, CAPCon New York. Based on the presentations and panels, it seems the world of corporate actions is working hard to evolve. In light of some of the current initiatives taking place in the industry, there now is a great deal being done by a variety of firms to address data and processing issues.

Almost as a primer to corporate actions and its inherent risks, the first CAPCon panel focused on the need for automating the process. It is widely accepted that manual processing, in any field, drastically increases the amount of risk. Due to the historical lack of automation in corporate actions, with its essential requirements for data management and back-office integration, it’s no surprise that the area has been identified as the top concern for operational risk throughout the industry. The risks are not restricted to the back office alone; there are effects on the middle and front office due to shortcomings such as improper position updating and lack of bi-directional interfaces. In fact, the effect on trading can be substantial due to “sub-optimal trading conditions” created by the lack of corporate actions integration to trading applications.

Compliance with pending regulations such as FATCA and new cost basis reporting requirements could have a huge effect on corporate actions processing. This has created a new demand for data models to be flexible enough to incorporate new fields, such as status for Qualified Intermediary and original cost basis, for correct processing and posting.

On the brighter side, the event included discussions around the DTCC rolling out its Corporate Actions Transformation Initiative, a multi-year project to migrate its legacy corporate action feeds into the ISO 20022 standard, an XML-based message format that not only introduces new core messages but also takes advantage of the extensible component inherent in XML. This new set of messages promises improved data quality, reduced interpretation risk, and less reliance on manual processes. One CAPCon presenter even described how his firm was able to become an early adopter of the initiative via a solution provider’s cloud offering, allowing the bank to quickly implement to an ISO-compliant and secure environment.

The conference also offered a panel on vendor management. The panel collectively agreed that, as a proven and safe approach, financial firms should “stick to their knitting” and leave application development and implementation to the experts. In fact, throughout the day, more than one speaker conveyed the sentiment that since a solution provider is in the business of designing and delivering quality code, the resulting solution is going to work because it must work. This is extremely important in the specific case of corporate actions, given the integration requirements. One panelist compared it to smartphone applications: downloading one app will not – and should not – interfere with existing apps on the phone.

An overarching theme throughout the conference was the need to abandon this established reliance on older technologies. It would be illogical and counterintuitive for current and future operational professionals to use older technologies like green-screen-based applications and fax machines, especially in mission-critical areas such as corporate actions. They would expect the same type of user experience they have with their phones and tablets.

This attitude, coupled with new global industry initiatives, may help bring corporate actions out of the Dark Ages and into a new era of dynamic technology, flexible data models, increased efficiency and reduced risk.

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