Reducing Risk and Gaining Control of Corporate Actions Processing

Brendan_farrellGuest Contributor: Brendan P. Farrell, Jr., executive vice president, SunGard’s XSP

How can the industry turn the tables on risk in corporate actions processing? Industry insiders estimate that $1 billion is lost every year through missed or mismanaged corporate actions events. Losses like these result from current industry conditions and longstanding practices that impede optimal processing performance. Doing nothing to address them prolongs problems and ultimately incubates risk.

There are several primary causes with specific implications: the higher volume and complexity of corporate actions is increasing risk; inefficient manual process and workflow add to the burden; and outdated or ill-equipped home-grown systems create an underlying liability.

Relying on manual methods to manage the corporate actions lifecycle makes for a costly, labor-intensive activity. Human error can infiltrate the workflows for both relatively simple announcements such as stock splits and more intricate multi-part events such as cash stock options or rights issues, which require a complex, multi-step process to complete related notifications. At the same time, when processing steps come into question, their resolution may be left open to interpretation.

Facing an improperly handled corporate action can put an unwanted public spotlight on poorly executed processing. For example, under U.S. regulations, companies could be fined a combined maximum of $3 million per incident for unintentionally failing to furnish correct information in a timely manner to both shareholders and nominees. By streamlining and centrally managing the processing of corporate events through automation, organizations can work more productively, efficiently, consistently and securely to process events within required time frames.

In the application of an automated corporate actions process, there are a number of qualities that differ from manual processes. Corporate actions information is automatically compiled from many disparate sources to create a single event using configurable logic, and when new information becomes available, it is automatically captured and applied to the event upon receipt. In addition, all differences in critical information for each source are clearly visible and prioritized for review by staff, which highlights any errors and inconsistencies for correction and therefore increases staff efficiency by reducing manual tasks. Event information, including the deadline for the voluntary choice event, is also automatically distributed to all investors affected by the announcement. When applied through election processing, event settlement and the final reconciliation or closing out of the event, automation helps minimize risk while significantly reducing the time to complete a voluntary corporate action.

When evaluating a corporate actions processing solution, the following criteria should be considered:

  • End-to-end corporate actions processing
  • Comprehensive data management and scrubbing
  • Integration via an array of data interfaces
  • Adherence to XML and SWIFT ISO messaging standards
  • Flexible trade and positions functionality
  • Easy-to-use dashboards and interfaces with support for mobile
  • Cloud-hosted managed services, Software-as-a-Service (SaaS) or local deployment options

Implementing an automated process for all corporate actions can be difficult for a firm to attempt on its own. The implementation requires a combination of technical and domain expertise so that the resulting solution is tailored to address the firm’s specific requirements and risk factors. In addition, the solution needs to be designed to provide the flexibility and security to support new standards, technologies and ways of doing business going forward. Through this approach, companies can run more agile, smarter operations that help readily adapt to whatever comes their way.

Concerns about the improper processing of corporate actions notices are real. Organizations can spend years trying to recover from the effects of a failed corporate actions solution implementation. Firms that act to deploy scalable best-practice solutions for this function can expect to achieve noticeable improvements in productivity, accuracy, STP and customer service. What’s more, vulnerability to risk and reputational damage will be significantly reduced as manual steps are replaced with a streamlined, automated process that contains built-in governance.

As a result, these organizations can accomplish corporate actions processing more confidently and with fewer resources, even as the complexity and volume of events grows. Freed from manual tasks, staff can subsequently refocus their efforts on high-priority assignments that add strategic value to the business. Ultimately, these organizations can make significant strides toward improving and sustaining their competitive position through greater agility, smarter operations and reduced risk.

For more on reducing risk and boosting organizational effectiveness by automating corporate actions, read SunGard’s new insight report, “Turn the Tables on Risk: How to Gain Control of Corporate Actions Processing.”

This entry was posted in Corporate Actions, Guest Blog and tagged , . Bookmark the permalink.

2 Responses to Reducing Risk and Gaining Control of Corporate Actions Processing

  1. George Ingram says:

    Good article, Brendan. Would be great to see the insustry more aggressively pursuing standardization and adoption of new swift standards. Right now only major institutions have fully adopted it and many smaller custodians and broker dealers still falling behind. Using a product like XSP clearlyn gives people more controls, but a higher level of risk still remains because you may still be exposed to manual processes on the other end.


  2. Harry S. Rana says:

    Industry insiders are estimating $1bn is lost per annum directly on mismanaged corporate actions, but taking a broader view, how much risk is there to firms front offices by sub-optimal trading decisions made on securities that have an on going corporate action? A whitepaper estimated that figure to be between $1.6bn and $8bn per year globally…in 2004!

    With increasing volumes and complexity, what does that figure stand now? Financial institutions need to recognize optimizing their corporate actions process isn’t just about minimizing their risk to losses due to poor data or missed elections. Trading strategies can be informed by a sound corporate actions process, with the latest automated solutions providing dashboard views to the front office highlighting both risks and opportunities.

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