DTCC Plans Major Changes for Corporate Action Announcements
Jim Femia, DTCC managing director and head of the Global Corporate Actions (GCA) area
DTCC’s head of Global Corporate Actions outlined a series of sweeping changes and enhancements being planned for corporate action announcement information in a recent letter to customers of The Depository Trust Company (DTC).
The changes are one part of DTCC’s multi-year reengineering effort to streamline all of its corporate actions processing capabilities and dramatically strengthen the industry’s risk controls in this area. This particular component of the plan will transform how corporate action announcements are “manufactured” and disseminated across the industry.
The goal: a single source
“For depository-eligible securities, our goal is to give customers’ front and back offices a single source of high-quality, accurate and timely corporate action announcement information,” said James Femia, DTCC managing director and head of the Global Corporate Actions (GCA) area. “This initiative will help customers manage the overall cost and risk of their corporate action business, allowing them to use DTCC as the definitive source of information for DTC-eligible securities,” Femia continued. “It will also give them the option to subscribe to similar services for non-DTC-eligible securities from other countries.”
Manufacturing from the source
A key aspect of DTCC’s effort to manufacture accurate announcements at the outset of the corporate action chain will be the pursuit of information “at-source,” which means obtaining and verifying the announcement information directly from the initial source as early as possible in the corporate action lifecycle. This represents a significant departure from current industry practices for the collection of this information.
“By minimizing the ‘distance’ between the company initiating the corporate action and the investor, DTCC is seeking to accelerate the handling of the corporate action and improve straight-through processing,” said Femia. “This is part of a larger industry effort that is essential to reduce the risk and cost associated with identifying and interpreting corporate action information,” he noted. “We will be working with issuers, agents, industry associations and regulatory agencies to move the industry toward this goal.”
Other key benefits
As part of the expanded corporate actions announcement service, each DTC participant will receive more detailed text about each event, including information such as participation restrictions, market practice guidelines and legal requirements, as well as e-mail notification of late announcements.
“These changes will make corporate action announcements more understandable and more timely, and even enable firms to process these actions straight through to their customers without any manual intervention, saving time and cost,” Femia said.
In addition, starting this year, DTCC will be building towards a new set of service delivery standards. These service standards will help frame the internal and external expectation of DTCC in delivering accurate, timely and comprehensive corporate action detail.
New fee structure
In another aspect of this initiative, DTCC announced in January the implementation of a new fee structure for corporate action announcements.
DTC eliminated all existing MDH/CCF messaging and file transfer fees, including those associated with corporate action announcement files. The costs previously covered by these charges are now included in product service fees, meaning they have been absorbed into the overall cost structure of the business lines providing the service (principally DTC Settlement and Asset Services businesses).
Fees for corporate action announcements will now reflect the cost of creating and delivering announcements. DTC has separated these announcement fees from corporate action processing fees. This change was implemented as one component of the larger fee restructuring that has resulted in a $161 million reduction in fees across DTCC for 2006.
Customers will be charged a per-announcement fee for announcement creation and dissemination on their securities holdings at DTC. Beginning in 2007, following a test period now slated for the fourth quarter of 2006, customers will receive tailored corporate action announcements based upon their DTC holdings of eligible securities over a rolling 12-month period. For an additional fee, they will have the option to receive announcements on other DTC-eligible securities.
A schedule outlining the customer integration steps beyond 2007 will be released in the third quarter. This plan will address the retirement of the existing DTC file formats dealing with corporate actions announcements (DIVANN, REDEM, REOGN2, etc.) as well as the introduction of XML file formats with a new event type structure, adhering to ISO 15022 international standards and best practices. @