‘Achieving Straight-Through Processing for U.S. Corporate Actions’
Risk reduction is at the top of the agenda in financial services today, and many agree that risk in corporate actions is one area requiring a concerted industry focus. At this year’s Sibos conference in Hong Kong, representatives from across the industry discussed the potential of XBRL (eXtensible Business Reporting Language) data tagging in combination with ISO data messaging standards to improve corporate actions communication.
Brett Lancaster, DTCC vice president, Global Corporate Actions, who participated in two panels on corporate actions at Sibos, published an article titled “Achieving Straight-Through Processing for U.S. Corporate Actions” for a special Sibos report on corporate actions. An excerpt from the article follows. Click here to read the complete text.
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We have a unique opportunity to solve the corporate action problem, starting with the U.S., and our implementation of a three-step plan is already underway.
Step 1: Drive the “next generation” industry standard for corporate actions
SWIFT Standards with Market Practice Groups have done much to cement ISO 15022 as the corporate actions standard, but it has too many gaps. The next generation standard, ISO 20022, will be global and holistic. Scheduled for release in December 2009, it allows the addition of all the “missing” data elements.
However, simply having a standard is insufficient; it must be part of a firm’s day-to-day activity, or it doesn’t get used. To help overcome this enforcement issue, the DTCC depository for the entire U.S. market will become an early adopter of ISO 20022, making the standard the backbone of its “Corporate Actions Reengineering” – a major, multi-year, project spanning announcements to elections to payments. DTCC will be offering ISO 20022 messages, targeted for the end 2010, decommissioning all existing proprietary files on, or before, 2015.
Step 2: Implement a registration system to issue a “unique ID”
As part of Corporate Actions Reengineering, DTCC will create a “unique ID” process to explicitly label all corporate action announcements from the beginning, thus eliminating ambiguity in the update process and the identification of an event between all parties.
Primer on the Corporate Actions Initiative
Issuer to Investor: Corporate Actions is a joint initiative led by DTCC, SWIFT and XBRL US to improve communications between issuers and investors for corporate actions announcements in the U.S.
On average, approximately 200,000 corporate actions, such as dividends, bond redemptions, rights offerings and mergers, are announced each year by publicly traded companies and other issuers or offerors in the U.S. alone. This is significant because most of these announcements still require many manual steps, making the process error-prone, time-consuming and costly. Over the years, these issues have had a negative impact on investors across the financial community.
To help mitigate these problems and drive down the costs associated with processing corporate actions, DTCC, SWIFT and XBRL US have joined forces to identify a solution. The resulting initiative builds on the work undertaken globally to promote existing ISO standards for corporate actions and integrates the benefits of XBRL electronic data-tagging technology. The collaboration promotes straight-through processing by electronically capturing data directly from issuers at the point that a corporate action is announced and in standardized format.
The registration system will also allow for additional validation, if needed, by the Issuer (e.g., check that rates are within historical norms and that dates are set logically).
Step 3: Drive issuer-based data tagging with XBRL
The proven technology of XBRL can bring an end to the madness of paper-based documentation and the problems of accuracy, timeliness and event misidentification that come with the manual entry and re-entry of data.
XBRL is an international, non-profit consortium dedicated to driving transparency through enhanced business reporting. XBRL enables issuers to electronically “tag” data from within Microsoft Word. The issuers, when writing the press release or prospectus, follow the regular process, except they tag key data. The tagged data are “embedded” within the saved .pdf or .doc file. Further, the XBRL taxonomy will be seamlessly aligned with ISO 20022.
For corporate actions, XBRL will be a quantum leap forward, but, once again, it will not be a sufficient condition to achieve STP [straight-through processing] without enforcement. Since the SEC [Securities and Exchange Commission] mandated XBRL for GAAP quarterly financial reporting, we seek to leverage this precedent and achieve the same treatment for corporate actions.
Benefits
This initiative will deliver significant change with significant benefits, from issuer to investor:
For Issuers. The intent and content of the originating offer will be clear to the investor and conveyed in a timely fashion without fear of misinterpretation due to manual manipulation. Issuers will incur marginal additional effort in tagging the data but will follow exactly the same process they undertake today.
For Financial Services Industry. It will significantly reduce interpretation, re-keying and manual exceptions. It will result in lower risk exposure to investor decisions based on incorrect information (estimated at $10B annually) and reduce need for manual processing (estimated at $200M annually). The lower costs and risks can reduce fees to investors.
For Investors. Investors can make decisions with guaranteed accurate information from the source document without third-party manual interpretation. It will allow more response time as custodians and investment managers will no longer have to artificially compress deadlines to compensate for the manual processing of elective information. It also lowers costs as transaction fees should be reduced.
The solution is clear and attainable. By implementing ISO 20022, a unique ID and XBRL, we can eliminate significant costs and risks, and realize STP for U.S. corporate actions.
With a successful implementation of the pilot in the U.S., we would like to see XBRL expanded into other markets. Certainly, we applaud the great strides that have already been achieved using XBRL within corporate actions, especially by Japan (Tokyo Stock Exchange) and by China (Shenzhen Stock Exchange). We want to further collaborate with the local markets to determine how to use XBRL as the backbone for corporate actions reporting on a global basis. @