Validating Corporate Actions Seen As Boon for Fund Industry

by Steve Letzler

For mutual fund companies and other buy-side firms, obtaining accurate and timely information on corporate actions can greatly impact a portfolio manager’s decision to buy, sell or hold. DTCC Solutions, a subsidiary of The Depository Trust & Clearing Corporation (DTCC), is launching a program to introduce the community to one of its newer services that fulfils this need.

DTCC’s role in corporate actions goes back some 30 years during which time it has handled the creation, delivery and tracking of corporate action liability notices through its depository subsidiary. Leveraging its experience and understanding of the complexities and operational risks of corporate actions, in 2003 the organization created the DTCC Global Corporate Action (GCA)Validation Service. Designed to provide fast, accurate data on corporate actions from around the world, the service combines data from multiple vendors into a single, integrated and formatted feed. It now covers almost 1.5 million securities in more than 150 countries. Data for those securities includes approximately 850,000 corporate actions announcements annually, along with more than 3 million payment events.

"We map, normalize and consolidate the data through a rigorous scrubbing process to create a composite record or a 'single, right answer,' which we then make available to our customers in the same format at the same time," said James Femia, managing director, DTCC Global Corporate Actions.

"Because information is coming from one source, portfolio managers can leverage it throughout their enterprise, knowing that they can monitor and report events as they take place with information that is accurate and consistent," Femia added. Data is “refreshed” six times a day and can be accessed by a real-time browser.

The service also offers users several unique features, including a "custodian check," a feature that allows custodians for a customer firm to feed their own information on corporate actions events into GCA on a private basis. Client firms can then compare that data to the validated composite record provided by GCA’s vendors. Currently, about 85 custodian banks globally are connected to the GCA Validation Service.

Information for front and bank offices

While the service offers broad coverage, it is tailored specifically to each client’s needs. Firms specify the securities they want tracked and pay based on the securities being tracked. Firms such as JPMorgan Chase Securities and Merrill Lynch are increasingly using the information not only for their back offices, but for their trading desks, as well.

This trend corresponds to a recent report issued by Oxera (a U.K.-based economic consultancy) and sponsored by DTCC.

By analyzing five different corporate action event types, Oxera found that there was "strong evidence that announcement dates of corporate actions often result in significant and systematic share price movements. The significance of the impact differs depending on the corporate action type."

Oxera's study also discovered that, in most cases, the most significant price movement, volatility and volume changes occurred on the announcement day and in the immediate two or three days following the announcement.

"This predictability means that timely and accurate dissemination of corporate action information can be a major benefit to firms’ front offices in helping them improve trading decisions and strategies," Femia stated.

For additional information on DTCC’s GCA Validation Service, please contact GCA Sales in New York at 212-855-4144, in London at +44 (0)20 7444 0403, or via email at gcainfo@dtcc.com. Copies of the Oxera report are available for free download at http://www.dtcc.com/downloads/leadership/whitepapers/2006_oxera.pdf.