by Steve Letzler
DTCC recently expanded its Global Corporate Action Validation Service (GCA VS) coverage to include listed equity derivatives.
Historically, financial services firms had to use manual processes to locate and adjust derivatives contracts to account for the effects of corporate actions (such as stock splits, mergers, special dividends) on the underlying security. Every time a corporate action occurs on an underlying equity, each exchange with a listed derivative on that equity issue publishes a notice to members detailing the required adjustment method, adjustment factor, lot size change, strike price change, etc., for the derivatives contract. Now, GCA VS will aggregate this information and deliver it to any interested customer firm through an electronic central information hub in a standardized format, saving firms time and effort and reducing exposure risk.
Efficiency and risk reduction
GCA VS will initially publish information from five main global exchanges and infrastructure organizations for equity derivatives – the Options Clearing Corporation, NYSE Euronext, Eurex, Borsa Italiana and the Tokyo Exchange – and will continue to add other exchanges as the service develops.
“As trading in equity derivatives began to grow, customer firms reached out to DTCC last year to see if we could publish through GCA VS details on the impact of corporate actions on listed derivatives,” said Patrick Kirby, DTCC managing director, Asset Services. “We are delighted to be able to respond to our clients with this new addition to our Validation Service, so our client firms no longer have to trawl through various exchanges’ websites to find these updates and re-key them into their systems themselves.”
How GCA VS helps customers
Corporate actions involve almost any event that significantly impacts a security. GCA VS provides the largest central source globally of validated or “scrubbed” corporate action announcements on more than 2.5 million securities from more than 173 countries.
The data is used by brokerage firms, banks, hedge funds, investment managers and others in both their front offices for trading decisions, and in back offices to ensure accuracy of their processing of corporate actions.
In 2009, GCA VS handled more than 990,000 corporate actions announcements and issued more than 5.9 million announcements on scheduled payments for fixed income securities.
Scalable business model
Nicholas Potter, DTCC product manager for GCA VS, noted that DTCC has built an infrastructure “that can support similar instruments that contain a structured component and an underlying asset.” He noted that it could be used in the future to provide comparable information for other asset types, including such instruments as over-the-counter equity derivatives and indices.
GCA VS is continuing to add new securities and asset classes to its global coverage of corporate actions. Earlier this year, DTCC added coverage of structured securities handled by the U.S. Federal Reserve Bank (mostly securities created by Fannie Mae and Freddie Mac) to GCA VS, along with scheduled payments for global fixed income securities.
DTCC has also been spearheading an effort with XBRL US and SWIFT to promote straight-through processing in corporate actions by electronically capturing data directly from the issuers in a standardized form when a corporate action is first announced. GCA VS is a service of DTCC Solutions, LLC, a subsidiary of DTCC. @