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Modernizing Securities and Corporate Actions Processing

By DTCC Connection Staff | 4 minute read | July 16, 2021

The high volume and volatility in the securities industry over the past 12 months have highlighted the challenges in securities registration and Corporate Actions processing. We spoke with Jennifer O’Rourke, DTCC Director, Innovation Strategy & Design, about current industry solutions, modernization efforts and what’s next for the debt capital market.

DC: What are the challenges and pain points the industry is facing around securities registration and Corporate Actions processing?

JO: The biggest pain point for clients is data management. Financial instruments within the debt capital market are initiated as legal contracts, which are eventually digitized and registered as securities. This data can be digitized in two ways: as structured data – which adheres to pre-defined data model and is therefore straightforward to analyze, or as unstructured data – which does not have a predetermined data model or predefined manner. Almost all registered securities in the debt capital market are digitized in a manner that creates unstructured data, resulting in a highly manual and fragmented data management process.

Throughout the issuance and registration life cycle, industry participants leverage teams of employees to extract unstructured deal data from debt contracts and manually enter this information into spreadsheets and systems. Deal data may need to be aggregated from multiple documents, across multiple systems. This aggregated data is then shared between transaction parties using traditional communication channels such as phone, email and legacy interfaces, which lack flexibility and automation. Manual efforts to extract and structure unstructured data introduce inefficiencies and potential for mistakes, which may culminate in costly errors and failures throughout the security’s post-trade life cycle. Clients are seeking solutions that digitize unstructured data, standardizing the information required to bring new securities to market, reducing operational risks and costs while enabling a more rapid issuance process for the industry.

DC: What is driving the industry to seek more efficient solutions?

JO: The nature of the life cycle pipeline for debt issuance is responsible for many of these challenges. The beginning of the fixed-income issuance process is very dense, with many participants sharing information between one another. As the process progresses, the “funnel” narrows as the larger group of upstream participants transact with fewer downstream participants until concluding with registration at DTC. The structure of the life cycle, that progressively removes participants while the volume of transactions remains unchanged, leads to an acceleration of data management issues downstream.

DC: How is the current securities processing landscape evolving?

JO: We are seeing two different approaches driven by market participants trying to build data management solutions in their particular segment in the securities life cycle.

In the EMEA regions, digitizing securities at deal origination is gaining traction. Given the regulatory requirements and the more standardized nature of securities in these markets, a template-based platform is a well-suited solution. Securities’ information can be entered at the beginning of the issuance’s life cycle, and all participants can access this data as the security progresses through its life cycle.

Meanwhile, in the U.S., the emerging technology of optical character recognition (OCR) is being leveraged. In this solution, the deal economics are extracted and digitized after a document has been created. As securities in the U.S. market have more sophisticated or contingent economics, applying a template-based solution presents unique challenges. An OCR-based solution processes and extracts data into input fields which have the flexibility to change in response to a changing instrument, allowing it to keep up with variables as the market and instruments quickly mature.

Both approaches incorporate workflow efficiencies that provide automated end to end processing activities, allowing participants the ability to interact with one another to manage the aggregation and negotiation of deal information.

"The structure of the life cycle, that progressively removes participants while the volume of transactions remains unchanged, leads to an acceleration of data management issues downstream."

DC: What is DTCC’s perspective on the potential solutions / approaches to address pain points?

JO: Our clients are finding value in both the template-based workflow solution and OCR-based workflow solutions in their respective markets. In our view, both solutions would bring greater efficiency and a reduction in risk exposure, not only to DTCC’s clients but to all participants, across an instrument’s life cycle. DTCC is interested in watching the continuing maturation of the models to see the direction of our clients as well as the industry.


DC: What role does emerging technology play in these solutions?

JO: DTCC’s Innovation Strategy and Design team is focused on evaluating new technologies, and in doing so have seen the capabilities of intelligent document processing, applied to both models.

Intelligent document processing uses deep learning tools such as Artificial Intelligence (AI) and Machine Learning (ML) to automate document processing, extracting unstructured data from documents and converting it into structured data. This is valuable from a resource perspective, as employees can now contribute to core operations instead of doing rote extraction tasks. With the application of technologies such as AI or ML, a document can have sophisticated rules applied to extract important data components, transforming a complex legal document into the financial instrument that is registered with DTCC.

Given the continuing modernization of market infrastructure, we are excited to see emerging technologies coming together to present opportunities to industry participants.

DC: What are the next steps for the industry and these solutions?

JO: Looking ahead, we expect to see more proof of concepts around both the template-based workflow and OCR-based workflow models as clients explore these solutions. As DTCC continues to partner with the industry, we are eager to see the role both solutions take within the marketplace. From our position in the life cycle, DTCC will continue to monitor what is happening in both Europe and North America, speaking to clients and stakeholders on what these models mean to them, aiming to understand their experiences and align our procedures.

Jennifer Rourke
Jennifer O’Rourke

DTCC Director, Innovation Strategy & Design