Over 4 million corporate actions are processed per year, growing by 12% per year on average.

Corporate Actions: they are integral, essential, and increasingly a bar to growth. The risks and costs associated with manual corporate actions discussed previously, illustrate the need for firms to revisit their corporate action processing to ensure it is appropriate for the current – and future – environment.

We have seen significant capital investment recently; driven by regulation such as MiFIDII/MiFIR and changes imposed by the pandemic. These investments have covered many areas, though corporate action processing notably less so. Is it time to revisit this area – especially now it may be a bottleneck to growth?

According to research conducted by the wealth management consultancy, Compeer, the main areas of concern are:

• Managing multiple, conflicting data sources with different structures
• Presenting clients and investment managers with inaccurate or incomplete information
• Managing election processes with multiple touchpoints and inconsistent default definitions
• Incorrectly reporting instructions across multiple custodians or nominee accounts
• Not releasing trade restrictions due to an event not being processed in a timely manner.

So how do you manage the complexity in corporate actions management now and in the future? Here, we explore these concerns, what causes them, how they may restrict your organisation’s growth and approaches to solving them.

• CORPORATE ACTIONS DATA FROM MULTIPLE SOURCESOperations teams spend around 60% of their working day verifying corporate actions announcements and cleansing the data.Data can be ambiguous between sources so a clearly defined workflow for integrating these disparate sources must be in place; including processes to ensure the terms are clarified and well understood before recommendations are made or outturns projected; the more sources the greater the workload.A fundamental issue with multiple data sources is timing. Notifications often drip-feed into the organisation over a period of days. In a highly automated system, this is much less of an issue. A notification arrives, is processed and any updates are disseminated electronically. When dealt with manually, reactive processes are difficult to schedule effectively meaning other priority tasks are potentially dropped.It may be tempting to partially outsource data cleansing by buying in “cleansed” data; vendors may promise perfect data but how easy is it to tailor to your universe of interest and crucially, at what cost? And will this scale with your business?
• DISTRIBUTING INFORMATIONWhatever the role of your organisation within the wealth management sphere, disseminating information – whether to clients, investment managers or other third parties – is a key process. Often this process is largely automated and increasingly delivered through a digital channel. This is often not the case with corporate actions. How many hands does the data pass through in a manual process, whether to enrich, validate, or authorise the information to be relayed?The pandemic has reinforced that key staff may become unavailable without notice. In a manually intensive process, who steps in? Do you send the information with less validation or wait and send it late?The adoption of digital distribution channels is essential, especially if firms are to attract younger, more technology aware investors, who increasingly expect the interaction to be digital.
• MANAGING ELECTIONSDisseminating information through digital channels is increasingly the norm in areas such as client reporting, but for Corporate Action processing, it’s two ways. Are you confident about receiving information back?Managing the notification process can be complex in a traditional environment. Retaining oversight of clients that require notifying and their responses is difficult enough; collating responses and passing them back up the chain adds to this.Both the client interaction and the management and collation of responses are traditionally manual processes, unfortunately, neither scale well. As more staff are required, oversight is easily lost, mistakes become harder to trace and rectify.Adding interactivity to digital client portals (whether simple forms or more interactive tools such as “chatbots”) and adoption of automated workflow tools can simplify both processes significantly and scale far more effectively than any manual process.
• MULTIPLE CUSTODIANS & NOMINEESHaving multiple upstream recipients often means – literally – mixed messages; what is essentially the same data will be expected in a variety of formats and different channels, whether Swift Category 5 messages, “flat file” or other proprietary formats. A mixture of deadline dates adds to the complexity. A manually intensive process will complicate the coordination and generation of messages considerably and significantly reduce visibility and oversight from operations, compliance, and MI point of view.Reconciling individual outturns within a pool after a corporate action is often a manual task and invariably time consuming, even for a simple corporate action. The more holdings and pools the more time expended and the greater the cost of processing.The generation of messages in different formats from the same core data is a process that stands out as ripe for automation.
• RELEASING TRADE RESTRICTIONSOne driver behind the growth in the execution-only market has been the ease of access to non-domestic markets. Many “Lifestyle Brand” equities such as Apple or Tesla proving popular with younger investors.The minimum investment required to purchase high-priced equities has been slashed by the growing market in “fractional” shares. Both Apple & Tesla were subject to stock splits on the same day recently; actions like this can create a “perfect storm” for non-US firms. Firms will have to calculate entitlements, reconcile custody positions and update client positions in any online portal prior to the markets opening in the US.The events had to be processed over a weekend. Manual processes required all the involved staff to be available. As these events become more commonplace – and more complex – will your staff be happy working more weekends? Will the necessary staff compliment be available?Any delays to processing, reconciliations and notifications prior to the shares becoming tradable will certainly frustrate those wishing to trade and possibly see clients switching platforms.Currently, this is primarily an issue for start-up firms specialising in this market, these tend to be early adopters of newer technologies and so often better placed to deal with these challenges. Their client base, younger, with relatively high disposable incomes, has increasingly been a target for the wealth industry. If firms are to tempt these “Millennials” away from EO platforms into the managed wealth space, they will need a similar degree of automation to the more tech-savvy start-ups.

In Conclusion

Corporate actions processing has not been a major recipient of investment in technology. Investment and automation in many areas, including reporting, trade capture and digital distribution channels has been driven by regulation and client demand; this has left corporate actions processing lagging behind both in terms of investment and automation.

During 2020 Robinhood and eToro – added 3 million and 5 million accounts respectively; this kind of growth is only possible with a high degree of automation – and that includes processing of corporate actions.

A lack of automation in corporate action processing will increasingly constrain growth whether organic or through acquisition.