Almost every industry conference focused on the post-trade portion of securities processing features a panel on the complex and risk-ridden process of collecting, verifying and communicating corporate-actions events.
In light of this interest, the Depository Trust & Clearing Corporation announced that it would be offering a service to deliver corporate-actions information to the securities industry.
Corporate-actions processing has been receiving considerable attention because the process is extremely Byzantine, involving information collection from multiple sources - by both electronic and manual methods - with considerable risk to custodians and other segments of the industry whose clients must often base high-value decisions on the veracity of the information.
Jim Femia, managing director with DTCC Asset Services, says that the new offering, called the Global Corporate Action (GCA) validation service is a natural outgrowth of the services DTCC offers today. He says that DTCC is looking to take the process of collecting and reconciling disparate feeds of corporate-actions information out of the hands of industry participants. "We replicate what any one firm would be doing but on a larger scale."
Corporate-actions processing is all about reconciling disparate feeds of data in an attempt to figure out the facts. In general, public companies, whose securities are DTCC eligible, report any corporate actions to the DTCC. Additionally, there are more than a few corporate-actions data vendors that collect information from multiple sources, including the DTCC, and funnel it to custodians, investment managers and broker/dealers. The vendors then feed that information to their customers.
As the information moves from one party to the next, institutions attempt to verify specific pieces of data by comparing them against corresponding information from another source. If two independent sources report the same information, then it is judged to be accurate.
Many corporate-actions events, such as stock splits, only require that the shareholder be notified. Some events, however, demand a decision from the investment manager who must, for example, inform the custodian whether to take cash or stock, or whether a shareholder wants dividends reinvested.
Femia says that DTCC will go beyond what most firms are doing by maintaining a staff to manually verify corporate-actions information and offering "custodian verification. This is a very key component of what will set GCA apart from others."
While GCA customers will need to maintain their vendor corporate-actions feeds, they will no longer receive multiple feeds into their shops, but rather receive one feed from DTCC that will serve as the "single right answer," says Femia.
Femia says that firms which elect to use the service will leverage their existing connections to DTCC but will have some reengineering to do as workflow will need to be redirected.
"We are going to work closely with our customers as they end up replacing their multiple data flows to only receive one data flow," he says. "The real benefit to them will be reducing the high fixed costs associated with maintaining these files."
Though Femia says that DTCC does promise a high level of service, it is not accepting liability for incorrect information that may result in customer losses. "We will offer stringent service-level agreements to customers around the area of timeliness, comprehension and quality. Those are the three metrics that get measured," he says. "If I fail to deliver on those, no one is going to buy it."
|DTCC vs. Fidelity
One firm that has moved away from faxes, Fidelity, developed a highly automated corporate-actions solution which it now markets to outside firms.
Linda Stewart, president of Fidelity Enterprise Data Systems, the entity set up by Fidelity to administer the solution, says that the system automatically matches and verifies about 85 percent of the corporate actions that come into the firm.
For the 15 percent that do not match, Fidelity Enterprise employs between 25 and 30 research analysts who manually investigate the discrepancy, sometimes calling the company in question directly.
Currently, Fidelity Enterprise has about 15 clients that purchase the scrubbed and cleansed data, such as Lehman Brothers, Merrill Lynch and ABN Amro.