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Even
at the largest most sophisticated asset management firms,
most components of corporate actions processing remain inefficient
and manual. The potential for errors posed by current practices
creates a significant risk of financial loss. While some
firms are developing in-house systems, the automation of
data cleansing and validation is inhibited by the lack of
data standards, complexity of events, and lack of standard
communications protocols across market participants. While
corporate actions processing would appear ripe for a vendor
provided solution, current vendor solutions are immature
and expensive.
Slow Progress on Automation
Large asset management firms are making slow progress towards
automating corporate actions, focusing initially on areas
that pose the most risk. Firms are moving towards a centralized
data infrastructure, utilizing a single database of global
corporate action notifications for use across multiple locations
and systems. Even with this approach, creating a "gold
copy" of corporate actions data requires significant
manual intervention. Data must be collected and reconciled
across multiple custodians and other data sources.
No Data Standards or Communication Protocols
Depending upon their size and sophistication, custodians
communicate corporate action messages to asset management
firms using a combination of faxes, e-mail, web portals
and SWIFT. There is some momentum in the industry toward
using SWIFT's ISO 15022 as the standard for corporate actions
globally. Thus far, wide spread and consistent use of SWIFT
corporate action messages across participants has been slow.
Custodian web portals offer some level of automation but
require various levels of manual intervention.
Election and Entitlement Processing
Communication of corporate action notifications is only
half of the story. Investment firms need tight policies
and procedures to efficiently manage the election process,
both internally and externally, to ensure actions are processed
on a timely basis across custodians. E-mail and hard copy
documentation is used widely across firms to support this
process, with some firms building internal platforms to
automate election processing.
Depending upon the systems in place at investment firms,
the generation of entitlements is mostly a manual process,
with some automation for less complex actions based on the
capabilities of downstream applications. Daily reconciliation
to custodians is a critical function in corporate actions
processing and is managed and supported by various third
party applications or in-house systems.
Vendor Solutions Focused on Custodians, Not Asset
Managers
Corporate action vendor solutions provide sophisticated
tools to support, manage, and automate components of the
corporate action lifecycle. Although implementing these
systems can bring greater efficiencies to corporate actions
processing and reduce overall risk, most were designed for
custodians and require significant customization to meet
the business requirements of asset management firms. Combined
with hefty license fees, these solutions are expensive.
In a recent survey, less than 10% of large asset management
firms have adopted these systems.
Conclusion
The consensus is that risk is driving investment firms to
address corporate actions. Industry participants are working
towards standardization, even looking for the Securities
and Exchange Commission to regulate the distribution of
announcements. Until vendor solutions mature and are more
widely used in the investment management space, and industry
standards are followed, corporate actions will continue
to be a manual process.
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