Splits, dividends, mergers, rights issues and IPOs … corporate actions is providing growing opportunity for new post-trade business. Automating these processes costs – but can any industry actor afford to not do it right?
The challenges and opportunities facing financial institutions have never been more varied and multifaceted. Adapting to new technologies, preparing for the departure of LIBOR, and navigating geopolitical tensions, are all frequent targets of discussion. But one issue frequently slips under the radar: the dilemma of corporate actions. Indeed, for the back office, the booming corporate actions volumes is offering a business opportunity.
A challenge to take on
With a boom in stock splits, dividends, and M&As, not to mention rights issues and IPOs – there has been a corresponding increase in corporate actions data over the past two decades. In the 2000s alone, there was a 41 percent spike in the number of companies listed on stock exchanges, which entailed a significant increase in the volume of corporate actions. And with the complicated nature of certain corporate actions meaning that they are updated several times in their lifecycle, constant monitoring is often required.
These factors have now combined to put pressure on teams internally and have forced them to look for a remedy. Despite their work traditionally being considered less glamorous than that of the front-, and even middle-office, back-office staff now find themselves with a starring role in the battle to avoid seeing their bank’s reputation being tarnished. But it can sometimes be hard for the back-office to secure the financial backing needed to implement satisfactory corporate actions solutions, as banks don’t always see immediate benefits.
Risks are there
Unless financial institutions find a way to process corporate actions successfully and efficiently, downstream processes will be affected. With security master databases and front-office trading so reliant on the quality and consistency of data, the implications of failing to tackle this issue could be huge.
Crucially, it would be far more expensive for an institution to lose a client from failing to correctly process two or three corporate actions, than it would be for the bank to invest into reliable and timely corporate actions data. Firms must be prepared to accept a little bit of short-term pain in higher investment levels, in order to secure the long-term benefits of being able to attract and retain clients more easily.
Automation is key
The place to look for answers? Automation. We already know that corporate actions’ complexity demands huge amounts of human processing power to ensure accuracy and timeliness of delivery. However, this doesn’t mean that the more repetitive, simple events can’t be left to automated systems. Mandatory dividends or quarterly earnings, for example, would be obvious places to start. It might not sound like much, but it would free up back-office staff for more complex tasks; including events that require constant back-and-forth between the team and the client (such as an IPO or M&A).
SIX has done exactly this. We’ve designed solutions that allow the mundane aspects of corporate actions to be automated. For firms looking to integrate information more easily and reduce operational risk, it’s a win-win scenario. After all, efficiency and reliability are two cornerstones of successful business. It’s also why SIX goes out of its way to promote industry standards, such as ISO 15022 (MT564), that enable firms to reconcile data from multiple sources more easily. The leading players of the financial world, who make up our client base, depend on receiving high quality data about these events in an efficient and timely manner. So, we’ve made it possible.
Back-office teams shouldn’t see increased corporate actions as something to recoil in front of. Instead they should see them as a huge opportunity to streamline their processes and to distinguish themselves from the competition. With solutions, such as those provided by SIX, now readily available, banks only have one question left to ask themselves: “What are we waiting for?”
This article is written by Annelotte De Nanassy, Product Manager at SIX.