Corporate actions processing has seen significant strides in automation in the last few years. But the lack of standardization remains a bugbear. At a corporate actions event this week, a growing number of industry players agreed that only standardization will give the industry its best shot at moving forward effectively and, at a push, profitably.
Six view-from-the-top panelists recounted recent developments in corporate actions globally: in the UK, Crest is now capturing the majority of shareholder votes; France is developing a service for the automation of signatures; the Netherlands amended its regulation for electronic voting before meetings; in Belgium, it will become possible for the CSD to collect votes by electronic signatures by 2014; and in Finland, investors can vote by text message.
According to Naz Sarkar, CEO of Computershare Investor Services, about 70% of the FTSE 100 capital is being voted regularly and there have been steady increases. Outside the FTSE the figure is less with less than 60% of the capital being voted regularly. There has been faster growth in the Netherlands from 46% to 64% over two years and Italy from 44% to 57%,” he said.
The numbers say quite a lot about the quantity and quality of engagement, said Sakar. More votes are getting through but the quality remains in question, he added.
Looking to Asia Pacific, the Singapore Stock Exchange is converting the process of collecting votes from paper to electronic formats, while Taiwan and Korea recently mandated the top 100 companies to vote electronically.
Following these updates the amendment of regulations and standardization of corporate actions was called into focus at the event, driven further by recent unfavorable headlines involving Repsol and BNY Mellon, which has drawn attention to the unwanted risks of corporate actions. Technology is not the issue, it’s getting people to amend the regulations, agreed the panelists.
Commenting on whether there are more or less opportunities for providers in the corporate actions space, panelists noted that in M&A, there has been a 37% decline in the value of deals announced over the last year. The smaller, more complex deals are causing an increase in the risk profile, said Sarkar.
Deutsche Banks Jean-March Belaich said volumes are lower than three years ago but there are more complex defaults, which generate risks in the back office. “There is less volume but more complexity and risk,” he said.
Credit Suisses Paul Matthews noted opportunities to make money in the scrip/ optional dividend space in Europe, particularly in Spain. Fund managers want to maximize the amount of money and data and terms of the scrip dividend. In terms of shares over cash its a matter of how do they calculate the value of share dividends. If we know that we can trade around that a maximum of 20 days before vote,” he said.
In conclusion, AFMEs Werner Frey argued that the basis for successful automation continues with a voter run solution, which is costly to standardize. Through standardization there is a business case for automation, he said. Frey cited the Giovannini report, which said the most costly area of corporate actions is in the post trade arena. This is the best pre-active solution in reducing costs and risk, he said.
– Janet Du Chenne