The Depository Trust & Clearing Corporation (DTCC) has added what it calls a “custodian verification enhancement” to its existing Global Corporate Action (GCA) Validation Service. What this means is that information scrubbed by the DTCC corporate actions teams in London and New York will be verified a second time by comparing custodians’ announcement notifications with announcements generated by the GCA Validation Service.
The DTCC GCA Validation Service, which was launched in 2003, aims to give banks accurate and timely corporate action information for securities on an outsourced basis. It offers global coverage, handling securities traded in the Americas, Europe and Asia. The service is provided by Global Asset Solutions LLC, a wholly owned subsidiary of DTCC.
“This enhancement makes GCA Validation unlike any corporate action information service because it takes into account all of the parties involved in the corporate action announcement process,” says James Femia, managing director, DTCC Asset Services. “This includes custodians, sub-custodians and central securities depositories, all of which play a vital role providing corporate action information, especially for non-US events.”
James McDade, executive director, Operations, UBS Investment Bank, and a user of the service, describes the volume of risk corporate action departments deal with on a day-to-day basis as “staggering.” He notes that UBS considers the DTCC service to be a major step toward reducing risk and eliminating a large part of the manual processing associated with multiple custodian and market data notifications.
But how exactly? Everybody knows that banks are swamped with hundreds of custodian messages notifying them of corporate action events, such as rights offerings, elective dividends, tender offers, conversions, spin-offs and stock splits. Using the information is difficult, and processing it largely manual, because it is often conflicting or incomplete, incorrect or late, and does not arrive in standardised formats. The result is delayed payments, market risk, loss of interest or other entitlements, or a missed opportunity that causes significant financial loss. Most of the manual processing is consumed in the comparison of notifications against vendor data and other sources, to verify the information. What the DTCC is now aiming to do is free users of its GCA Validation Service from this essential but labour-intensive task.
“In Europe, we rely heavily on custodians for corporate action information, but the process of sorting out this information can be unwieldy for us,” says McDade. “Centralizing the flow of this information at DTCC, an organization that we have confidence in and one that has a deep understanding of the processing complexities of corporate actions, is a benefit for us.”
The service analyzes data by mapping, normalizing and consolidating information from a variety of commercial data providers – a process the industry refers to as “data scrubbing.” A composite record is derived from this process, and enriched with follow-up research by DTCC staff in New York and London.
“Our goal is to provide our customers with a single right answer on a corporate action,” says Femia, “so that they can avoid the manual, time-consuming and risk-prone processing involved in collecting, consolidating and verifying announcement information.”
The GCA Validation Service is part of DTCC’s Global Corporate Action Services, which are designed to help customers improve operational efficiency and minimize risk in the corporate actions area. “With our family of GCA services, we’re building on our broad experience in corporate action processing, as well as our economies of scale to deliver solutions that bring greater efficiency and help reduce risk industry-wide,” says Femia.
In 2003, DTCC’s depository subsidiary processed corporate actions – including reorganizations, redemptions, dividend and interest transactions – with a value of more than $2.2 trillion.