The Depository Trust & Clearing Corporation (DTCC) today announced the launch of a Global Corporate Action (GCA) validation service, which it claims will reinvent the way corporate action announcements are managed by financial institutions worldwide, and so eliminate redundant operations and technology.
DTCC says GCA will give clients access to an automated, centralized source of “scrubbed” corporate action announcement information. It works by analyzing a range of corporate action information, including data sourced from commercial providers. The goal is to eliminate the need for firm s to acquire and clean up data themselves.
“Our goal is to provide a seamless corporate action announcement solution, so that all financial institutions can receive the accurate and comprehensive information they need at the same time,” says Donald F. Donahue, DTCC’s chief operating officer. “With GCA, we’ll deliver better data quality and huge economies of scale to banks, broker/dealers and other financial institutions worldwide.”
This month, DTCC launched a pilot of GCA with a major global securities firm. It says several other firms that are high-volume processors of corporate actions will follow shortly. Over the past year, these firms have been working closely with DTCC to define requirements for GCA, which is expected to be in full production by the end of the year. Initially, GCA covers securities traded in the Americas and Europe, but by year – end will provide worldwide coverage.
DTCC worked with Accenture to build the new service, with the consultancy providing program me management support, and implementing
the underlying technology. Accenture is continuing to work with DTCC in enhancing the operating environment.
“Corporate action processing is an area of significant risk in the securities processing business,” says James Femia, managing director, DTCC Asset Services. “The exposure associated with an individual corporate action event potentially involves millions of dollars.”
Corporate action processing is also known to be one of the most manual, complex and challenging parts of back-office operations globally. Every day, securities firms are inundated with news of various corporate actions, such as stock splits, spin-offs, bankruptcies, calls, conversions, exchanges, mergers, tender offers and cash dividend announcements. Conflicting and incomplete information, incorrect data and late notification are common problems that can result in late payments, market risk, loss of interest, or a missed opportunity that could cause significant monetary loss.
“Our 30 years of experience in corporate action processing is well known throughout the industry,” adds Donahue. “We’re now leveraging that experience to support the growing need for access to automated, standardized corporate action announcement information to lower risk and drive down cost for the industry on a global basis.”
In 2002, DTCC’s depository processed a record volume of corporate actions, including reorganizations, redemptions, dividend and interest transactions, with a value of nearly $2 trillion. The DTCC says each corporate action has a multiplier effect, as a single event may involve hundreds of financial firms, which then results in thousands of communications sent and/or payments allocated to investors.
“Rather than have each bank and broker/dealer maintain its own operation to collect and verify corporate action announcement information, we’ll provide the single right answer,” says Femia. “Our experience in bringing greater efficiency to high-volume processing makes this an ideal business for outsourcing to DTCC.”
GCA validates data through an intricate process of mapping, normalizing and consolidating the information – generally referred to in the industry as “scrubbing” or “cleansing” – supported via XcitekSolutionsPlus’ XSP corporate actions data management module. GCA also enriches the data with follow-up research and information garnered from custodian banks. The custodian verification component of GCA is planned to be available later this year.
Custodian verification, according to Femia, is an important part of what will set GCA apart from other service providers in this market space. “We recognize the vital role that custodians play in the process,” he says. “We’ll act on our participants’ behalf, going to their custodians to verify data, while protecting the proprietary nature of the custodians’ information. The initial response from customers we’ve talked to about GCA has been very positive.
As the volume of corporate actions increases worldwide, this is a unique opportunity to address our customers’ demand for centralized and accurate corporate action information to help them better manage costs and risks.”