TARGET2-Securities (T2S) and the Single European Payment Area will force more efficient corporate actions data processing within the custody industry, according to Paul Kennedy, business data manager at Interactive Data.
Kennedy says new regulatory trends are changing the dynamics and distribution of corporate actions data. There is a tougher environment, with more competition and the bar has been raised among custodians for customer service and quality,” said Kennedy.
Corporate actions are often viewed as relatively unchanged over the last five years. However, there are a number of factors converging that are forcing firms to review the processes.
Corporate action data from custodians has so far revealed a trend of next day processing in a sedate way, said Kennedy However, the slow nature of corporate actions, typically in Asia and specifically in data centers such as India and China is leading to undue risk that companies need to pay more attention to, he added.
Industry initiatives in financial messaging standards such as ISO 15022 and ISO 20022, as well as the Extensible Markup Language (XML) format, are helping to drive the automation of corporate actions data, said Interactive datas recent whitepaper on managing risk in corporate actions. There is a big jump to move on this in a timely manner rather than wait for the big Asian markets to close in on the problem in that region,” said Kennedy. “There are now intraday updates, faster communication and demand for more structured and timely information to ISO 15022 standards. There are evolving standards in terms of ISO20022 and by 2015 the DTCC in the U.S. will only communicate using this standard.
The DTCC is currently running a pilot incorporating State Street, J.P. Morgan and BBH for their message types.
T2S and SEPA will assume ISO20022 standards for corporation actions processing and settlement. There is however a lot of legacy corporate actions and it is very manual.
T2S, the planned harmonized platform for securities settlement in Europe, will channel stock paid through the European Central Bank as a central facilitator. Banks supporting the infrastructure of ISO 20022, which supports the message and security dividend, will want to see how they can can leverage spending to prepare for this regulation in other parts of their business processes. They are asking what else can I leverage in this corporate action taxonomy? They need good tools and standardized information on a clients position.”
There are other regulatory demands to gather legal entity data. “This data will pull Basel 3, Solvency II and different styles of information in silos in order to provide regulatory insight and transparency.
Interactive Data recently launched a whitepaper that addresses regulation, event complexity, regulation and reporting, risk management, changing consumption of the data, and challenges that data providers face.
Changes to corporate actions processing and distribution often still inconsistent and fraught with unnecessary delays, risk and cost have long been overdue. Now, with the overall industry endeavor to promote efficient financial markets, there is an increasing appetite to transform corporate actions processing and put an end to paper-based dissemination along with its inherent risk of misinterpretation. Although the consumption of corporate actions information differs between institutions, all require access to high-quality, accurate and comprehensive corporate actions data as the starting point for change, the white paper says.
(JDC)