The rumor mill has been buzzing in the last few weeks about the potential sale of DTCCs corporate actions validations business.
As the company takes on a more utility-based approach, it is believed that services such as corporate actions are becoming more and more non-core. Additionally, a potential conflict of interest has been noted with the DTCCs ownership of Avox, which delivers validated, corrected and enriched business-entity reference data, to its global client base and the Corporate Actions Validations business.
DTCC would not confirm or deny the rumors, but instead issued a statement that said: As an at-cost, user-governed industry utility, we regularly assess the value, benefits and cost efficiency that all of DTCCs services deliver to our clients. GCA VS has since 2003 and continues to provide key information daily to clients on over 11 million corporate action announcements, and we have nothing specific to report related to any changes to this service at this time.
Bidders for a potential sale of the business are likely to be from the major asset services solution vendor community – those that have comparative or adjacent solutions to the DTCC’s corporate actions validation tool, says Aite analyst Virginie O’Shea. “DTCC’s corporate actions business is essentially focused on cleansing and validating data at the start of the corporate actions lifecycle, so any vendors focused on further down the chain might be interested in picking up additional capabilities, or those that offer services in areas that are complementary.”
The reason why DTCC might be divesting could be due to the high cost of maintaining the business, when other priorities are in the frame, says O’Shea. “The DTCC is focusing on areas such as bolstering its trade repository capabilities and regulatory reporting support, hence corporate actions is not likely to be top of its priority list. For the last five to six years we’ve seen companies such as Fiserv and Mondas exit the corporate actions business as it’s very expensive to maintain such a solution set over time and it’s a tough business to make money out of. The smaller guys such as XSP have made profits out of a very niche business because they concentrate entirely on corporate actions. You have to keep investing in the business to keep up with changes and maintain support for multiple standards. It is also not a business in which you can make a profit quickly – the sales cycle can be very long – even more so in this current climate.”
The rumor mill has linked XSP as a company that is likely to bid for the DTCC business as part of a consortium. The company sold its corporate actions data provision business to Interactive Data in 2007.
“In terms of pricing, vendors have to be adaptable and offer different types of service and solution,” O’Shea continues. “Vendors seeking to target asset managers of a small to medium size need to be able to offer a plug and play service that can scale to their requirements on demand. The larger financial institutions are more likely to roll out a larger-scale, centralized service, and they tend to have the budgets to roll out something that’s more infrastructure-heavy. However, given cost pressures, corporate actions is not being deemed a priority in the face of other more pressing regulatory requirements.
“The DTCC is likely looking for a relatively significant ticket price, but the business won’t suit a short-term investor such as a private equity house. The more strategic investors are likely to be in the frame and will have a longer-term vision of where to take the business.”
DTCCs Global Corporate Actions Validation Service (GCA VS) tracks, validates and distributes corporate actions information on 2.5 million securities globally in more than 200 countries and 15 languages. DTCC maintains staff in New York, London and Shanghai to validate corporate actions announcements and provides information on the events. DTCC extended the reach of GCA VS in 2011 by teaming up with leading software companies that automate the processing of corporate actions information. This initiative gives customers an end-to-end solution combining GCA VS data with processing capabilities offered by multiple vendors.
(JDC)