Solving Buy-Side Investment Managers' Corporate Actions Data Challenge

For decades, there has been significant interest in automating corporate actions processing across the buy-side community. Meanwhile, the global pandemic’s impact on corporate actions has been significant as firms faced fluctuating timelines and high processing volumes amid cancelled dividends, shifted schedules, postponed mergers and acquisitions, and frequent trading halts and restrictions. Collecting corporate actions data should be trivial, but many investment managers still struggle with the process in today's world. 

Organizations such as SWIFT have introduced standardized messaging for corporate action notification and election messaging to help increase efficiencies. While some investment managers use standardized messaging to collect notifications and share elections, it is not the norm.

The majority of firms we have spoken with have not automated their corporate actions processing activities, primarily due to the difficulties of simply capturing, validating, normalizing, and reconciling corporate actions data.  What can investment managers do to increase the efficiency and integrity of their corporate actions data collection and processing?

The Pain of Collecting Corporate Actions Data

Long before an investment manager makes an election, it must first gather all of its corporate action notifications from multiple sources including banks, exchanges, and third-party data providers such as EDI and IHS. Corporate action notifications are difficult to capture and often arrive in non-standardized formats that may also be inaccurate, late, or missing important information.

While some banks offer corporate action web portals to download information, others send PDF attachments via email including details about the corporate action. In most cases, websites often require user credentials and multi-factor authentication, making it difficult to automate data collection. Inevitably, investment managers must choose between having IT involved in capturing corporate actions data across the investment manager's entire custodian universe, or outsourcing these activities to a third-party service provider.

Data Validation, Normalization and Reconciliation

Once an investment manager collects the corporate actions data, it needs to validate, normalize, and reconcile it for processing. Validation often may include two main N-way reconciliation requirements that are only found in advanced reconciliation solutions.

The first corporate actions reconciliation requirement includes comparing the investment manager's security position with what the bank believes is eligible for the corporate action event. This typically involves a position reconciliation where the manager compares their quantity with the bank’s corporate action event suitability. Investment managers want to realize the full benefit of the corporate action, and can only do so by verifying eligibility and reconciling their security position.

The second necessary corporate actions reconciliation relates to the event's underlying details to ensure all banks and third-party sources agree on the next step. This process often involves reconciling corporate action notices from custodians, exchanges, and third-party data providers such as NASDAQ, EDI, and IHS. Prior to submitting a corporate action for processing in their accounting or corporate actions workflow system, investment managers may want to reconcile each version of the corporate action against all known sources to promote accuracy and transparency.

Best-of-breed reconciliation solutions like Clareti and Electra Reconciliation make comparing two or more sources a breeze. By detecting issues early with any individual source, they greatly reduce the probability of missing a deadline date or acting on inaccurate information.

Upon completing the reconciliation tasks, the investment manager needs to upload the corporate actions to its internal systems for processing. Most systems that accept electronic corporate actions data will require the data to be sent in a specific file format and layout.

Enhancing the Quality and Speed of Corporate Actions Data

Corporate actions processing is risky, and small mistakes can have long-lasting effects on a buy-side firm’s reputation and bottom line. Investment managers who invest in solutions and services that automate and manage the collection, validation, normalization, and reconciliation of corporate actions data are better positioned than those relying on error-prone, manual processing.

If you are looking for a better way to increase the quality and speed of your corporate actions data, please contact us to schedule a conversation.