Corporate Actions Overview
The effects of the financial crisis, with tolerance for risk at its lowest point, have more than
ever highlighted the need for automated standardized corporate actions processing. Coupled
with an increase in complexity and volume from increased restructuring and merger and
acquisition activities, this makes the quality of an organizations corporate actions data
management of even greater importance.
Despite advances in technology and the evolution of messaging standards, many financial
institutions—including some of the world‘s largest—continue to process corporate actions
manually. Microsoft and 3M are the two biggest solution providers in the space, indicating
the industry‘s inherent reliance on spreadsheets and ‗Post-It‘ notes, as well as on laborintensive processes. This exposes firms to significant risk.
Corporate actions verification and reconciliation continue to be manual and labor-intensive
processes, increasing the risk of potentially costly mistakes resulting in financial and
reputational liability for a firm. Obtaining high-quality, timely and accurate corporate action
information continues to be the biggest challenge confronting investment managers, brokerdealers, hedge funds and custodians today.
The size of losses and risk exposure from modern global investing means firms must use
similar levels of sophistication and techniques in front-office investing as in the decision on
corporate actions processing.
For example, modern, object-based code can be deployed to build rules engines that directly
automate and replace manual processes. Rules templates can be designed that are easily
replicated and modified to meet the complexity and varied requirements of the global
markets.
By taking advantage of web-based architecture, and by using available messaging
standards such as XML, solution providers can seamlessly integrate systems, users,
portfolio managers and clients in corporate actions processing.
The Problem in a Nutshell…
Many of the challenges that beset the corporate actions process are a result of the complexity
of delivering information from issuers to the ultimate investors. Currently, issuers do not
generate announcement information in a standardized, electronic format. Many good reasons
can be cited for them not to standardize, but the results are that the investors‘ intermediaries
– such as the custodian banks – must manually generate electronic records containing the
corporate event details that investors need.
Each of the many intermediaries and data providers is interpreting announcements to
manually create data, often with variations. The outcome of this interpretation can vary
widely, bearing in mind the complexity of many events. To reconcile the multiple versions
of an announcement, the data messages from multiple sources go through a manually
intensive scrubbing process. Besides the obvious inefficiency and delay of scrubbing by
every receiver of corporate actions, inevitably some inaccuracy or misinterpretation remains,
introducing the risk of not acting appropriately on an event, sometimes leading to very high
compensation payouts.
The current practice of textual announcements introduces inefficiency and risk, negatively
impacting processing costs and fees, investor satisfaction and market efficiency.
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How Can it be Solved?
The multiple interpretation problems can be minimized if an industry standard is adopted
earlier in the lifecycle of a corporate action or shareholders‘ meeting announcement. It has
been suggested that issuers have little to gain from getting involved – that the lack of
standardization of announcement information causes problems for intermediaries, but not for
the issuers themselves. In fact, issuers tend to be unaware of the scope of downstream
problems, especially the net impact on investors. If standardization is achieved at the
announcement stage, the intent and content of the issuers‘ corporate action can be
communicated to the investor with no risk of misinterpretation or delay – and the issuer is
not required to devote resources to answering queries about the event.
Since each issuer only infrequently announces a corporate event (six to eight times
annually), there is also a need for tools to help them quickly and easily align with industry
standards.
What role do ISO standards play in corporate actions messaging?
ISO 20022 is a business-model-based standard process for the development of messages for
the international financial services industry. The standard:
-led approval and development processes
The fact that ISO 20022 is an international standard is important because the financial
services industry is global and must support cross-border transactions, more so now than
ever before.
ISO standards supporting corporate actions cover:
ith choices of benefits or participation,
investor‘s securities or cash positions resulting from corporate actions.
These messages primarily are exchanges among central securities depositories,
intermediaries such as custodian banks, broker dealers and investment managers.
ISO 20022 messages also exist to cover communication and processing between a central
securities depository and issuer agents/registrars within a market.
There is also a suite of messaging covering the proxy voting space for use by issuer
companies, their agents, intermediaries and market infrastructures.
How does XBRL data tagging streamline the corporate actions process?
XBRL is a technology language for the electronic communication of business and financial
data and is being implemented worldwide. XBRL-formatted documents enable greater
efficiency, improved accuracy and reliability as well as cost savings to those involved in
supplying and using financial and business information data.
Based on XML, XBRL has the ability to ―tag‖ or code each element on a financial or
business report with information such as description, units and currency for easy
identification by users. Elements are grouped together into a collection of financial and
business reporting terms called ‗taxonomy‘. XBRL can be extended so that ―custom‖ terms
can be created for unique reporting situations.
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The corporate actions process can be streamlined and made more effective through the use
of consistently applied data and technology standards using a collection of terms (called a
taxonomy) that complies with the ISO 20022 standard for financial transactions.
Benefits
This initiative will deliver significant change with significant benefits, from issuer to
investor:
• For issuers. The intent and content of the originating offer will be clear to the investor and
conveyed in a timely fashion without fear of misinterpretation due to manual manipulation.
Issuers will incur marginal additional effort in tagging the data but will follow exactly the
same process as they undertake today.
• For the financial services industry. It will significantly reduce interpretation, re-keying
and manual exceptions. It will result in lower risk exposure to investor decisions based on
incorrect information, and reduce need for manual processing. The lower costs and risks can
reduce fees to investors.
• For investors. Investors can make decisions with guaranteed accurate information from
the source document without third party manual interpretation. It will allow more response
time as custodians and investment managers will no longer have to artificially compress
deadlines to compensate for the manual processing of elective information. It also lowers
costs, as transaction fees should be reduced. The solution is clear and attainable. By
implementing ISO 20022, a unique ID and XBRL, we can eliminate significant costs and
risks, and realize STP for Saudi corporate actions.
Primary Parties Involved
Issuer, Authorized Person, Depository
-custodian) acting on behalf of their global custodian customer
custodian) or an investment management institution or a broker/dealer which has an account
with their custodian
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Corporate Actions will be published to Members from the Actions HUB
1. Members submitting Corporation Actions will use a web browser and log on to a secure
Issuer Portal and retrieve a specific Corporate Action Text (with a UUID number) from the
Corporate Actions Repository ‗CAR‘ at Tadawul.
2. Edits (if needed) can be made and then the CA will be saved to the Corporate Action
Database ‗CAD‘
3. The Validated CA will be sent to all interested parties. All interested parties will have a
dashboard view of activities; limited only by user roles and access rights.
4. Parties (with permission) can edit, cancel/replace CAs at any time when not restricted by
the system.
NOTES:
A. All members will use ONLY CAs originating from the CAR (a read only database), i.e.
CAs will not be allowed if submitted through any other channel; they must all come from
the application using the CAR as its source.
B. The CAR will utilized ISO 20022 messaging standards and make use XBRL taxonomy
for formatting and viewing all messages.
C. The system will be able to publish data in any desired format; but the recommendation is
to use the ISO 20022 standards and XML/XBRL so as to be compatible with future changes.
Key services provided by the Tadawul Corporate Actions Data Hub
Data Capture – Employs a flexible rules and workflow-based approach to automate the
acceptance of Corporate Action data from multiple participants.
Data Certification – Employs a configurable rules and workflow engine to model and
automate the complex processes of data certification according to the requirements of the
participants. When Corporate Actions messages are received for the first time, the hub will
be able to automatically consolidate the data into a new, Certified Corporate Action
Event. The hub will automate Corporate Action data matching and consolidation to update
existing data in the CAD and avoid duplication of information.
Data Publication – The Tadawul HUB Architecture will provide a centralized, automated
messaging service that receives and processes requests for certified corporate action
information from multiple approved participants needing access to such data.
The HUB will also publish required information using web services in customizable
delivery formats (XML/XBRL and SWIFT). Through real-time message tracking and status
monitoring, the HUB will track requests for Corporate Action information and reduce the
financial risk of missed or delayed announcements. The participants receive the information
a cleansed, timely and accurate manner for improved decision-making.
The Tadawul HUB Framework will serve as a messaging solution to automate, rationalize
and consolidate point-to-point communication of Certified Corporate Action information
with a number of application frameworks within the domain of the participants.
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The service-oriented architecture will facilitate the sharing of services with other
applications within the enterprises of the participants to achieve enterprise-like integration
and STP in a flexible, platform-and-language independent way.
Most used Notifications
MT564 Corporate Action Notification
This message is sent by an account servicer (account servicing institution) to an account
owner or its designated agent. The account servicer may be a local agent (sub-custodian)
acting on behalf of their global custodian customer, or a custodian acting on behalf of an
investment management institution or a broker/dealer.
This message is used to provide an account owner with the details of a corporate action
event along with the possible elections or choices available to the account owner. It can be
initially sent as a preliminary advice and subsequently replaced by another MT 564 with
complete or confirmed information.
This message will also be used to provide the account owner with details of the impact a
corporate action event will have on a safekeeping or cash account, for example, entitlement
calculation. This message may also be sent by an information provider, such as a market
data provider or a stock exchange, to provide details of a corporate action event. This
message may also be used to:
tion notification
-send a corporate action notification previously sent
MT565 Corporate Action Instruction
This message is sent by an account owner to an account servicer (account servicing
institution). The account owner may be a global custodian which has an account with its
local agent (sub custodian) or an investment management institution or a broker/dealer
which has an account with their custodian.
This message is used to provide the custodian with instructions on how the account owner
wishes to proceed with a corporate action event. Instructions include investment decisions
regarding the exercise of rights issues, the election of stock or cash when the option is
available, and decisions on the conversion or tendering of securities. This message may also
be used to:
-send a corporate action instruction previously sent
MT566 Corporate Action Confirmation
This message is sent by an account servicer (account servicing institution) to an account
owner or its designated agent. The account servicer may be a local agent (sub-custodian)
acting on behalf of their global custodian customer, or a custodian acting on behalf of an
investment management institution or a broker/dealer.
This message is used to confirm to the account owner that securities and/or cash have been
credited / debited to an account as the result of a corporate action event. This message may
also be used to:
-send a corporate action confirmation previously sent
py of the message
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MT567 Corporate Action Status and Processing Advice
This message is sent by an account servicer (account servicing institution) to an account
owner or its designated agent. The account servicer may be a local agent (sub-custodian)
acting on behalf of their custodian customer, or a custodian acting on behalf of an
investment management institution or a broker/dealer.
This message is used to advise the status, or a change in status, of a corporate action-related
transaction previously instructed by, or executed on behalf of, the account owner. This will
include the acknowledgement/rejection of a corporate action instruction or the
acknowledgement/rejection of a request to cancel an outstanding instruction. It may also be
used to provide a reason as to why a corporate action event has not been completed by the
announced payment dates. This message may also be used to:
-send a corporate action status previously sent
MT568 Corporate Action Narrative
This message is sent between an account owner and an account servicer (account servicing
institution). The account owner may be a global custodian which has an account with its
local agent (sub custodian) or an investment management institution or a broker/dealer
which has an account with their custodian. This message is bi-directional.
This message is used to provide complex instructions or narrative details relating to a
corporate action event. This message may also be sent by an information provider, such as a
market data provider or a stock exchange, to provide details of a corporate action event. This
message may also be used to:
-send a corporate action narrative previously sent
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