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Corporate actions impact trading, share prices - study

18 May 2006  |  10019 views  |  0 zeroes

Even routine corporate actions events can have a significant impact on share prices and trading activity, according to research conducted by consultancy Oxera and sponsored by the Depository Trust & Clearing Corporation (DTCC).

The report studied five corporate action event types - takeovers, stock splits, spin offs, rights issues and exchange offers - and how they impacted share prices and trading activity.

The study found that corporate actions have potentially strong effects on share prices and trading activity, although these effects depend on the type of corporate action and the particular point in the corporate action processing cycle. According to the study, takeovers, spin-offs, stock splits and rights issues have the strongest effects, while exchange offers have only a limited impact.

James Femia, managing director, DTCC global corporate actions, says the study highlights the need for firms to make sure that trading desks have access to accurate, timely data on corporate actions in order to execute proper trading strategies.

"What this study demonstrates is that trading can be significantly impacted by even routine announcements, and that organisations need corporate actions information quickly and accurately throughout their operations," he says.

The results of the Oxera survey will be used to develop the DTCC's existing Global Corporate Actions Validation Service.

Femia says trading desks are increasingly pushing for better and more timely data on corporate actions and the DTCC is working on a new service that has an emphasis on speedy delivery of initial announcements information that is customised for trading desks, even if all the data hasn't been verified or completed.

"Traders and investors need early visibility of events. They can't necessarily wait until all the details of the event have been validated and verified," says Femia.

Earlier this week a new working group - jointly chaired by the British Bankers' Association (BBA) and CrestCo - was established to ensure that firms in the UK comply with new pan-European corporate action standards.

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