The Depository Trust & Clearing Corporation (DTCC) has released a blueprint for the transformation of corporate action processing, including the development of centralised data cleansing and hub-based messaging.
The DTCC paper points out that today's corporate actions environment is characterised by a lack of standard practices and by labour-intensive processes, such as telexing, faxing and re-keying of information.
It calls for industry agreement and support of best practices, and outlines specific initiatives it will launch to help achieve these practices.
The best practices proposed in the paper are:
- Standardising corporate action announcement information to ensure the availability of consistent, accurate information;
- Automating the creation and dissemination of corporate action announcements to eliminate manual processing and simplify communications;
- Promoting standards and best market practices to streamline processing;
- Promoting the automated exchange of instructions to reduce risk and cost; and
- Eliminating the use of certificates in the handling of corporate action transactions where these practices remain.
"DTCC is committed to promoting and implementing these practices within the industry," says Donald Donahue, DTCC's chief operating officer, "and we're uniquely positioned to facilitate and encourage their adoption, given DTCC's broad global customer base, technological infrastructure, expertise and reputation in the industry."
In 2002, a record volume of nearly $1.9 trillion in reorganisation, redemption, dividend and interest payments were processed by DTCC's depository, says Donahue. More than 10,500 reorganisation events, 250,000 redemptions and calls, and 3.2 million income payments were processed last year.
The paper provides a summary of DTCC's key initiatives on corporate actions, including the development of a Global Corporate Action Validation Service, which provides a centralised source of "scrubbed" announcement information for securities globally to reduce the need for firms to identify, interpret, consolidate and verify information from multiple sources; and a Global Corporate Action Hub, billed as a flexible, real-time messaging solution that will automate and centralise the point-to-point exchange of corporate action information that takes place among investment managers, banks and broker/dealers in all markets.
The DTCC is also working on the development of enhanced instruction processing feeds, and the elimination of paper certificates for corporate action transactions in the US.
James Femia, managing director, DTCC Asset Services says it is clear that no one organisation or single approach can provide a complete industry solution.
"Rather, a combination of global efforts by participants and industry groups will be needed to achieve the desired results," he says.
Read the full paper: Transforming Corporate Action Processing: Providing A New Level of Risk Management and Achieving Straight-Through Processing