This week, I want to turn your attention to the importance of corporate action notifications. After all, when a corporate action is overlooked, the financial consequences can be very costly. The missed opportunities if not acting timely on a stock split, tender offer, or buyback, for example, as well as the confusion if a spin-off is not correctly reflected, can have significant impacts.
In fact, many firms, just to make sure nothing gets missed, take the effort to manually manage corporate action notifications. (Yes, the risk of dealing with the punitive costs is that great.)
Not long ago, corporate actions were typically communicated through unstructured documents such as PDFs, though data providers did offer the information within their own proprietary formats as well. But in the early 2000s, the first true standard for corporate actions was introduced with ISO 15022 MT564/568.
ISO 15022 provides standard corporate action types, standard terminology for mandatory and optional issue action attributes, and standard handling of the corporate action lifecycle.
Still, it took more than 10 years for this standard to be adopted virtually across the board. But as it was adopted, ISO 15022 really represented a big leap forward, bringing many benefits quickly and visibly to the financial services sector. These included faster and automated communication of corporate action notifications, easier corporate action matching across data sources, and, with same compatible terminology, the ability to create a gold copy of corporate actions. (These are only possible, of course, if the consumer’s data management platform has the capability to conduct rules-based CA matching in the first place. Coping with some leeway between the days involved in a CA, for example, is a necessity.)
At the same time, there are still a few proprietary corporate action feeds being used by a number of financial services providers, hence standardization is not yet entirely universal. These sources still need to be handled with a greater degree of customization.
Every year, there’s one SWIFT Standards release which also updates those MTxxx CA message types with the latest corporate action developments. Typically, data providers adopt these within a few months.
If you have not yet made the move to ISO 15022 CA, it’s definitely worth looking at. And while the next standard has been introduced, the XML-based ISO 20022, that adds more flexibility, it is also less clear-cut. (One reason why, in our observation, its adoption so far has been fairly limited.)
Hence, unless already done, the mature ISO 15022 is still a good path to make the important first step from proprietary CA processing with its too-high degree of manual intervention.
Future standards are inevitable, but the biggest move forward has already been made with ISO 15022.