The evolving case for corporate actions transformation
ASX case study
Australia is known to be a complex corporate action market. With a unique market structure, highly sophisticated tax rules and a growing array of specific event types, it is no surprise that Australian back offices struggle more with corporate actions than their global peers.
So what is to be done? Since 2020, the ASX's Real Time Corporate Actions service has been helping market participants to carve out significant, new efficiencies in their corporate actions processing. By delivering all event data in ISO20022 format, in real time, for all corporate events, ASX is delivering automation, speed and scale to an industry that clearly lags its global peers in terms of efficiency.
Based on interviews with existing users of the ASX Real Time Corporate Actions service and with corporate action experts across the Australian market, this paper combines extensive market perspectives with extensive, statistical research from our 2022 "Corporate Action Transformation in Australia" study.
Our aim in this paper is to give you a clear, market-based view of the case for corporate action transformation in Australia - helping you to scale your back office activities.
The case for getting started…
“It’s a no-brainer”
Mark Wootton, Regional Head of Local Custody and Clearing Product for Asia-Pacific, Securities Services at BNP Paribas
Manual processes mean costs, risk and people problems
The case for corporate event transformation begins in the huge amount of manual resources (and risk) that are tied up in corporate action event sourcing in Australia today.
With the average firm employing up to 100 headcounts on event sourcing across the region, the challenges associated with manual event processing are becoming clearer than ever.
Where costs, risk and lack of flexibility have long been understood to be core issues in the back office, we have seen global back offices struggle significantly to hire and retain talent in 2022.
If our processes are built on people to source data, what happens when we can’t find those people any more?
“Every day we were spending 5 to 6 hours a day reading event data, going from A to Z”
Mark Wootton, Regional Head of Local Custody and Clearing Product for Asia-Pacific, Securities Services at BNP Paribas
Corporate actions as a new business KPI
The client angle matters too.
In a world of intense, data-driven competition, the comparative timing of corporate action notifications are a key metric in evaluating new providers.
For those looking to serve custodians, investment banks and arbitrage funds, a 30-minute lag in the timeliness of a corporate action notice can mean the difference between a multi-million dollar mandate and no new business this year.
And even with existing clients, the risk of errors driven by late event notifications is at the forefront of today’s agenda.
Can anyone rightly choose to be behind the market?
“We used to be at a competitive disadvantage with our cut offs”
Head of Product Management, Leading custodian bank
Corporate actions is at the heart of digitisation
“Our digitisation budgets were easily enough to cover the costs of using this service”
Custody Product Manager, Leading custodian bank
With 67% of firms making a priority of post-trade automation in 2022, it is fortunately getting much easier to secure investment budgets for corporate action transformation.
As firms look to leverage the plethora of new technologies to digitise their manual and back office processes, few struggle to include corporate actions in these projects as a core target of spend.
Unexpected benefits
Beyond just getting started, the business case for driving transformation in the back office extends well beyond the few factors that trigger the conversation. Experience of those using the ASX Real Time Corporate Actions solution in a live environment shows that the impact is far wider than expected.
“We don’t have corporate action risk”
Regional Product Head, Leading custodian bank
Leading the client discussion with corporate actions
Beyond arguing about minor differences in cut offs, firms using the service today highlight an entire change in their client narrative.
Stripped of the interpretative and translation risk of corporate action sourcing, custodian banks and brokers can legitimately tell their investor clients that their corporate action risk is now only market risk.
With the 62% of market participants in Asia-Pacific experiencing over USD$2m in the cost of errors every year, the removal of this risk is far more than a cost save – it is a unique customer enabler.
It's no surprise then that corporate actions are beginning to turn up in pitch books and sales documentation – for the first time.
“Our corporate actions have become a unique selling point”
Mark Wootton, Regional Head of Local Custody and Clearing Product for Asia-Pacific, Securities Services at BNP Paribas
Less risk, less variance....fewer questions
“Our customer call volumes have plummeted”
Head of Client Servicing, Leading custodian bank
…and with the elimination of variance comes new efficiencies on a market level.
As more and more custodians and brokers use the same, market-wide source, customers will see a significant reduction in the variance of event data between custodians. With less variance comes fewer exceptions that need verifying and fewer queries that need to be triggered.
If everyone is looking at the same data, we simply don’t need to call out and handle exceptions any more.
...and no more duplication
“The savings from consolidating our data feeds have been huge”
Mark Wootton, Regional Head of Local Custody and Clearing Product for Asia-Pacific, Securities Services at BNP Paribas
Today, the average custodian sources over ten different data feeds for corporate actions regionally – often including one or more consolidated, vendor feeds to act as a source of comparison and verification.
By transferring corporate action sourcing to a consistent, market-wide standard, the need for a comparative source disappears. Events are dependable as they are received – and so there is no need for additional measures to remove or reduce sourcing risk.
From many sources to one source – and with it the costs of procuring, managing and integrating these sources every day.
...and protection against people-risks
With less data variance and risk – and fewer manual processes to support – those who have automated their event data sourcing are seeing a major improvement in their people risk.
As a central theme to 2022, the Great Resignation has caused back offices to strain as competition for scarce, expert resources on corporate actions has escalated – to the point where (highly manual) brokers have even begun to experience negative scale in their back offices.
With costs growing faster than volumes, every firm is now critically watching their small team of specialists who know how to interpret and digest a PDF-based disclosure or the free text information in an MT564 – and the retention of these experts is a senior management priority.
What better way to protect against people turnover than by transferring these skilled and experienced staff away from being “human APIs” and towards business analysis?
“We’ve transferred 3 headcounts out of corporate actions – and seen a huge reduction in our exposure to people turnover”
Regional Product Manager, Leading custodian bank