5. Realising transformation:
Every step counts
A gradual path of convergence
There is no silver bullet for corporate action automation and no off-the-shelf solution that can satisfy everyone’s immediate needs – a sentiment that is more strongly felt in Australia than in other leading markets. Market participants are clearly sceptical about the viability of any platform delivering the required levels of resilience (in terms of STP) in a time frame that justifies the transition.
Early market experience of using the Real Time Corporate Actions service is that it requires a path of convergence between provider and subscribers.
ASX’s coverage of events has continued to grow steadily since launch – with the aim of scaling into further event types, as guided by market requirements. Equally, consumers of the service have had to make several rounds of system adjustments to their own data processing in order to derive the full value from the feed. These can range from fundamental revisions to event classifications and treatments (to align standards between the market and participants) to revising smaller details such as rounding rules.
Alongside data formats and system connectivity, the question of trust is an essential part of every deployment. In a heavily regulated operating environment, the concept of actually removing layers of data verification seems almost counterintuitive. Before any decision can be taken to move to any single information source, numerous stakeholders, risk committees and product owners need to be satisfied that they can take accountability for the data in front of their own clients. Users have described lengthy and systematic periods of data validation prior to switching over.
This means that a solution is neither immediate nor free, but this mutual investment in alignment – which can last up to 18 or 24 months – is key to participants being able to properly harness the power of the new, standardised data service. Through open and transparent engagement, the market and subscribers can address key issues together and shape a solution that delivers over 80% improvements in STP levels, when compared with current processes.
Residual risks?
Even with this continuing investment and increased efficiency, income and mandatory corporate events (on equities) are not the whole story. Proxy voting (the single area where Australians’ level of satisfaction is below global peers), some fixed income events and investment fund structures are all outside of the scope of the Real Time Corporate Actions service and so high levels of risk can remain in the back office even after large scale transformation.
In this context, leading banks are turning to a new target operating model for events and meetings data based on three platforms: ASX’s Real Time Corporate Actions service, ASX’s DataSphere (for fixed income coverage from Austraclear) and industry provider Proxymity (for proxy voting). With three platforms built on the principle of passing through event data direct from the original source, there is now an excellent opportunity to scale the benefits of increased STP and accelerated notifications throughout the back office.
“We have to get to the point where we would be comfortable sitting in front of a client and explaining this data”
(Global Custodian)
“Fixing the payments side would take so much waste out across the industry”
(Mark Wootton, Head of Custody Product for Asia-Pacific, BNP Paribas)
What next? Beyond notifications...
This report has focused almost entirely on event notifications – but the potential benefits of corporate action automation lie across the entire event lifecycle, including in instructions and payments.
As the market begins to leverage the benefits of a new target operating model for notifications, attention is also turning to the promise of change in the payments and funding side too. With every corporate event election currently funded through direct cash transfers through each share registry’s portal, the risk and scope for errors and reconciliation breaks is significant. Not to mention significant liquidity costs.
Looking ahead, Day One plans for CHESS replacement include provisions for new elections (e.g. on dividend reinvestment plans) - which will be an important first step in beginning to simplify the instruction-side of corporate actions. Beyond that, there is great anticipation in the market for confirmation of the Day Two roadmap for corporate actions in CHESS – in terms of the potential scope and breadth of an expanded gateway.
Given the current momentum for corporate action change in Australia, the outlook for market participants appears increasingly positive. With STP rates set to rise dramatically in the coming years, the costs, risks and delays that are embedded in our everyday investments look certain to diminish. And with every incremental improvement, the value and returns that we derive from our own Australian investments will grow.
If you would like to learn more from ASX about how the Real Time Corporate Actions Service can simplify your operations then please reach out!
