3. What happens tomorrow?
An unclear case for change?
Despite significant market inefficiencies, market participants seem unwilling or unable to reshape their operating models.
But what risks does this inertia entail?
Are most Australians happy with their corporate action processing?
In comparison with their global peers, Australian market participants seem to be more confident in their ability to process mainstream corporate actions than many of their global peers. Seemingly less pressured by considerations around data quality and manual processing than elsewhere, custodians and brokers consistently view their corporate actions processes to be more reliable than global averages.
Unfortunately, investors don’t agree. Beneficial owners see their corporate action data and processing as being worse than their global peers - with concerns especially focused on the manual handling, event risks and lack of scalability that are inherent in the manual processes that they rely on today.
Only in the proxy space do Australian respondents consistently acknowledge a problem. After a period of intense transformation in this space across Europe (and Europe-bound investors), the Australian proxy market now lags 5% behind global averages for data and processing quality.
Should we all just leave corporate actions alone then and just fix proxy voting?
"It's all 'okayish' at the moment"
(Global Investment Bank)
We're not tracking the problem
If Australian market participants are being undermined by heavily manual processes in data sourcing, validation and interpretation, the biggest challenge is that they are not aware of the costs of those inefficiencies.
Whilst 77% of Australians are systematically tracking the costs of vendor feeds, only 53% maintain a clear view of their data interpretation costs. More worryingly, only 39% of market participants are keeping a regular track of their data enrichment costs – meaning that two-thirds of the industry is overlooking the very costs that are at the root of their inefficiencies.
Whilst unfortunately consistent with a global trend to under-value the cost of corporate actions, the fully-loaded costs of corporate action processing in Australia risk being significantly underestimated and the hot-spots (identified above) overlooked – by up to 60% of market participants today.
We’re still adding to the problem
Given this oversight and misshapen view of corporate action costs, it is perhaps not surprising that we have not yet stopped adding to the problem.
Over the coming two years, Australian participants plan to prioritise hiring as their key option in the drive to create efficiencies in the corporate actions space. Custodians seem most enthusiastic about the benefits of hiring and only investors are considering simple levels of automation (through RPA / robotics).
Based on our survey findings, we may need to wait until 2023 to see the industry turn its attention to system automation and API connectivity as core instruments of change.
Given the strong dependencies on the ongoing CHESS replacement, this short-termism is perhaps understandable (you can’t revise your systems until you know what infrastructure they are going to connect to) but the short term outlook for the market appears bleak.
Increasing headcounts in 2022 will no doubt add significant pressures to a market that is already high-risk; whilst additional data sources will add duplication and cost.
But is automation the answer?
Poor cost visibility isn’t the only driver behind Australia’s planned hiring drive. One of the more surprising statistics from our research is the fact that Australians have seen negative returns from their efforts to automate corporate action processing in the past.
Although the global trend is for highly automated firms to see significantly fewer customer and regulatory issues, the evidence in Australia is that automation has historically led to increased volumes of audit issues, customer SLA breaches and regulatory sanctions. Firms have literally been left worse off having invested in automation projects – meaning that they are understandably conservative about the future outlook.
If firms can spend millions on automation but end up negatively impacted, does this make Australia’s corporate actions market simply unfixable?
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!
