Issuers in the limelight?

"What if, rather than simply using a text-based document to make an event announcement, issuers instead used an intelligent document format that required them to do no more than select from drop-down boxes and build their event on the fly."

By Nat Sey, FT Interactive Data's manager of infrastructure and delivery, and member of the Reference Data User Group (RDUG) and its corporate actions working group

A strange thing is happening in the securities industry. People, often from within the same sector and from competing companies, are working with one another for the betterment of the whole industry. Since when did competitors become so friendly? Could it be since they bought into the idea of standardisation of the core components of their offerings on which there is no gain to be had in competing with one another.

Fed up with the inefficiencies and difficulties that the industry faces on a daily basis, we all yearn for a more productive, lower risk environment in which to do business. This is manifesting itself in the formation of several industry groups that are taking it upon themselves (membership is open) to explore the causes and seek potential solutions.

The Reference Data User Group (RDUG) is one such group. Founded by Dr Anthony Kirby and John Gubert of HSBC Holdings in June 2002, the group now acts as a virtual, not-for-profit forum and consists of more than 156 practitioners and suppliers. It has coupled with other market associations and industry bodies both in Europe and North America to further its goals by improving cooperation. Its terms of reference describe it as "a forum where representative members of the global securities markets can discuss and agree on solutions for key market issues pertinent to STP". RDUG has at different points throughout the past two years established three separate work streams: Unique Instrument Identification, Legal Entity Identification and Corporate Actions. The latter stream deals with issues that the industry has identified as those requiring attention from the perspective of the existing use of standards. It also looks at the role that issuers play in the processing chain. And it is now the turn of the issuers to hog the limelight.

Few would describe the way that global corporate actions are processed today as efficient. The issuer, perhaps via their agent, announces a corporate event. That announcement takes the form of a Word document or perhaps a PDF file and the content is generally unstructured text. Any third party such as a data vendor wishing to process the event must first attempt to interpret the content. Given the inefficiencies, differences in regional practice, as well as the industry's penchant for coming up with weird and wonderful asset types and event combinations, we might justifiably be surprised that the process works at all.

Ironically, however, it is in the issuer's interest that the event is correctly interpreted and therefore understood: in the case of an elective event, this will have a direct bearing on its take-up. And it is in the data vendor's interest to interpret the event correctly as the vendor will be judged by customers, at least in part, on the basis of the accuracy of content. Clearly, it is also in the market practitioner's e.g. the investment bank' interest to reduce risk and try to avoid potentially costly errors as far as possible.

Given all this, one might reasonably ask why on earth we are still making do with a less than ideal process?

What if, rather than simply using a text-based document to make an event announcement, the issuers instead used an intelligent document format that required them to do no more than select from drop-down boxes and build their event on the fly. In the case of a rights issue, the first drop-down box might be for "event type", and selecting this would provide three additional drop-downs - "no. of new shares", "no. of old shares", "issue price", and so on. This would require no more resource than simply writing the event out in prose. Such a formatted document could then be provided to the market and, if absolutely necessary, used in the same way as present - with content aggregators having to apply their interpretation of the event before passing it on to their customers. Where such aggregators have the facilities, however, they would be able to extract the component parts from the document and process the corporate actions event in all its structured glory - perhaps transforming it into an ISO 15022 MT564 for onward dissemination to their customers. This would provide "backward compatibility" with huge potential efficiency gains at the same time.





Anthony Kirby does not believe that RDUG should be prescriptive about the solution: RDUG exists to identify process deficits and the business cases for change - not invent standards nor dictate technology solutions which are the rightful remit of other industry efforts and the supplier community. We look forward to expanding the dialogue further during 2005 with the issuer communities and their agents across the European Union, by partnering with bodies such as the ECB, the EBF and ECSDA, as well as engaging further with relevant bodies in the UK such as the ICSA, the FRC and the FSA*. Experience has taught us that the challenges are not insuperable if industry bodies remain focused on their core missions and couple to other industry efforts underway to avoid reinventing the wheel.

*ECB (European Central Bank); EBF (European Banking Forum); ECSDA (European Central Securities Depositories Association); ICSA (Institute of Chartered Secretaries and Administrators); FRC (Financial Reporting Council); FSA (Financial Services Authority).

For further information please contact Nat Sey.
nat.sey@interactivedata.com

The views in this document are those of the author and do not necessarily reflect those of Interactive Data

FT Interactive Data, a provider of corporate action event data for over 30 years, has a wealth of experience in gathering, updating, validating and delivering corporate actions data to back office environments. Its comprehensive corporate action information available in ISO 15022 format includes rights issues, bonus issues, mergers and acquisitions, and redemptions. FT Interactive Data made available the first release of its ISO 15022 based corporate actions service in the summer of 2004. Today, its current release comprehensively covers the majority of the 67 event types that deal with corporate actions content. Upon initial release, this service was available for FTP over the internet; in September 2005, Interactive Data announced that its service is now also available via SWIFTNet.

© Interactive Data (Europe) Limited 2006