How can the securities industry reduce costly frictions in communicating corporate actions? Learn more about the results of our latest collaborative experiments to find out.
Together with six leading securities industry participants – including American Century Investments, Citi and Northern Trust – we’ve successfully piloted an innovative blockchain-based solution that could reduce costly frictions associated with communicating significant corporate events to investors.
The testing concluded that the experimental solution could be beneficial for the industry, providing a clear and consistent view of corporate actions throughout the investor ecosystem, as well as quickly alerting when changes or updates occur. The solution demonstrated the potential to significantly reduce manual effort and errors in corporate action processing and deliver operational efficiencies for market participants.
Based on the results, we intend to move to the next phase of exploration with our broader community to assess the requirements for a fully viable and scalable solution, as well as additional features and use cases.
Our analysis found that asset managers often receive notifications from up to 100 different sources about the same corporate event, and the data is often different or contradictory from one source to another.
Current corporate action complexities
When an event takes place at a publicly listed company – such as a merger, general meeting, dividend payment or other corporate actions – the information must be quickly shared with investors, creditors, and all other relevant stakeholders. Due to the number of players involved in any given investment chain, however, performing this task is a highly complex business for market participants.
Each intermediary — e.g. central securities depositories (CSDs), local and global custodians, fund managers, and paying agents — has to pass on information about the event and, because they follow different data standards, may communicate the information slightly differently.
This creates complexity for recipients downstream as they may receive information about the same event from multiple issuers and, in some instances, with missing, contradictory or inaccurate data. They then need to manually compare and clean the data to arrive at a single accurate picture of the event in order to make the relevant decisions.
And this is a growing challenge
Swift data shows that corporate action volumes have increased two-fold since the Covid-19 pandemic. And, according to a recent survey by The ValueExchange with the support of ISSA, inefficiencies in communicating about corporate actions are costing each market participant USD 3-5 million a year on average.
“Our analysis found that asset managers often receive notifications from up to 100 different sources about the same corporate event, and the data is often different or contradictory from one source to another,” says Jonathan Ehrenfeld, Securities Strategy Director at Swift. “This means asset managers need to manually comb through the different sources to a gain single view of the event before they can make necessary decisions.”
Our corporate actions pilot explained
As part of our strategy to enable instant and frictionless transactions globally, we identified the need to tackle this securities industry pain point and find a fresh approach to corporate actions processing – one that’s capable of reducing data errors, removing manual intervention, and significantly lowering costs for market participants.
So, in line with our collaborative approach to innovation, we brought together six key custodians and asset managers to pilot a peer-to-peer matching solution to bring clarity to some of the most complex events — such as tender offers, full calls, stock splits and Dutch auctions – that can often lead to ambiguity.
With sensitive account numbers and holdings redacted, the participants provided extracts of Swift MT 564 messages for the selected event types. Swift’s Translator tool was used to convert the data into a blockchain-system readable format, which was uploaded onto a dedicated platform developed for the pilot.
Participants then performed peer-to-peer event comparisons, with smart contracts matching common data fields and flagging unmatched exceptions. A single, accurate ‘shared copy’ was then generated with composite data about the corporate action in question.
“Our experiments harnessed the power of blockchain technology to give all market participants a single, accurate view of a corporate action event,” explains Tom Zschach, Chief Innovation Officer at Swift. “We will now work closely with our community to assess all the features that are needed for developing a scalable industry-wide solution to this longstanding problem.”
A compelling solution
The peer-to-peer matching functionality demonstrated the ability to give participants a clear view on any given corporate action, as well as quickly alerting them if there are any changes to an event, and highlighting any remaining inconsistencies in the data for further investigation. The solution could also enrich and refine the event information with additional data points privately held by the participants.
In addition, the approach demonstrated the high level of data privacy required for this use case. All messages holding corporate action data were authenticated as to their source, stored in a chronological audit trail, and shared privately only with designated counterparties. No third party – including the platform provider – was able to see events and allocations related to a specific asset owner.
Planning for the future
With the pilot project proving a success, we will now work alongside our community to assess the most appropriate technology to implement, and the full requirements needed for a viable solution capable of being rolled-out across the industry. As part of this process, we will continue to work with our members to identify additional features and use cases required for a fully functional solution.
Read the results of the pilot
Download our results report ‘Fighting friction in corporate actions: A collaborative innovation pilot’ to learn more.