Regional corporate action function costing market participants US$5 million per year, finds The ValueExchange
01 July 2022 UK
Image: alexkich
The average, regional corporate action function is already costing market participants up to US$5 million per year – and that same department now has to grow by almost 30 per cent this year, according to new research from the ValueExchange.
The question of how to realise this level of scale in a highly manual business is the central theme for custodians, brokers and investors in 2022, the ValueExchange adds.
The key findings are outlined in a research report “Reimagining the Corporate Actions Operating Model” research, sponsored by S&P Global Market Intelligence, and run with the support of International Securities Services Association.
The research highlights a wide range of abilities to ramp up corporate action processing across the industry – with brokers and investment banks most significantly challenged.
Whilst their custodian and investor peers see some returns on scale in their asset servicing, brokers’ corporate action costs are rising faster than their volumes. This is particularly the result of limited investments in technology, a high reliance on manual processing, and a uniquely challenging business mix that includes corporate action hot-spots such as securities lending and structured products.
The research also underlines the widespread impact of failing to manage scale – including losses of more than US$1 million as well as regulatory impacts, project delays, audit risks and failing trades – leaving few untouched from front to back by the negative consequences of corporate actions.
The research identifies the challenge of hiring new, specialist resources in corporate actions as a key concern. It is unlikely that firms will be able to expand their headcounts by the 15 per cent level required to keep departments operational, the report finds – making these impacts even more acute.
Fortunately, solutions such as the deployment of ISO 20022 (for complex, voluntary events) and data outsourcing both present real and viable solutions for improved automation, says the ValueExchange.
These solutions are likely to deliver cost and risk efficiencies and will also help participants to face up to the myriad of external pressures that they face, from T+1 to the Central Securities Depository Regulation.
Commenting on the survey, Barnaby Nelson, CEO of the ValueExchange, says: “In an era of red-hot volume growth, the urgency of change in some areas of our industry is unavoidable.
“Whilst we have always known that corporate actions are heavily manual, we have rarely had to contend with periods of volume growth, event complexity and talent shortages all at once. Put together, it is hard to see how some firms can continue to grow without major transformation – but thankfully the answers and the solutions are out there to leverage today.”
The question of how to realise this level of scale in a highly manual business is the central theme for custodians, brokers and investors in 2022, the ValueExchange adds.
The key findings are outlined in a research report “Reimagining the Corporate Actions Operating Model” research, sponsored by S&P Global Market Intelligence, and run with the support of International Securities Services Association.
The research highlights a wide range of abilities to ramp up corporate action processing across the industry – with brokers and investment banks most significantly challenged.
Whilst their custodian and investor peers see some returns on scale in their asset servicing, brokers’ corporate action costs are rising faster than their volumes. This is particularly the result of limited investments in technology, a high reliance on manual processing, and a uniquely challenging business mix that includes corporate action hot-spots such as securities lending and structured products.
The research also underlines the widespread impact of failing to manage scale – including losses of more than US$1 million as well as regulatory impacts, project delays, audit risks and failing trades – leaving few untouched from front to back by the negative consequences of corporate actions.
The research identifies the challenge of hiring new, specialist resources in corporate actions as a key concern. It is unlikely that firms will be able to expand their headcounts by the 15 per cent level required to keep departments operational, the report finds – making these impacts even more acute.
Fortunately, solutions such as the deployment of ISO 20022 (for complex, voluntary events) and data outsourcing both present real and viable solutions for improved automation, says the ValueExchange.
These solutions are likely to deliver cost and risk efficiencies and will also help participants to face up to the myriad of external pressures that they face, from T+1 to the Central Securities Depository Regulation.
Commenting on the survey, Barnaby Nelson, CEO of the ValueExchange, says: “In an era of red-hot volume growth, the urgency of change in some areas of our industry is unavoidable.
“Whilst we have always known that corporate actions are heavily manual, we have rarely had to contend with periods of volume growth, event complexity and talent shortages all at once. Put together, it is hard to see how some firms can continue to grow without major transformation – but thankfully the answers and the solutions are out there to leverage today.”
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