Corporate Actions Processing

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I am increasingly concerned with the ability of FIs to actually understand corporate actions processing and what constitutes a corporate actions system. Vendors have moved with the times unfortunately that does not seem to be the case with a number of FIs. Many FIs still have to clearly define corporate actions processing and what it actually means in system terms. For some, its SWIFT message processing dominates, but others may see notifications or entitlements as a core requirement. In truth it’s all of these and more that provides system processing functionality. From the point of receiving the data through final settlement and reconciliation, but the best will also provide real-time management and highlight exceptions and transactions not yet actioned. Thus processing requirements and system suppliers are all very different, within a market, which has different perceptions of what constitutes corporate actions processing.

For years now B.I.S.S. Research has been closely following the corporate actions system vendors and in particular the systems functionality they have developed. It was over ten years ago when we first benchmarked a corporate action system and we created the benchmarks by gathering a panel of experts drawn from regulated Financial Institutions (FIs) from both buy and sell-side. The end result was the most comprehensive description of what functionality constitutes a corporate actions system and just as importantly the capability of the vendor to understand corporate actions processing and how it is operated within the different types of FIs. We have been told on numerous occasions that our benchmark test is tougher than any RFI or RFP commonly used during the procurement process. I imagine this is correct, as it’s has been created by a combination of over twenty different panel members over the last ten years. This combined expertise would never be available for a normal corporate actions project in the market.

It’s been interesting that over ten years it’s been possible to easily catalogue each vendor’s various strengths and weaknesses. It’s fair to say no one vendor or system is the same as the other. Currently, the five top corporate actions vendors with processing functionality that would have a chance of achieving the benchmark tests are: Information Mosaic, SmartStream, TCS, Vermeg and XSP.  All have plus and to a lesser degree; some minus points and all can be said capable of fulfilling corporate actions processing requirements in most FIs. Some FIs would find one or two systems were best suited for their requirements, whilst others might choose different systems; the difference being the environment that they have to operate in. The same is true of the vendors themselves, where the culture of one, or the people of another, might appeal more to the expectations of the buyer. So no single vendor or system may be considered the best or the worst. I have been asked to give opinions on all of these vendors on many occasions and although like any analyst I will have been impressed more with one than another, it is an objective view that is most important. In the case of full corporate actions systems it is a small market with only a few very distinctive vendors to choose from.

We have recently completed the benchmarking of Vermeg and MegaCorTM and as they are fresh in my mind I can give a detailed analysis of their particular strengths and weaknesses. Vermeg has been hugely successful over the last two years, really cashing in one their considerable technology investment. It has thought hard about the technology requirements to produce a corporate actions processing system that not only does the job but provides a complete management tool eliminating expensive errors. Their understanding of corporate actions and the needs of their users is an on-going exercise that we have seen demonstrated each year, as they enter the benchmarking process and open up their system and company to close scrutiny.

The benchmark test is also an on-going exercise as it is annually updated so it incorporates changes in the market or technical innovations. Therefore it represents a constant challenge for vendors to ensure their system remains up-to-date with current demands. I am pleased to say that Vermeg have never shirked this challenge. It has been delightful to see the growth and development of its system and the company, which are detailed in the annual report.

All five corporate actions vendors mentioned have processing functionality and each can do a good job. What is certain is that for anyone that thinks there is no such thing as a true corporate actions processing system, they are very wrong. I know I have spent over a decade proving it!