A version of this blog post was originally published by Wall Street & Technology.
Virtually every industry in every corner of the world has undergone technological or process evolution in recent times. There are countless examples of innovations that have addressed a challenge – the process takes too long, the process costs too much, the process is too risky – and changed the game by helping organizations or individuals operate smarter through efficiency, automation, or simplification.
Let’s consider communication, or the transmission of messages, as just one area where evolution has occurred. There are ways to communicate that involve quite a bit of manual work, such as the use of a carrier pigeon. Not the quickest way to transmit a message, and not too efficient, as apparently a carrier pigeon typically only flew in one direction – home – and would need to be manually taken to a message’s original location to begin the process. Given the level of difficulty and manual intervention required, it’s no surprise we don’t see the skies full of email or text message pigeons today.
On the flip side, if we look at a more modern messaging bird, it is evident that technology has changed the game for how individuals, organizations, and governmental entities can communicate and discover information. Twitter offers its users a simplified and efficient way to communicate specific messages to an audience across the room or across the world – pointing to why the social network has amassed millions of users in just a few years.
A similar, albeit less feathery, evolution is taking place within the corporate actions space today.
Traditionally, when firms need to process a corporate action, they are faced with manual work along the way. While some firms have adopted automated corporate actions solutions to increase efficiency and reduce risk, there are still too many communication points within the corporate actions process that require manual intervention. In particular, when a firm is sending instructions for optional or voluntary events to The Depository Trust and Clearing Corporation (DTCC), those messages are still entered manually. Of course, this ups the risk and the cost of corporate actions processing for DTCC participants.
The industry is recognizing these challenges and the next evolution of corporate actions processing is now underway. The DTCC has begun a long-term, large-scale project called the DTCC Reengineering Initiative, a phased approach to automating the entire lifecycle of corporate actions for U.S, securities. In fact, successful testing of automated ISO 20022 message feeds between DTCC, SunGard’s XSP, and a select group of U.S. financial firms is already in progress.
The end goal? Evolve the corporate actions process to provide straight-through processing (STP) for industry participants, reducing the risks and costs associated with manual processes, while increasing efficiency through messaging automation. Industry utilities and vendors are hard at work to ensure their customers and participants don’t need to shoulder the burden of building bespoke solutions to keep up.
While the industry still has much work to do to get systems ramped up, new ISO 20022 message interfaces developed and testing completed, we are well on our way in this evolution of efficiency. Hopefully it won’t be too long before manual U.S. corporate action processing will also go the way of the birds.