Efficiency of Corporate Actions

Where are we now and where are we headed?

Adam Wilson

Director, Securities Markets, Asia Pacific

Agenda

• What is a Corporate Action?• Why do inefficiencies occur?• The case for change• Why XBRL?• A new solution?

What is a Corporate Action?

The primary reasons for companies to use corporate actions are:

• Return profits to shareholders• Influence the share price• Corporate Restructuring

interest payments

cash dividend

final maturity

“put” redemption

conversion

stock dividend

stock split

tender offer

merger

partial call

rights distribution

reverse stock split

rights issue

bonus issue

decrease in value

dividend reinvestmentexchange

offer

maturity extension

spin-off

name change

priority issue

What is a Corporate Action?

SWIFT’s future strategy for Asset ServicingISITC Corporate Actions Diamond- the lifecycle of corporate actions

INVESTOR

ISSUER

Co-/Lead-Manager/Exchange Agent/Conversion Agent

FUND MANAGERAppointed by investor

CUSTODIANAppointed by investor

REGISTRAR/AGENTAppointed by issuerto maintain register

BROKER/DEALERExecution of trades

where necessary

CSDWhere shares are

Ultimately held

CUSTODIAN’S NOMINEE

Name on register

Corporate Actions automation inconsistency – lack of end-to-end data impacts quality

Almost no use of data standards for announcements

Strong automation, weak market practice compliance

Buy-side limited by poor message quality, STP rate ~ 0%

The flow of data

Issuer / Agent

Sub-Custodian A

Sub-Custodian B

Data Provider X

Data Provider Y

Investment / Asset Manager

Central Securities Depository

Global Custodian J

Global Custodian K

Exchange

Prospectus

Portal

The data explosion

7

Multiple paper-oriented documents per action

Press

releases

Regulatory

filingsProspectuses

Letters of

transmittal

Asset servicers, custodians, broker/dealers

CSD, data vendors

Affected investors

Investment managers, fund managers

Globally ~3 billion exchanges of data (messages) each year

Servicing millions of

securities accounts

Multiple changes for life of each event (weeks to months)

One Example• 300+ pages to describe an

‘Exchange Offer’

• 38 separate updates were published from Dec 08 to May 09, as new information was made available

• Validation took 12 separate sources of data

• Five people worked on it extracting 63 data elements, amassing 44 pages of audit trail changes

The paper-based nightmare of corporate actions…

The challenge is to find the right data, in the right pages, buried somewhere in the free-text document

Impact is on the entire market, especially the Investors

Risk

Costs

Issuers “first link in the chain” are generally unaware of the problem

Timing

Interpretation

Accuracy

Ultimately, we cannot forget that it is the investors’ money that funds the industry… …so the investors are paying for the inefficiency, delay, failures and waste

17 June 2010

Findings

10

Recommendations1. All parties adopt a single set of global information and

technology standards2. Issuers “tag” the corporate actions documents with

XBRL3. Intermediaries seamlessly disseminate the electronic

version of the tagged data

Big Benefits

1. Investors get key details faster with higher accuracy2. Institutional investors improve decision making3. Issuer confidence in accuracy, timeliness, and transparency4. Regulators recognize efficiency and responsiveness to

implement rule changes due to a standards driven process5. Intermediaries experience reduced risk and streamlining

17 June 2010

XBRL CA Initiative in the US

• Started in 2008– DTCC, SWIFT and XBRL US adressed the issues involving

CA announcements by initiating development of an XBRL taxonomy for CA

– DTCC and XBRL US developed the taxonomy utilizing existing taxonomy data types

• SWIFT supported the development of the US taxonomy and the ISO 20022 subset messages for DTCC– Alignment with international standards (ISO 20022)– US market specific requirements (market practice)– ISO 20022 subset messages

XBRL CA piloting in the US – current status

• ADR (American Depositary Receipts) – Foreign stock listed on US exchange via a Depositary Bank– Citi piloting XBRL for ADR announcements with support from

DTCC, XBRL US and SWIFT

• Piloting with corporate issuers– Taxonomy being completed, applying responses from the

open comment period– Working with vendors for tagging tools– Targeting early adopters of the GAAP taxonomy, supporters

of technology & standards to improve data disclosure– Most of rest of 2011 focusing on this

Future Opportunities

• CA taxonomy for US, with alignment to ISO 20022– Building block for adaptation in other markets– Reverse engineering of ISO 20022 means compatibility with

ISO 15022 markets– SWIFT supports ongoing alignment to ISO 20022 standards

• Issuer and Investor interest in Proxy Voting– Similar alignment to ISO 20022 Proxy Voting messages– Similar workflow to Corporate Actions, different data elements

• Other areas: funds, issuance of securities, more

The issuer will ‘drag and tag’ and associate free text to structured data, via XBRL tool

Modelling & development- Data model- Taxonomy- ISO alignment- Pilot &

implementation

Harmonisation:- downstream market to ISO / SWIFT messages

Business drivers-Stakeholders-Communication -Business rationale

Year 1

Launch Project – identify required market leadership – issuers, CSDs, Stock Exchanges, Regulator, XBRL Jurisdiction

Form Stakeholder Group, build business case, maintain dialogue, leverage for communication

Develop Data Model – market templates to drive taxonomy

Build Taxonomy - from existing, aligned with ISO 20022

Submit ISO 20022 CA extensions - if needed for market

Public review – of taxonomy and to validate templates

Decide on approach – voluntary, regulatory, pilot, depending on market structure

Publish taxonomy & Start issuer pilots

If needed – Prepare and drive migration and adoption of ISO 20022 in market

Year 2Adoption

Issuers to Investors : Corporate Actions – a global template for new markets

Thank you