New Research Grapples with Corporate Actions

Working for a bank or asset manager in a corporate actions job can be “soul-destroying,” says Virginie O’Shea.

Processing these events for financial institutions is very technical, and the job has a high skill barrier to entry, and yet it remains underpaid and under-appreciated, says the CEO and founder of Firebrand Research, which this month released new research into this area of back-office operations.

“One of the problems the industry has is that even the older generation of people who have stuck within corporate actions are now leaving to do consulting and their prices have gone up, or they have gone to work for vendors. And then nobody really wants to work in it anymore. It can be a soul-destroying job,” O’Shea tells WatersTechnology.

“You have technology sometimes that hasn’t been upgraded in over a decade, or at least five or six years, so it’s horrible to look at,” she continues. “It’s a very complex job, with a lot of repetitive processes that you have to manage. You are having to deal with faxes, sometimes you are working through the night, and you are considered to be a cost rather than a value-add to the business, so you don’t get paid very well compared to other areas. It’s difficult to retain staff and there is a lot of churn.”

O’Shea, formerly head of capital markets at consultancy Aite Group, writes in the research that unhappiness with the job declines when the business invests in its technology. “The impact on staff morale of being forced to deal with monotonous, repetitive manual tasks every day cannot be underestimated. This is a tough-to-measure item, but staff turnover and an inefficient, demotivated workforce is detrimental to business growth overall,” she writes, urging firms to learn to make the business case for investment in this still largely manual space.

O’Shea estimates that firms globally have on average automated 64.2% of all the corporate actions events they handle annually, and achieved a straight-through-processing rate of 59.8% across the entire corporate actions lifecycle. Firms had an average of 2.2 tech solutions in place, “reflecting the patchwork of vendor offerings and legacy technologies that have been implemented over time.”

New Research

The research on the corporate actions industry is O’Shea’s first at Firebrand after she set up the company earlier this year. It is now available on a subscription basis via the company’s website. The research covers a wide range of topics, laying out which vendors are dominating the market and which are innovating fastest, how to make a business case for corporate actions and to whom, and the package includes some real-life case studies gleaned from interviews with banks, custodians, and asset managers.

For the broader report, O’Shea says she interviewed representatives from every link in the value chain of corporate actions processing, from the issuers themselves, to market infrastructures, standards bodies and regulators, and shareholders like pension funds, about their stress points. 

O’Shea says she chose to cover this particular aspect of post-trade processing for Firebrand’s first big research project because there isn’t much up-to-date research on corporate actions published, especially when it comes to statistics around best practices and automation.

But also, she says, the economic turmoil of this year highlighted how manual and inefficient these processes still are. As the Covid-19 pandemic impacted the economy, companies swiftly restructured, and there were more bankruptcies, mergers, and stock splits, all putting pressure downstream on the back office.

“This year there was a lot of pressure on corporate actions teams across the industry,” O’Shea says. “It’s one of the least digitally mature areas of post-trade, and there aren’t many vendors left in the space. So a lot of firms have found themselves struggling this year, especially if they were dealing with volumes. People in operations teams at financial institutions and market infrastructure [providers] would tell me that when it came to corporate actions processing, they were working through the night, and some people had to go in and send faxes and scan documents.”

Even at the best of times, corporate actions are difficult to process, she says. Corporate issuers announce events in stages—news is not issued all at once. And corporate actions releases are not standardized.

“A lot of news you pick up from a press release, and then there are later releases of information and updates. If it’s related to a bankruptcy, for example, you have to wait for legal documents to be updated. And issuers don’t have a standard way of doing it—they just put out data in really varied formats and legalese-filled documentation. All of the problems in processing stem from the fact that there is no global standard for each issuer to announce an event,” O’Shea says.

The industry has talked about adopting ISO20022 for years, but hardly anyone is actually using it, O’Shea adds, and regulators haven’t pushed it either, beyond for general meetings and proxy voting in Europe.

There aren’t many vendors in this area, despite market demand, O’Shea continues, due partly to consolidation, and partly to the high costs of hiring involved in a highly manual business.

“Offering data cleansing services has been a long hard road for vendors in this space, and it’s quite tough to remain in business,” she says. “A lot of work goes into those golden copy records that they produce.”

She says she has watched over the years as attempts to disrupt the industry—or at least bring new entrants to it—have failed. She tells how, at Swift’s Sibos conference in Singapore in 2015, she encountered some fintech companies that were planning to set up a service for corporate actions, focused on blockchain.

“I remember having these conversations in a bar with a bunch of them, and they were really gung-ho about it, but didn’t seem to understand the market all that well. And lo and behold, they are all gone now. It takes expertise in the process and the technology to develop a workable solution here,” she says.

The research says that Fidelity, one of the earliest providers of tech in corporate actions with its ActionsXchange platform, is currently sunsetting the business, which will open up its mostly North American client base for other vendors. Vendors that remain and offer corporate actions solutions are Asset Control, BBH Infomediary, Bloomberg’s Data Management Service, GoldenSource, Markit, and SimCorp Gain.

Research Disruption

After a career poring over hard-to-read pdf reports and Microsoft Excel tables, O’Shea says she wants to stand out as an analyst and researcher by making her own content more readable and interactive. For the corporate actions research, she has worked with a user experience (UX) designer to present it not as static pdfs or Excel sheets for download, but rather as groupings of information on the web, with embedded video and visualizations. Charts are interactive and searchable, so a user can, for example, compare two vendors without having to do a lot of scrolling up and down a table. There is content for a range of users, from trainees who have barely heard of corporate actions, to vendors looking to acquire other vendors, or a bank looking to buy services from a vendor. The research is accessible on any device.

O’Shea, who began her career at research group Informa and was a journalist covering post-trade topics before her eight-year stint at Aite Group, has throughout her career consulted with financial institutions, having had a hand in the launch of new businesses and products, and advising on mergers and acquisitions.

With Firebrand, she says, she will continue her consulting work, as well as produce more research. Her next focus will be on data management and reconciliations technology, but she will “try to benchmark what is going on in those areas at the industry level,” she says.

And she is also interested in looking at diversity, and how it relates to the environmental, social and governance (ESG) area. “This is one area that is always poorly covered by research firms. The stats tell you one story, but I want to do more interviews on that, and look at compliance operations teams in particular to begin with,” she says. “How have diversity initiatives impacted these functions? Where could the industry improve? How could we benchmark and encourage this change?”