XBRL: The Corporate Actions Solution?

Industry participants have long been pushing for increased use of XBRL, and regulators have also had their say. In September 2008, US regulator the Securities and Exchange Commission (SEC) replaced the 1980s electronic data gathering, analysis and retrieval system Edgar with IDEA, the interactive data electronic applications database for company information, moving to a system using XBRL for company filings (Inside Reference Data, September 2008). In December 2008, the SEC ruled to mandate the use of XBRL as an interactive data format for financial filings from all publicly traded US companies (Inside Reference Data, January 2009).

Now it could be time for corporate actions to join the XBRL bandwagon. For more than a year, the industry has made a push for issuers to also use XBRL for corporate actions announcements. In fact, this move to corporate actions was also one of the pivotal discussions at Swift-organized Sibos 2008 in Vienna (Inside Reference Data, October 2008).

The long-awaited change that would drastically increase corporate actions data quality could become a reality. On May 28, XBRL US, the Washington DC-based organization that supports the implementation of XBRL in the US will complete a prototype of the XBRL taxonomy for corporate actions and hold a conference to demonstrate how it works. Washington, DC-based Mark Bolgiano, president and chief executive officer, XBRL US says: "We are now preparing to complete the first phase of the draft taxonomy, which can be used to start the conversation about XBRL for corporate actions across national and international lines."

The timing seems ideal. New York-based Patrick Curtin, head of securities initiatives, Americas, at Swift, and a member of the Swift Americas management team, says: "Currently there is a lot of pressure to improve the risks in corporate actions processing. Considering the SEC has mandated the use of XBRL for financial reporting, recent events and the evolution of XML technology have now created a 'perfect storm' of activity around linking issuer information with other trading and transaction information in the lifecycle of events surrounding financial instruments. Swift sees an opportunity to dramatically improve automation rates throughout the entire financial information supply chain, by standardizing the information being sent from a financial entity all the way through to the ultimate investor."

The industry is now working together to achieve the same goals. In fact, Swift and The Depository Trust & Clearing Corporation (DTCC) are collaborating to push XBRL for corporate actions to help standardize messages and reduce risk (Inside Reference Data, April 2009). Industry bodies such as DTCC, Swift and XBRL have come together in a cohesive plan for corporate actions, whereas two years ago this wasn't the case, and people were working on their own efforts," says Curtin.

DTCC, Swift and ISO have also been working alongside XBRL US on the fundamentals of the financial reporting infrastructure on the XBRL project. "This is a great demonstration of how XBRL, in itself a relatively minor tool, is now accepted as an international standard," says Bolgiano.

With such support, the industry has clearly articulated the need for standardization and is slowly moving towards standardized communication from the source - the issuer.

The problem currently revolves around lack of consistency in the use of standards. The extension of XBRL to cover corporate actions announcements, using messaging standard ISO 20022 format, would provide a tool for issuers to tag key elements within a document, standardizing what data is sent out down the chain and when, reducing ambiguity and misinterpretation.

"Everyone involved in the process, from the issuer to the shareholder, is able to appreciate the ultimate benefits of XBRL for corporate actions," says Bolgiano, adding that the issuers are producing information they hope gets to the destination as quickly as possible and understand that adopting a standard is going to save both time and money.

Clients we work with - broker-dealers, custodians, investment managers - the consumers of corporate actions, have been screaming that things need to change, says Curtin.

The way to treat the issue is to get to the underlying cause of the lack of automation: the different interpretation of text-based announcements. Corporate actions notifications need to begin with data that is verified by the issuer and passed on through the entire financial supply chain to the ultimate investor. The result will be a more efficient and less error-prone process for corporate actions processing, says Curtin.

New York-based Brett Lancaster, vice-president asset services at DTCC, says: "You need to have a standard, which in the case of corporate actions is ISO 15022 or the next generation ISO 20022, but you also need to have enforcement ... The tagging of information at the source, using XBRL, will enable all parties to receive corporate action events that are timely, 100% accurate and can be identified uniquely between all intermediaries. XBRL glues all this together, enabling the issuer to create the corporate action and then tag it accordingly."

But David Hands, director, product management at DTCC Solutions, says getting this adopted by the issuers, the very people that should utilize the taxonomy, remains the key challenge. "Those are the discussions we are starting to have now more formally with the regulatory bodies," he says.

Global XBRL

Such efforts are intended to go well beyond US frontiers. XBRL US expects professionals from India and China, who have also started using XRBL and are indicating they may want to align with the efforts in the US, to attend the May meeting.

Hands says there is certainly interest outside the US on a corporate actions XBRL taxonomy and, by basing the taxonomy on the ISO 20022 standard, adoption by other markets becomes seamless. "(The economic downturn) is increasing the difficulties for the back-officers, broker dealers and investment managers. IT budgets are very tight and in some cases spending is flat or even down, so adding more staff is not an option," says Curtin. In the new operating environment, cost control will become paramount as efficiency wins the day. Automating corporate actions, often a very manual, error-prone process with potential for heavy losses, is one area where immediate returns can be seen with more efficiency, he adds.

"While there is tremendous recognition in the industry that this is the right thing to do it is probably not moving as quickly as many of us would like to see it move," says Curtin.

Yet, the foundation is being laid, and it is now up to the industry to collaborate on putting the building blocks together to help improve data quality and reduce risk of corporate actions processing.