[ M A R K E T
managers typically result in breaks in the
open trade position, further hampering
their corporate action decision-making
process.
“Most systems also do not pull the long,
short, traded and hedge positions in a
single view for the investment managers
responsible for making election decisions,
leading to sub-optimal results,” Wood
adds.
“The inability to efficiently get notifica-
tions and entitlements to the front-office
means decision makers could miss reve-
nue opportunity measured in the billions.
“Recent consultant analysis identified
fund revenue lost from utilising standing
instructions for cash elections, but the
opportunities extend to the on-loan and
hedge portfolios as well. Infrequent,
large losses make the internal headlines,
but it is likely the absence of awareness in
the suboptimal management of positions,
reference and market data that is the
largest cost for the industry.”
Further to the defence of the custodians,
Scorpeo’s Ruck also believes they are vic-
tims of the choices of their clients when it
comes to the corporate actions process.
“Custodians are aware of the issue and
the amount of value being missed, but if
managers do not see a problem and are
not asking for a solution, it is unlikely cus-
todians will opt for an industry solution,”
Ruck highlights.
Redesigning the process
The main challenge for both asset
managers and custodians is bridging the
operational and data differences not only
between the front-and back-office of the
asset manager, but also between the client
and their fund administrator/custodian,
R E V I E W
and even between custodians themselves.
Historically, few solutions have been
available to adequately address these
challenges for both sides. Therefore,
one way to go about finding a solution is
looking at how stakeholders can redesign
the corporate actions process to eliminate
inefficiencies.
“The regulation may be a
stimulus for the industry to
look for a market solution to
proxy voting and corporate
actions, rather than each
build their own.”
JOHN SMALLEY, CO-FOUNDER, CITI PROXIMITY
“Corporate actions and proxy voting
is a process and a stakeholder problem,
rather than a technology problem. There
is significant percentage where the final
delivery of election is delivered by paper,
even though we are perfectly capable of
electronic delivery,” says Smalley.
Several firms are looking at new tech-
nologies such as blockchain and ma-
chine learning to automate and digitise
corporate actions. BNP Paribas Securities
Services and HSBC are among a number
of custody banks testing the use of block-
chain technology for proxy voting and
corporate event announcements.
Broadridge has also attained a US patent
to develop a blockchain-based solution
for proxy voting, and has agreed to col-
laborate with banks including JP Morgan,
Northern Trust and Santander to use the
technology to enhance global proxy vote
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C O R P O R AT E
A C T I O N S ]
transparency and analytics.
Proxy voting and corporate actions have
been touted as the perfect starting point
for applying blockchain or distributed
ledger technology (DLT) to the post-trade
industry. However, the success of using
DLT to eliminate inefficiencies largely de-
pends on how they will be implemented
across the board.
“DLT has not solved the question of
liability related to corporate actions. If a
custodian solely relies on a single notifi-
cation of which they have no liability, they
will try to scrub and enrich the data their
own way, and then you are back to the
same problem,” adds Smalley.
Furthermore, the industry may opt for
a more simple-to-implement solution
rather than going with the complex DLT
option.
“In all honesty, it’s not likely to be a cut-
ting-edge technology that can make the
largest impact for any specific company,
but rich business rules that assist in the
normalisation of data, that can configure
to the asset manager’s specific challenges,
and the ability to ignore the exceptions
that don’t add value,” says Broadridge’s
Wood.
In addition to technology, regulation
could also provide an impetus for the
industry to look at new solutions for
corporate actions. Europe is set to revise
the Shareholders’ Rights Directive (SRD
II), which aims to stimulate sharehold-
ers’ long-term engagement and increase
transparency in the voting process in
relation to proxy voting and shareholder
identification, as well as improving issu-
er-investor dialogue.
“The regulation may be a stimulus for
the industry to look for a market solution
to proxy voting and corporate actions,
rather than each build their own. It could
also act as a catalyst for intermediaries
and issuers to push who they communi-
cate through, and for a more streamlined
process over how they disseminate infor-
mation,” adds Smalley.
The signs from the industry to review
and automate the corporate actions
process are positive. Now that there is an
actual quantified value attributed to how
much investors could earn if they pay
closer attention to corporate actions and
proxy voting, demand for custodians.
Spring 2019
globalcustodian.com
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