The volume of mandatory and voluntary corporate actions (CA) events has been steadily growing in recent years, resulting in an overwhelming influx of manual processes.
In addition to the amount of manual processing involved, the diversity of event types makes streamlining corporate actions processing challenging. Brokerage firms want to ensure efficient operations, avoid costly errors, and maximize time for advisors to devote to client relationships, but these goals are undermined by clumsy and outdated practices.
Progress has been made in automating the corporate actions process in the last 20 years. At an industry level, SWIFT and the Securities Market Practice Groups (SMPGs) have made significant progress in developing and deploying a standardized communication format, using ISO 20022, for relaying corporate action messages. However, a number of challenges still exist including:
Inconsistent announcement data. Event announcements can vary based on the issuer/custodian announcement, which results in manual efforts to review and confirm.
Multi-channel capturing of election data. Commonly investors and advisors submit elections through different platforms resulting in risky manual reconciliations.
Bad election choices. Uninformed investors make bad elections that are thrown out due to rules they didn’t understand.
Financial risk. Manual processing resulting in incorrect elections exposes firms to serious financial risk.
Ready for Change
Digitally transforming the corporate action election process reduces costs, improves productivity, provides a better and frictionless customer experience, and ensures governance and compliance. When reviewing potential solutions to digitize the process, look to a technology and service provider that offers the following:
Systemic rule enforcement for all shareholders processing elections through a straightforward platform
Automated election capture for seamless processing to the custodian/DTCC
Operating platform with visibility into the life cycle of the event and transparency in investor details and actions
Customizable reporting to fit the needs of the broker
Turnkey solutions to include all corporate actions’ needs; avoid platforms that only offer solutions for a subset of events.
The Regulatory Angle
FINRA Rule 2251 obliges brokers to notify investors – specifically the beneficial owner or their advisers – about a range of proxy and other issuer-related information, including mandatory and voluntary CAs. It also highlights the same responsibility for communicating information as specified by applicable Securities and Exchange Commission (SEC) rules.
The SEC’s approach merits additional attention, especially in relation to voluntary CAs. In August 2019, the regulator published guidelines that clarified investment advisors’ responsibilities for proxy voting, which state: “Investment advisers owe each of their clients a duty of care and loyalty with respect to services undertaken on the clients’ behalf, including proxy voting. Rule 206(4)-6 under the Advisers Act requires… that the investment adviser votes proxies in the best interest of its clients.”
A Smarter Solution
There are shared pain points across the market when it comes to corporate actions. And while industry trends point to increased corporate actions in the coming years, it’s time for brokerage shops to embrace digital tools. By incorporating automation into corporate action processing, firms will see benefits including reduced operating costs, better informed investors, reduction in risk, and faster response times.
These challenges inspired us to develop MIC ReOrg Manager, a smart solution focused on brokers’ most important goals and outcomes. Available as part of MIC Wealth Manager, ReOrg Manager turns a back-office headache into a front-office competitive advantage. It automates an intuitive and stress-free process for brokers to communicate mandatory CAs, and for brokers and advisers to interact on voluntary CAs in their clients’ best interests.
For more information about digitally transforming the corporate actions process, contact us.