Corporate Actions Managed Services Use Case Series:

Introduction: The Intersection of Corporate Actions and Managed Services

The evolution of managed services has been a dynamic journey marked by continued expansion and innovation. Initially, financial service providers used traditional technologies and break-fix services to cater to customers' needs. However, as businesses became more reliant on technology, the need for proactive support grew, giving birth to managed services.

Recent years, particularly shaped by the pandemic, have witnessed a rapid transformation, with a heightened focus on continuous innovation, remote work, and agility. In response, the adoption of managed services has intensified within the financial sector as firms continue to look for strategies to safeguard their operations and define a growth-oriented approach in the ever-changing economy.

Corporate actions operations teams, working with highly manual processes lacking automation, are taking steps to alleviate this pressure and control infrastructure costs, all while striving to reduce the risk and disruptions caused by staff attrition resulting in a shortage of expertise.

This four-part blog series focuses on our experience working with our corporate actions clients and supporting them as they move from on-premises to managed services. Utilizing our full end-to-end workflow solutions can relieve their operations teams from day-to-day management to focus on the core business.

Use Case 1: Transforming Corporate Actions: The Potential of Managed Services - Charu Kirti Jain

In the fast-paced world of corporate finance, staying ahead of the game is crucial for investors to maintain a competitive edge. One area that often poses challenges for financial institutions servicing investors is managing complex corporate actions. From mergers and acquisitions to dividend distributions and stock splits, corporate actions can have significant implications for an institutional investor and its stakeholders.

For example, in the recent Robinhood case reported earlier this year, the inability to process a corporate action (specifically, a 1-25 reverse stock split for Cosmos Health) resulted in financial losses of $57m. The corporate action highlighted technical issues in Robinhood's processing which allowed users on their trading app to sell more Cosmos Health shares than they owned and thus create short positions. Robinhood needed to cover the shorts but at a higher stock price, underscoring the critical importance of accurate corporate action processing.

We are all very much aware that processing corporate actions can be complex, and error-prone due to the high level of manual processing still in place in the industry. These errors have led to financial and reputational risk due to several factors:

• Incorrect or incomplete data. This can occur during data collection, entry, or transmission. For example, if the wrong record date or payment date is provided, it can result in incorrect processing or missed entitlements.
• Poor communication. The company affected by a corporate action (issuers), market participants (custodians, depositories, and transfer agents), and relevant intermediaries need to communicate effectively. Often, channel breakdowns or delays in disseminating information can lead to processing failures, especially where corporate actions are processed manually and are subjected to human error.
  • For example, Foremost Lithium Resource & Technology Ltd. announced a 1-for-50 reverse stock split effective July 04, 2023. At the primary market source, the declared security rate was miscalculated as 0.05 instead of 0.02, with an effective date of June 30, 2023. If not detected, these errors would have resulted in processing failures down the chain.
• Technical glitches, system failures, or inadequate infrastructure. These issues can range from software bugs, network outages, data corruption, or limitations in processing capacity causing delays, errors, or missed deadlines.
• A lack of deep industry expertise to appropriately interpret terms and conditions. Certain corporate actions can involve intricate processes and dependencies that would need financial institutions to build as well as retain deep industry expertise.
  • For example, Sigilon Therapeutics Inc. had a 1-for-13 reverse stock split effective May 23, 2023. On June 29, 2023, Eli Lilly and Company announced an agreement to acquire Sigilon. The primary market source interpreted it incorrectly and sent a merger event and a tender offer event on the pre-split ISIN instead of the post-split ISIN, which would have been a major problem if not detected.
• New messaging standards and processing aspects. New regulations, such as Shareholder Rights Directive II (SRDII) or Single Collateral Management Rulebook for Europe (SCoRE), need compliance from operations within set deadlines and any anomaly can result in processing failures and, in certain cases, monetary and reputational damages.

S&P Global Market Intelligence Corporate Actions Managed Services

To mitigate corporate action processing failures, many financial institutions are turning to S&P Global Market Intelligence for its Managed Corporate Actions (MCA) service with a dedicated global team of experts in data collection, validation, reconciliation, and processing to help financial institutions handle corporate actions accurately and efficiently.

• Utilizes advanced technology platforms and automation tools to streamline corporate action processing including data capture, enrichment, validation, and notification. This level of managed service reduces the reliance on manual processes, minimizing errors and ultimately risk of errors.
• Provides a single source of truth for clients helping them validate and reconcile corporate actions data as well as eliminate discrepancies and serve as a reliable reference point for decision-making.
• With access to comprehensive databases and reliable data sources to collect and validate corporate actions data, corporate actions experts monitor multiple information channels such as regulatory filings, announcements, and industry sources, to ensure timely and accurate data capture.
• Supports diverse portfolios, including equities, SPACs, and fixed income for some of the world's largest asset managers and banks.
• Facilitates monthly working groups for clients, fostering partnership and discussion on topics affecting corporate action participants.
• Customizes process workflows to meet specific client needs and drive digital transformation.
• Is scalable to accommodate varying needs and volumes of corporate actions, enabling clients to scale their processing requirements based on business demands without incurring significant infrastructure costs.
• Keeps pace with evolving regulatory standards and industry best practices and stays updated with annual SWIFT upgrades.

By leveraging MCA, financial institutions can focus on their core competencies, while benefiting from in-depth expertise, advanced technology, scalability, and cost efficiencies to enhance operational efficiency, reduce risks, and deliver accurate and timely corporate actions processing to their clients.

[1] Coverage numbers as of December 2023.

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.