BLOG — May 13, 2021
As the trading landscape evolves, corporate actions processing is a top challenge for APAC brokers
By Ankush Zutshi and Suhyeon Park
For investment banks and brokers in the Asia Pacific region, the trading landscape is changing rapidly and creating a new sense of urgency around the need for operational efficiency, especially when it comes to corporate actions processing.
Despite the financial volatility caused by the pandemic, retail brokerages, as well as trading services for investment, retail and online banks, continue to see strong revenue increases worldwide. Far from dampening enthusiasm for investing, the events of the past 18 months have only driven markets higher and encouraged a broader segment of the population to participate in the capital markets. In the Asia Pacific (APAC) region, investment activity is very much in line with this trend. Increased interest in investing (especially among younger generations), the wider availability of consumer-friendly technologies and a trend toward zero commissions are rapidly democratizing access to markets and investment management.
This creates exciting new opportunities for the brokerages managing these investments, but it also creates new challenges, especially around corporate actions processing. In addition to dealing with a larger volume of investors, these intermediaries are also facing a broader diversification of portfolios beyond local markets and into mature markets like the US , which is compounding the volume and complexity of corporate actions that need to be processed.
And while wider participation in the financial markets is a positive development, it is placing new pressures on intermediaries who must increase the level of support and the velocity of service to meet the needs of clients who tend to be both less sophisticated and more demanding.
Heightened operational risks and rising service expectations
As the volume and complexity of corporate actions rises with brokers serving broader portfolios, the majority of brokerages in the APAC region are unprepared for the growing risk and client servicing expectations. For most, corporate actions processing is still a manual process, which introduces an unacceptable level of operational risk in several ways.
Market complexity
For decades, brokerages have relied on their staff to process corporate actions manually, but as investing has become more global, those processes have become more complex. For most brokerages, resolving complex or non-standard actions requires a deep knowledge of market nuances and risks. Staff members who developed their skills when the markets were simpler and more straightforward may not be ready to process these advanced cases confidently. Providing staff training and implementing technologies that validate and augment corporate actions data can help to prepare the back office to tackle tougher markets.
Reputational risk
Historically, depositories and custodians were solely responsible for the accuracy of corporate actions, but brokerages can no longer rely solely on these sources in the same way. The market has undergone a paradigm shift, and the intermediary is now expected to verify and validate the information independently. When a corporate action is processed incorrectly or incorrect information is disseminated to the client, that erodes the reputation of the investment bank or brokerage directly even if their agents are liable to cover the losses, which hurts long term growth prospects. In today's market, investors expect accuracy from the institution they transact with, even if the custodian issued incorrect information.
Increasing client expectations
Investors are more aware of the service levels they receive from their broker and more likely to take their business elsewhere if they don't see value for the fees they pay. They expect to receive accurate and reliable information and will not tolerate errors—especially if it impacts investment value. However, that is simply the baseline expectation: investors are becoming savvier and more discerning—especially retail investors—and they are gravitating towards firms that offer the types of data-driven, digital experiences that are incompatible with manual processes.
Brokerages in the APAC region are witnessing good growth opportunities as a new generation of investors comes online. Those that modernize key operations and focus on supporting the evolving needs of the marketplace will lead the market and have the potential to see substantial returns. But in order to make the most of this rare opportunity, firms must be ready to support swift, frictionless transaction mechanisms that encourage and empower institutional and retail clients with trusted, real-time data.
Digital processing alleviates pressure
While manual processes and a reliance on in-house expertise have been part of the status quo for decades, this operational model needs an overhaul. As the volume of retail and institutional investment activity continues to rise, it is straining the capacity of even the most well-resourced and efficient brokerages and motivating them to seek new solutions. Global adoption of platforms that automate corporate actions processing and enable digital self-servicing for investors and clients is now gaining traction in the APAC region.
For intermediaries seeking to enhance the workflow, lightweight SaaS solutions offer best-practice workflows and access to a centralized source of validated corporate actions data. (IHS Markit's corporate actions solution, for example, includes validated data for nearly 3 million equities, fixed income and structured securities across 170 countries and territories.) For organizations with their own established workflows, there are more robust, customizable cloud-based and on-premise enterprise solutions.
By digitizing corporate actions processing, firms can mitigate the risks that their current manual processes expose them to at this pivotal moment in the region's trading history.
Preparing for APAC's trading future
In 2021, market participation in the APAC region is heating up and attracting a broader range of institutional and retail investors than ever before. For the region's investment banks and brokers, this represents a significant opportunity for growth, but competition for this business is fiercer than ever, and there will be winners and losers in the coming years.
Corporate actions processing is a surprisingly critical piece of the puzzle, enabling intermediaries to support greater transaction volumes and optimize the value of those trading opportunities for their clients. Firms that focus on digitizing key processes—especially those that materially enhance the investing experience and outcomes for their customers—will surge ahead of the pack.
For more information, please visit ihsmarkit.com/corporate-actions