Processing corporate actions is a complex task, partly due to the myriad event types and the fact that data is unstandardized and sourced from multiple places. Working for a bank or asset manager in a corporate actions job can be soul-destroying: these are highly skilled roles that remain underpaid and underappreciated, as this vital back office function is not one that typically attracts a lot of investment from the business.

But the Australian Securities Exchange (ASX) hopes that it can help—at least with the announcement, capture and delivery of corporate actions information.

Just over a month ago, ASX launched its real-time corporate actions straight-through processing (STP) solution, as part of a broader technology transformation program. The corporate actions solution is intended to deliver corporate actions event notifications to investors in a more accurate, comprehensive, and timely manner.

In ASX’s new system, issuers of ASX-quoted securities must announce corporate actions events using online forms. The forms pre-populate known data fields and validate issuer input to ensure the announcement complies with the exchange’s listing rules and standards, which reduces the need to provide amended or updated announcements

The aim is to standardize one aspect of the process, and benefit investors by offering them more accurate and comprehensive information faster, delivered in the ISO 20022 messaging format.

Karen Webb, senior manager of equity post-trade services at ASX, says the exchange has mandated that issuers use the online forms to announce certain events. “This was one of the key factors our market stakeholders asked for. They said, ‘If you’re going to do this, we want it to have 100% coverage.’ So for every dividend that’s announced, for example, the issuer uses an online form, and therefore we get the efficiency, accuracy, and time benefits across the board,’” she tells WatersTechnology.

Once an issuer completes a form, ASX’s system generates an equivalent PDF announcement and publishes it to the market. The data in the form is captured by ASX’s downstream system, which then creates or updates corporate action and related security records. Since most of the validation is done via the online form, the event can be automatically approved in the exchange’s database that manages corporate actions events and related securities.

After approval, Webb says, the event is available for the ISO service in a matter of seconds. “So that’s when straight-through processing comes into play,” she says.

ASX began work on the corporate actions STP project in 2014. The first phase focused on announcements for dividends, interest payments, consolidations/splits, and cash return of capital.

The second phase was delivered in three releases between 2019 and June 2021, when the project was completed. There are now 10 online forms, which span most corporate actions events—about 93% of events volume—which issuers announce to regulators and investors via the exchange.

In the first phase, ASX concentrated on mandatory events that accounted for a “fair percentage” (about 70%) of event volumes. “We went for trying to get as big a bang for our buck as we could in the first phase, with the volume coverage as well. But those initial set of mandatory corporate actions events are not quite as complex as the others that are optional or elective for an investor,” Webb says.

The second phase focused on the more complex events. Webb says detailed work went into figuring out that complexity, including a mapping exercise to set the standard in the ISO product and comply with the base message.

“For a start, we added supplementary data in all those events because there is quite a lot of data in Australian corporate actions, then worked that backwards through our database and to the online form to make sure we got the right information to have those settings correctly applied—whether it was optional or voluntary—so we got the right outcome. So, it was a lot of different steps joined together to make sure it worked,” she says.

ASX uses GoldenSource’s enterprise data management system to assess the information provided by issuers when making an announcement. Indicators allow it to apply the appropriate event type, mandatory and voluntary options, and so on, automatically based on parameters it has set in the GoldenSource system.

Manual work

Before ASX began work on the STP project, the process of obtaining the information from issuers was very manual. Webb says there were only a handful of forms based on Microsoft Word documents that covered quotation of securities and buy-backs. Issuers had to complete the forms, convert them to PDFs, and lodge them with ASX. The exchange’s operations team then had to review every single announcement.

On average, ASX gets 130,000-odd corporate actions announcements each year. The process of reviewing them, deciding whether certain information needed capturing, and then capturing it manually was very time-consuming.

“As you can imagine, it might not have been just one announcement. It might have been multiple announcements in different formats that the operations team had to assess, and then make sure they captured all the information,” Webb says. “The other factor was that because we didn’t prescribe the information we were asking for in a very detailed way, issuers often didn’t tell us everything we needed to know.”

This meant the exchange had to go back to issuers to get more information, and the issuer would then make a follow-up announcement.

And ASX didn’t just have to follow up with the issuer. “It was also all the custodians [and] everyone else out there in the market that needed that information. So, you can imagine how inefficient that is,” she says.

These manual processes also increased the risk that different market cohorts would receive different information, resulting in inaccuracies or data mismatches.   

Issuers often get dividends amounts wrong. Many issuers previously described dividend amounts in cents, but ASX’s online forms compel all issuers to use a dollar format for consistency. By doing so, the exchange lessens the risk of errors and downstream impact. “It’s quite fundamental—if you say nine cents versus 90 cents or $9 for a dividend, there’s quite a difference,” Webb says.

The ASX must still manually capture the remaining 7% of corporate actions volume that isn’t processed by the STP solution. The volume of these events could be very low, which is the case with calls on partly paid securities, for example, where, when a call is made, each shareholder effectively becomes a debtor of the company until each debt is met.

“We only have a handful of [those types of] events each year. Then we weigh up the cost-benefit of introducing a form. We have Word forms for those types of events that the issuer can fill in and announce, so it’s standardized to some extent—it’s just that we haven’t automated the capture of that data,” she says.

Other events that must be captured manually include those where it’s not necessarily the issuer making the announcement. In a takeover, for instance, it would be the responsibility of the bidder to announce it.

A critical pawn 

ASX is replacing its Clearing House Electronic Subregister System (Chess), partly to upgrade the exchange’s clearing and settlement system to the  ISO 20022 messaging standard. Right now, the exchange has a proprietary messaging format unique to Australia, which Webb says can create obstacles for entrants to the market.

Webb was also involved in that part of the Chess replacement project, transcribing some 500 proprietary messages down to a set of around 110 ISO messages for clearing and settlement. The benefit for participants using the corporate actions notification services is that they’ll have those details in ISO 20022 format, which will be the same set-up in the Chess replacement system.

Webb says the Chess replacement will use the same notification service to set up a corporate action in the clearing and settlement system. “At the moment, the lifecycle for the corporate actions product is the notification. We expect to keep working through that lifecycle, through to acceptances, and so on, to really help streamline the whole cycle for our participants and their clients,” she says.

ASX has added functionality to the Chess replacement that enables acceptance of certain events by participants acting on behalf of clients. From day one, the new Chess platform will support the provision of dividend reinvestment plan and bonus issue elections by participants. Further down the line, new functionality will likely include entitlements and offer acceptance, Webb adds.

“That was one of the asks from our industry as well. It’s not just a like-for-like replacement. It was more about what else we could do to help streamline activities in the market, and corporate actions were one of the top features that everyone was interested in,” she says.

One example of a custodian request that ASX incorporated in phase two of the STP project was the provision of more detailed tax breakdown information for dividends and distributions.

For now, any further changes to the STP product will have to wait until the Chess replacement goes live.

To update it to incorporate new tax breakdowns, for example, would be a “mini-project” that would need to be accommodated back into ASX’s database, and potentially result in updates to the online forms to get the inputs.

“It would have to be on a case-by-case basis if improvements were sought. And then what’s the best way to accommodate that? We have to move to an annual review-type process to accommodate standard changes and any other changes that the industry might need. … Until the Chess replacement goes live, we can’t update our notification service because that would mean reworking it. But once Chess replacement is in, we should be able to move to that cadence of annual reviews,” Webb says.