Corporate actions may not be the most exciting function in the back office, but their importance is growing in the front and middle office. This is especially true in volatile market conditions, such as when the Covid-19 pandemic hit and thousands of dividends were canceled or postponed, which had never happened before.

Occurrences like these can indicate the challenges an issuer faces, or can be used as insight for other purposes, such as governance.

Virginie O’Shea, founder and CEO at Firebrand Research, says demand for corporate actions data from the front and middle offices is increasing due to the push to track more governance data as part of the governance segment of ESG. “Plus, the ongoing volatility and downturn in the market have increased focus on corporate events of note—when a corporate moves an event, it can even give you clues as to upcoming bad or big news,” she says.

I think the direction of these services is going to be to take pain, processing, and operational burden away from banks, investors, participants, service providers, and the market. The data extraction market is probably a billion-dollar business right now.

CEO of data parsing firm

Portfolio and fund managers want to know details about the corporate action event, such as the stock split ratio, when a dividend was declared, or whether the amount increased. But they don’t necessarily have access to the feed the back office consumes. And even if they have access, the data might be written in a way that is difficult for a layperson to digest, says Jonathan Bloch, CEO at Exchange Data International (EDI).

This led EDI to launch Readable Corporate Action Notice (RCan), which allows users to read corporate action notices the same way they read the news.

“This opens up the possibility for people in the front and middle offices who don’t necessarily receive corporate action feeds to actually read what is going on in the corporate actions world,” he says.

Bloch says many large institutions use ISO 15022 datafeeds because the standard is used in the back office for corporate actions processing. But the information in an ISO 15022 message is presented in fields.

“The problem with the fielded information is that it doesn’t necessarily contain all the details in a flowing way, so you don’t really get the narrative. That’s OK if you’re processing the data. But if you want to know from an inquisitive point of view what has occurred, it’s very different,” he says.

For example, dividend announcement information is in fields that state the issuer, security, security description, date of the announcement, ex-date, pay date, record date, and so on. RCan presents it in a readable format, such as, “‘X’ company announced a dividend today of ‘X’ amount to be paid on ‘X’ date.”

RCan covers 45 corporate events, including dividends, mergers and acquisitions, new listings, and stock splits. It aggregates corporate actions from over 150 exchanges globally.

Bloch says EDI used machine learning to put the aggregated corporate action events data in a readable format. “We also had to deal with updates because corporate actions generally are never fully announced. The information seeps through over a period of time. Some corporate actions can go on for a long time. For example, if it’s a takeover or merger, they would have to get regulatory approval. So there were a lot of questions about how to deal with the updates so that people would always see the latest news and would have the most comprehensive up-to-date picture,” he says.

EDI took about a year to build and test the process. While the product is relatively new, Bloch says there has been interest from buy-side firms, which he says is an extension of EDI’s typical client base.

Corporate actions data is also used for informational purposes, such as for setting up an alert for the income department to look out for a dividend distribution coming from the custodian.

RCan is useful when someone needs the information but may not need to take action on it—so it is for informational purposes rather than for processing, which is a big difference, Bloch says.

“The operations of corporate actions is so painful,” says the CEO of a data parsing firm. “What it sounds like they’re doing is similar to what I see in the market. I think the direction of these services is going to be to take pain, processing, and operational burden away from banks, investors, participants, service providers, and the market. The data extraction market is probably a billion-dollar business right now.”

The CEO adds that not all extraction is the same, and trying to figure out how to improve processes for clients will involve specialist operators. “I think we’ll end up with many different extraction specialists,” the CEO says.

Eiichiro Yanagawa, senior analyst for financial services at research and advisory firm Celent, says that in an age where data sources such as exchanges provide digital data, market participants that have not digitized their business processes are “dinosaurs”, whose internal systems are in data siloes and provide the data via on-demand download static PDF reports.

He says the challenges in digesting corporate action information for the front- and middle-office include the explosion in data volume and frequency of updates, sophistication of data analysis methods, as well as the evolution from static analysis to dynamic future forecasting.

Another challenge, Yanagawa adds, is in securing personnel with middle- and front-line data utilization talent that can leverage machine-provided insight.

RCan currently covers equities, equity-traded bonds, and ETFs. Bloch says EDI is working on adding fixed-income corporate actions to its coverage area.

“Fixed-income corporate actions are very different in nature from equities corporate actions. A lot of the corporate actions might revolve around amounts outstanding or tender offers. We need to examine how to handle that,” Bloch says.

EDI is also in the process of speaking with data vendors to redistribute RCan to their clients. “We don’t have that terminal presence in the front office and they do. So we’re about to initiate discussions with at least three to four of them to see if they’d be interested to add this as an additional module,” he says.