Nearly one million corporate actions take place globally each year. These events include everything from routine dividend payments to complex mergers and acquisitions. They represent pivotal moments for issuers, intermediaries, and investors alike.
Each corporate action requires precise coordination and seamless execution to keep financial markets running smoothly. But what exactly happens behind the scenes?
This guide breaks down the corporate action lifecycle step by step, offering a clear roadmap to understanding the process and the tools—like CAAPS—that ensure accuracy and efficiency at every stage.
FTS Software, Inc. is at the forefront of streamlining this lifecycle, providing innovative solutions like CAAPS, a secure, cloud-based solution for workflow management and corporate actions processing.
Corporate Actions Categories
Corporate actions are events initiated by a company that bring changes to its securities or affect its shareholders. They fall into three main categories:
- Mandatory Actions: Require no input from shareholders (e.g., dividends, stock splits).
- Voluntary Actions: Shareholders make decisions (e.g., tender offers, rights issues).
- Mandatory with Choice: Shareholders have options but are required to act within set parameters (e.g., mergers offering cash or stock choices).
These events are central to investment strategies, requiring precise communication and execution to ensure stakeholder expectations are met.
The Corporate Action Lifecycle: Step-by-Step
The Corporate Action Lifecycle represents the complete journey of a corporate action and covers all stages, from the initial announcement of the event to the final step of crediting payments. Each task and process associated with the corporate action is closely monitored throughout the lifecycle.
Step 1: Announcement by Issuer
The lifecycle begins with the issuer announcing the corporate action. This can be through regulatory filings, press releases, or market disclosures.
Step 2: Dissemination to Intermediaries
Issuers rely on intermediaries such as custodians, brokers, and data vendors to efficiently communicate corporate action details to all relevant parties in the market, leveraging standards such as ISO 15022 or ISO 20022 messages.
Step 3: Processing and Validation
Intermediaries process and validate corporate action details to ensure accuracy before passing them to investors.
- Technological Support: Tools like CAAPS automate workflows, validate data, and resolve conflicts between multiple sources.
Step 4: Communication to Investors
Accurate and timely communication to investors is critical. Notifications can be sent via email, investor portals, or other channels based on preferences.
- Customization: Advanced systems allow tailoring notifications to investors’ specific needs.
Step 5: Investor Instructions and Elections
Investors may need to take specific actions, For example, opting for cash or stock in a merger. This process is facilitated with clear instructions and user-friendly portals.
- Systems Support: Platforms like CAAPS enable smooth handling of elections and instructions.
Step 6: Execution and Settlement
The final step involves executing investor instructions and settling the corporate action. This includes delivering cash or securities as per the chosen options.
Common Challenges in the Lifecycle
Throughout the corporate action lifecycle, organizations face several challenges that can impact efficiency and accuracy. These obstacles require careful management to ensure smooth processing and reliable outcomes. Three of the most common challenges are:
- Interpretation Risk
Unstructured and inconsistent data formats increase the likelihood of misinterpretation, leading to errors. - Timing Delays
Manual interventions slow down the process, reducing the time available for investors to make informed decisions. - Accuracy Issues
Multiple data sources and manual processing steps often result in discrepancies, impacting the reliability of the information.
How CAAPS Improves the Process
CAAPS significantly enhances the corporate action lifecycle by introducing automation, standardization, and customization. It streamlines workflows, validates data, and resolves conflicts in near real-time, ensuring greater efficiency and reducing manual intervention. By adhering to ISO 15022 and ISO 20022 standards, CAAPS delivers consistent and reliable data processing, fostering trust and accuracy across stakeholders. Additionally, its flexible configurations allow issuers, intermediaries, and investors to tailor the system to meet their specific needs, improving overall satisfaction and adaptability to diverse operational requirements.
Conclusion
The corporate action processing lifecycle is a critical component of financial markets, which requires precision, efficiency, and collaboration among all stakeholders. By leveraging advanced technologies like CAAPS and adhering to global standards, FTS Software, Inc. enables the industry to overcome challenges and achieve seamless corporate action processing.
Streamlining this lifecycle brings significant benefits: issuers can deliver messages promptly and accurately, fostering transparency and investor trust; intermediaries can enhance efficiency, reduce operational risks, and ensure regulatory compliance; and investors gain timely, reliable information to support informed decision making. Adopting these best practices ensures all stakeholders can navigate the complexities of the corporate action processing lifecycle with confidence and efficiency.