Corporate Actions are key events that companies initiate, such as mergers, stock splits, and dividend distributions, which can significantly impact their securities and stakeholders., A Corporate Action can also be an event, such as a Takeover, that is initiated by a Third Party, for the securities of a company. In either case, these events require meticulous planning and precise execution, and they come with inherent risks that can disrupt operations and lead to financial losses.
Among these risks, communication remains the most overlooked yet critical factor. Every year, nearly one million corporate actions—ranging from simple dividend announcements to intricate mergers—unfold across global markets. These actions depend on a seamless flow of data between issuers, intermediaries, and investors. However, the complex web of participants introduces risks at every stage, from miscommunication and delays to fragmented or inaccurate information.
Tools like CAAPS (Corporate Actions Announcement Processing System) directly address these challenges by acting as a centralized hub for validating and distributing high-quality data. CAAPS ensures that end clients have access to the right information through a streamlined process that supports ISO 15022 and ISO 20022. By automating workflows and enhancing transparency, CAAPS minimizes errors and strengthens trust across the corporate actions ecosystem.
This article dives into the risks threatening corporate actions and explores how technology like CAAPS is transforming the way this information is managed, ensuring smoother operations and better outcomes for all stakeholders.
What Are the Three Types of Corporate Actions?
Corporate actions are generally categorized into three types, each with distinct characteristics and risks:
- Mandatory Actions: These apply automatically to all shareholders, such as stock splits or mergers.
- Risks – While participation is not optional, the complexity lies in ensuring accurate communication of key entitlement dates and payout information that are required for accurate and timely accounting
- Voluntary Actions: Shareholders must opt-in to participate, such as in rights issues or tender offers.
- Risks – Unclear instructions or misaligned deadlines that can cause investors to miss out on these opportunities.
- Mandatory with Choice Actions: Investors are presented with a choice for a Mandatory event such as opting for stock in a dividend reinvestment distribution where the default option is cash.
- Risks – Errors in relaying or interpreting these choices can lead to financial discrepancies in entitlements received.
Risks in Corporate Actions Processing
Corporate actions are inherently complex processes involving multiple stakeholders, tight deadlines, and vast amounts of data. Each step in the chain, from announcement to payment, carries its own set of challenges.
1. Communication Gaps
Seamless communication between issuers, intermediaries, and investors is essential, yet it often falls short. The original message, often issued as unstructured text in regulatory filings or press releases, is passed through a web of intermediaries, each reinterpreting and reformatting the information. This process introduces fragmentation and delays.
CAAPS addresses this by centralizing communication, ensuring that end clients receive consistent, complete, and accurate information via ISO 15022/20022 messaging, emails and investor portals. This not only enhances transparency but also reduces miscommunication risks significantly with end-client configurations to support communication preferences.
2. Event Management
Accurate data is the backbone of corporate actions processing. Errors—such as incorrect dividend rates, mismatched dates, or missing shareholder instructions—often originate from manual interventions or unstructured issuer announcements. These inaccuracies ripple through the system, impacting portfolios and undermining trust.
CAAPS mitigates these risks by validating the quality of incoming data from one or more sources (custodians, depositories and data vendors) by leveraging the Corporate Action ISO Data Model and Messaging to ensure consistency. Built-in workflows and automated checks further enhance data integrity, reducing manual errors and safeguarding financial outcomes.
3. Event Deadlines
Corporate actions operate on unforgiving schedules. Tight deadlines for voluntary events leave little room for error. Delays in data transmission or manual bottlenecks can result in financial penalties or lost opportunities for investors.
CAAPS enabled firms can track and manage key date fields, ensuring that all critical deadlines are met, including when an offer is extended. Real-time notifications, and election reminders, keep stakeholders updated, minimizing the risks of missed deadlines in a T+1 settlement world.
4. Operational Bottlenecks
Legacy systems and manual workflows continue to slow down corporate action processing, making them prone to inefficiencies and errors. These approaches are poorly suited to handle the increasing complexity and volume of today’s financial markets.
CAAPS offers a modern solution, allowing clients to configure workflows tailored to their needs. By automating processes around event notifications and election management, CAAPS minimizes operational bottlenecks and enhances Straight-Through Processing (STP).
Streamlining Corporate Actions Processing
CAAPS, developed by FTS Software, addresses the key challenges of corporate actions processing by offering a centralized, automated solution that enhances efficiency and accuracy while reducing operational risks. It integrates seamlessly with existing workflows, automates manual processes, and supports multi-asset environments.
Key features include:
- Real-Time Notifications: CAAPS ensures stakeholders receive accurate and timely updates, in a manner of their choosing, by automating the delivery of event notifications. This includes election messages with your Client and real-time workflow status updates, reducing the risks of delays and missed deadlines.
- Customizable Templates: With flexible configurations, CAAPS allows institutions to adapt workflows to specific operational and regulatory requirements. Clients can choose from customizable templates for 50 to 70 event types, ensuring critical data fields are consistently captured while maintaining the flexibility to incorporate additional fields.
- Enhanced Risk Management: CAAPS includes built-in risk assessments and automated checks, enabling firms to identify high-risk events and key fields that require additional controls.
By automating workflows, bridging communication gaps, and supporting real-time updates, CAAPS helps financial institutions manage corporate actions with greater efficiency and confidence. Its robust, cloud-based platform integrates seamlessly with industry standards, ensuring data accuracy and streamlined processes.
Ready to transform your workflows?
Contact FTS Software today to learn more about how CAAPS can support your corporate actions processing.