Corporate Actions Processing

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Corporate Actions Processing Conference October
25, 2007
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Panel Discussion
Automating Corporate Actions Processing As an
Essential Part of STP Moderator Nancy
Turbé Accenture Capital Markets Consulting
Group Panelists Michael Egan, Managing
Director Class Actions Claims Management Mark
Henry, Chief Architect Financial Information,
Inc. Kevin Cullen, Vice President Information
Mosaic
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Corporate Inaction With Corporate Actions
Automation

• Less than 15 of Custodians in Europe have an end
  to end CA
• G30 2003 Report Corporate actions, are the
  major source of financial losses attributable to
  operational failure.
• Giovannini Report
• Barrier 17 to Single Market among top three
  single highest priorities
• Corporate Actions Standards is one of the 3
  highest priorities
• Automation system
• Less than 2 of Investment Managers have an end
  to end CA Automation system
• 42 of transactions in US institutions remain
  paper-based
• 40 of FIs enter data more than once for the same
  transaction

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Common Corporate Actions Processing Problems
Host System not Updated
No Notification from counterpart
Trading shares not available
Positions not protected
Missed Deadlines
Host system(s) not updated/updated incorrectly
Incorrect Information
Trading shares not owned
No Diary Entry
Incorrect decision applied
Position Taken Late
Positions Disagree
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Commercial Challenges

• Slow, error prone processing / dissemination of
  incoming market notices
• Accurate position entitlement calculations
• Task management, control transparency of action
  lifecycle
• Reconciliation auditing
• Meeting obligations for market protection
  claims
• Achieving a balance between STP dual controls

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The Integration Challenge
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The Integration Effort

• External System Integration - Major Challenges
• Bad Data
• Extracting the Right Data
• Quality and Format of Feeds
• Format of ISO15022 messages (The Standard)
• Message Normalization
• Timely updates
• Data reconciliation

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Data Formats

• ISO 15022
• XML
• Vendor Proprietary
• ISO 20022 (Future)

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ISO 15022

• Pros
• International Standard
• Can be transmitted over SWIFT network
• Allows additional information to be added in text
• Cons
• Some items in the standard are not clearly
  defined and subject to interpretation
• Some characters are not permitted or require
  complex coding to include
• No free parsers available

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Example of MT564 Layout
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XML

• Pros
• Free Parsers available
• Most Database software supports direct XML
  loading
• No size limitations for files or fields
• Very flexible, changeable
• Cons
• Not standardized yet
• Files can be large in size
• Can not be transmitted over the SWIFT network

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Vendor Proprietary

• Pros
• Format has existed for a long time
• Customized for clients needs
• Cons
• Custom programs needed to support processing
• Transmission options may be limited
• Can not be transmitted over the SWIFT network

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ISO 20022

• Pros
• International Standard
• Uses XML for structure
• Cons
• Corporate Actions Messages are not defined yet
• Adoption of new standards can be slow

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TYPES OF CORPORATE ACTIONS
Getting to STP

• Mandatory examples
• Dividend Payment
• Interest Payment
• Merger
• Spin-off
• Stock Split
• Voluntary - examples
• Rights Issue
• Takeover
• Tender Offer
• Class Action

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SECURITIES CLASS ACTION SETTLEMENTS

• COLLECTING THE MISSING BILLIONS
• Approximately 17 billion were distributed in
  2006. Less than 30 of eligible institutions
  filed claims.
• Accordingly, approximately 11.7 billion was not
  claimed by eligible claimants.

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Benefits of Participating in Class Action
Settlements

• Those institutions that do participate recover
  significant amounts of money for their funds.
• Easy way to increase assets under management and
  investment performance and results.
• Offer a unique service to institutional clients
  that makes them money and solves the claims
  filing problem for them.
• Gain insulation from lawsuits for not filing
  claims.

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Securities Class Action Life Cycle
Notice of Settlement Published and mailed to
shareholders
Filing of lawsuit, publication of notice
Claims processed by claims administer
Dispositive Motions
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Settlement reached between parties
Appointment of lead plaintiff
Claim Forms filed by Shareholders
Settlement proceeds are distributed
2 to 10 Years (5 Years Typical)
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Challenges and Failures Arising from Class
Action Notification Process

• Notice of lawsuit is given by press release or in
  WSJ. The lawsuit should be tracked and
  transactions in relevant securities flagged for
  follow up.
• Either no notice or very limited notice of
  significant developments in the case, usually via
  press release. These developments should be
  tracked because the dispositive motions end the
  lawsuit or push it to settlement.
• Notice of Settlement is by publication of press
  release or tombstone ad in WSJ and mailing of
  paper claim form. The proper parties do not
  receive notice in a timely manner.
• Only those shareholders as identified by the
  transfer agent or custodians are notified.
• There are strict deadlines for participating in
  the settlement. Failure to abide by the
  deadlines can result in exclusion from the
  settlement.

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Challenges and Failures ConcerningFiling Claims
in Class Actions

• There are over a dozen different claims
  administrators each with its own filing
  requirements and formats.
• Key Actions
• Gathering relevant securities transaction data
  for the securities eligible to participate in the
  settlement within deadlines.
• Gathering the supporting documentation for the
  claim trade confirms, account statements, etc.,
  within deadlines.
• Correct deficiencies and handle follow up
  correspondence with claims administrators to
  ensure claims are complete within deadlines.
• Monitor settlement progress and disbursements to
  ensure each claim receives payment.
• Allocate settlement proceeds to proper account
  and audit settlement disbursements to ensure the
  correct amount is received for each claim.

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Questions?

• And Thanks.