In this FTF Exchange podcast, Neil Sheppard and Adam Cottingham at SmartStream focus on the conditions that may finally squeeze manual steps out of corporate actions processing.
Corporate actions processing has become a heavy burden for securities firms facing surges in trading volumes while securities operations overall become more complex each day.
To ease some of that burden and remain competitive, firms are seriously considering fully automating corporate actions processing.
So say Neil Sheppard, global head of business development asset servicing at SmartStream Technologies, and Adam Cottingham, head of asset servicing for SmartStream, in this edition of the FTF Exchange podcast series.
FTF News recently caught up with Sheppard and Cottingham to talk about the persistent problem of the manual steps that are part of the corporate actions processing for many firms. (SmartStream won Best Corporate Actions Service Provider for 2020 in the FTF News Technology Innovations Awards competition.)
While corporate actions processing touches the entire trading operation — which is mostly automated — many firms still rely upon manual processes and personnel to complete the relay of essential corporate actions data. This odd combination of IT and manual intervention has for many years “really kept the losses and errors down to an absolute minimum,” Sheppard says. “But there is a need for automation if the volumes and the complexities definitely do increase,” he quickly adds.
Firms have their work cut out for them, Cottingham says.
“I think many firms find these [corporate actions processing] projects quite daunting,” Cottingham says. “Traditionally, looking back to when these projects started 20 plus years ago up until quite recently, there’s been many failures – costly failures. The projects haven’t come to terms with the challenges that need to be addressed.”
There are upstream integration challenges “into the custodian network or the prime network — depending upon the type of client it is,” Cottingham says. Firms also have “downstream integration challenges into the book of record for position management, forecasting, blocking, tax calculation and accounting — many, many challenges,” he adds. “Firms are also finding it hard to map all their manual processes … into the evolving standards of the market and their internal governance processes. So, the burden of change is quite heavy.”
In addition, firms are moving fast to respond to increasing client demands for more real-time delivery of corporate actions information. “The number one thing here is risk mitigation — it’s the principal driver,” Cottingham says. While status quo manual processes “do address this to a large extent … the potential for loss is huge if an event is missed or misprocessed. It’s often on the service provider to make the beneficial owner whole again,” he says.
Beyond the market forces, the remote staffing and service support challenges created by the global pandemic underscored again the need to automate corporate actions processing.
“We have seen a change in mindset post-Covid since firms have worked from a dispersed office environment,” Sheppard says. “They really understand and realize that it’s critical to be digitized, to be automated. So, they need to achieve that operation effectively especially when BCP [business continuity planning] is enforced. So, it’s really underlined that need for control and being aware of what’s going on.”
The prevalent argument for the status quo has been that with “X number of people doing this job, there are no breaks: why invest in a system?” Sheppard says. But the combined impact of rising trading volumes, real-time delivery, and remote staffing caused by the COVID-19 lockdowns has led to “automating the mandatory events, for example,” he says.
By doing so, firms have learned that it “actually does free up the experts to look at the real critical stuff,” Sheppard says.
Click through the links above to hear the entire podcast.