Understanding Corporate Actions and it’s Hidden Value

Understanding Corporate Actions and various risks associated with them like Operational risk, Reputational risk and Liquidity risk

Jun 07, 2018 by Xoriant Corporation

A corporate action is an event initiated by a public company that will bring an actual change to the securities i.e. equity or debt issued by the company. Corporate actions are typically agreed upon by a company’s board of directors and authorized by the shareholders.

Corporate actions data can be used to improve decision-making, as well as ensure the best possible outcome for clients, the front office no longer want slow manual processes holding them back, and instead are looking to get data continuously throughout the day. Examples of corporate actions:

Mandatory Voluntary
Dividend Dividend with choice of cash or stock
Stock splits Tender offers
Reverse stock splits Rights issues
Mergers and acquisitions Buyback offers
Return of capital Mergers with elections

Risk associated with counterparty corporate actions:

Operational risk: Inefficienciesgaps in the corporate actions chain, including misinterpretation and processing failures, late payments, and untimely information to the front office triggering poor trading decisions, can lead to operational risk and subsequent losses borne by intermediaries in the chain.

Reputational risk: Failure to properly track even a single corporate action can result in significant reputational damage and exposure to financial risks. The need to interpret, transform and summaries corporate actions information can lead to inaccurate communication of an issuer message. Pricing errors and the associated reputational and financial loss are a significant concern for fund administrators.

Liquidity risk: Effective liquidity risk management entails understanding the interplay between complex financial factors such as the relationships between issuers of financial instruments, the instruments themselves, the counterparties and clients involved.

With years of experience Xoriant CDi has developed an innovative delivery platform CDi OnDemand to fulfill any reference data projects need. It has easily automated the process of delivering data projects related to corporate action announcement and implementation, supporting regulations of US & Europe based on AML guidelines.

  • Tracks corporate action associated with the entity and implements same to maintain accuracy in customer relationship and ownership.
  • CDi OnDemand offers a clear view of beneficial ownership; ultimate or complete structure. Also showcases scenarios with broken tree & circular relationships
  • CDi OnDemand has a unique feature that allows effective cross-referencing of beneficial ownership information by certain identifiers.
  • Self-service model for gold copy database creation and management
  • Unlimited queries of Xoriant CDi entity database
  • Customized operational workflows
  • Rapid data aggregation
  • Elastic manpower – 24×5 access to CDi data stewards
  • Proactively managing data quality errors, such as duplicity in counterparty hierarchy, invalid values, etc.