The Canadian Capital Markets Association today issued a white paper recommending ways to improve corporate actions and other entitlements processing. Industry stakeholders are encouraged to comment on the paper during the next 60 days.
“Currently, corporate actions processing is one of the most manual, error-prone, riskiest and expensive elements of entitlement processing,” said Thomas MacMillan, chair of the CCMA, in a news release. “The best solution to this problem is straight-through processing — the electronic handling of securities end-to-end through the processing chain without manual intervention.”
Entitlements involve the calculation of payments of cash and/or securities to investors and range from simple dividend and interest payments to complex corporate actions that may affect the share or debt structure of a company, e.g., stock splits and takeovers. According to CCMA an international benchmarking study suggests that Canada’s undisciplined entitlement management process contributes to lowering our country’s standing in world custody service rankings.
Last year, there were trillions of dollars in entitlements processed in Canada to millions of investors. Not receiving notice of entitlements can result in late payment, investment and market risks, loss of interest and lost investment opportunities.
“A key STP white paper recommendation is to mandate issuers, offerors and their agents to report entitlement information to a central hub on a timely basis,” said Anita Mehta, chair of the CCMA’s Corporate Actions Working Group and contributor to the white paper. “The hub must meet the tests of transparency, ease of access, accuracy, comprehensiveness, timeliness, efficiency/usability, security and reliability. No longer will the delivery of hundreds of millions of dollars to Canadian investors depend on someone spotting a small notice in an obscure publication.”
In total, the white paper makes 18 recommendations. Highlights include:
- legislative, regulatory and rule changes in two areas — entitlement reporting and payment — where the greatest benefit can only be ensured by broad participation of all issuers, offerors and their agents;
- new standards and best practices where concerted joint action among intermediaries can achieve straight-through processing;
- additional analysis in a small number of technical areas; and
- effective stakeholder communication.
“The potential for STP to improve entitlement processing in Canada and globally is huge,” concluded MacMillan. “In a world of increasingly complex corporate actions, STP and the proposed central entitlement information hub will provide investors with faster and reliable access to critical information they need to make investment decisions.”
The white paper is available on the CCMA’s Web site. Written comments should be submitted via e-mail to email@example.com no later than December 31.