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1 March 2023
Corporate Actions are significant events initiated by companies that directly affect their securities and stakeholders, including shareholders and bondholders. These actions can be mandatory or voluntary and can encompass a wide range of events, from major financial issues such as bankruptcy or liquidation to minor changes such as a company’s name or trading symbol. Common examples of corporate actions include stock splits, mergers and acquisitions, dividends, right issues, and spin-offs.
As of the first quarter of 2022, the global landscape of publicly traded companies comprised of 58,2001 entities. These entities generate a huge volume of corporate action data, which financial data providers acquire from various sources, including stock exchanges, news releases, and depositories. However, the lack of adequate validation procedures leads to a high risk of inaccuracies in this data. Inaccurate processing of corporate actions data poses a threat to numerous market participants, such as custodians, fund managers, broker/dealers, and depositories, ultimately affecting thousands of investors.
The problem is exacerbated as the number of public listed companies are growing at an accelerated pace with the increasing number of companies taking the route of going public via IPO.
Below is a summary of key challenges associated with corporate actions processing:
• Overlooked or mismanaged corporate actions lead to annual losses of approximately $1 billion.2 This problem arises when corporate actions are missed, miscalculated, or misinterpreted.
• Manual corporate actions processing makes data prone to errors.
• Companies are subject to severe penalties due to errors in the corporate actions data.
• An additional risk is the damage to a company’s reputation caused by mismanaged corporate action. Once the reputation of a company gets tarnished it immediately casts doubt on the company’s dependability in the eyes of both present and potential clients. Rival businesses may also take advantage of the chance to lure the customers away.
The importance of accurate and error-free corporate actions cannot be overstated, as it protects the interests of companies and investors and helps maintain the stability and credibility of the financial market. To mitigate these risks, companies should invest in a structured, polished, and enriched dataset known as the “golden copy” to ensure the accuracy and reliability of corporate actions data.