In today’s world, providing corporate actions solutions is quite a challenging business. The magnitude of manual activities and ineﬃciencies in corporate actions hinder the organization’s goal to create an enterprise-wide digital transformation, sometimes promote operational, compliance and complicate end customer queries ahead.
Understanding Corporate Actions
A corporate action (CA) is an event initiated by a public limited company that will bring an actual change to securities—equity or debt—issued by a company. CA is typically agreed upon by the board of directors and is authorized by shareholders. Common examples of corporate actions are Dividends, stock splits, mergers, acquisitions and spinoffs .
Corporate actions can be Mandatory, Voluntary & Mandatory with choice:
- Mandatory CA: Mandatory CA is an event initiated by the board of directors of a corporation that affects all shareholders. Participation of shareholders is mandatory for these CAs (Corporate Action). An example of a mandatory CA is cash dividend where the shareholder does not need to act to receive the dividend, and the shareholder is just a passive beneficiary.
- Voluntary CA: Voluntary CA is an action where shareholders elect to participate in the action taken. A response is required for corporations to process the action. An example of voluntary corporate action is a DRIP (Dividend Reinvestment Plan). The shareholder may or may not participate in the offer. The other types of voluntary actions include rights issues, making buyback offers to the shareholders while delisting the company from the stock exchange.
- Mandatory with choice CA: This corporate action stands mandatory, where shareholders are given a chance to choose among several options. An example is a cash or stock dividend option with one as default. Shareholders may or may not submit their elections. In case a shareholder does not submit the election, the default option will be applied.
A Corporate action includes stock splits, dividends, mergers and acquisitions, rights issues, and spin-offs. All of these are major decisions that typically need to be approved by the company’s board of directors and authorized by its shareholders.
This is a common corporate action that alters a company’s stock price. A cash dividend is subject to approval by a company’s board of directors, and it is the distribution of a company’s earnings to a specified class of its shareholders.
This is another common corporate action that alters a company’s existing shares.
In a stock split, the number of outstanding shares is increased by a specified multiple, while the share price is decreased by the same factor as the multiple.
The Reverse Split
A reverse split would be implemented by a company that wants to force up the price of its shares. For example, a shareholder who owns 10 shares of stock valued at $1 each will have only one share after a reverse split of 10 for one, but that one share will be valued at $10.
A company implementing a rights issue is offering additional or new shares only to current shareholders. The existing shareholders are given the right to purchase or receive these shares before they are offered to the public.
Mergers and Acquisitions
A merger occurs when two or more companies combine into one with all parties involved agreeing to the terms. In an acquisition, a company buys a majority stake of a target company’s shares. The shares are not swapped or merged. Acquisitions can be friendly or hostile.
A spin-off occurs when an existing public company sells a part of its assets or distributes new shares to create a new independent company. Often the new shares will be offered through a rights issue to existing shareholders before they are offered to new investors. A spin-off could indicate a company ready to take on a new challenge or one that is refocusing the activities of the primary business.
Challenges in processing Corporate Actions
- Lack of a proper messaging system between stakeholders leads to communication gaps, process delays and breach of timelines.
- Disparate data formats and incorrect information misleads and only consumes time. Manual processing of Corporate Actions (sending documents through emails and preparation of files manually) leads to inaccuracy and operational inefficiency. This can be taken care by automation of processes.
- Lack of standardization across jurisdictions and markets and a lack of technology investment have been traditional hurdles. CA announcement data is not always standardized and structured, often causing manual efforts to further investigate and verify.
Benefits of Digital technologies and Opportunities where Brickendon can help in a Corporate Action Process
- Machine Learning tools can be utilized to match and integrate unstructured data with the event creation process. Python and RPA (Robotic Process Automation) can be used to automatically read news websites, based on relevant keywords. Brickendon can explore further in Digital technologies and develop solutions for refining and building up structured data.
- Automation of Equity Research can be done to reduce manual data verification time. With the use of data analytics technologies, Brickendon can build smarter solutions for data accuracy and reduce manual intervention.
- Intuitive Chatbots to answer live customer queries & enhance customer experience. As messaging plays a key role in corporate actions Brickendon can further develop solutions like chatbots and bridge the communication gaps.
- Brickendon can explore Artificial Intelligence and Machine Learning Tools which can be utilized to predict the customer’s response & automating CA notifications.
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