The global custody bank is revamping its corporate actions infrastructure by going live with the DTCC’s ISO 20022-based platform.
Custody bank BNY Mellon has taken a major step forward in the complex process of moving toward a new corporate actions infrastructure by going live with a standard-based messaging solution from the Depository Trust and Clearing Corp. (DTCC).
Martin Kruse,
managing director,
BNY Mellon
BNY Mellon went live with the new standards-based offering on July 30, marking the start of the first phase for the firm, says Martin Kruse, the BNY Mellon managing director responsible for the global corporate actions group. “We started with the simpler, mandatory corporate actions events,” Kruse says. “We expect to complete that by the end of the third quarter.”
The DTCC’s role in corporate actions notification starts with public corporations sending their corporate actions information to the DTCC, which then prepares and disseminates the information to its clients. Those clients, including custody banks like BNY Mellon, then notify their customers about the corporate action events that will impact their investments. The custody clients can respond in a variety of ways, including via the SWIFT network.
The DTCC has been pushing to move its clients from its incumbent proprietary system to real-time, event-driven corporate actions messaging that uses the ISO 20022 standard to eliminate manual processes, cut back on risk and improve the accuracy of corporate actions data.
The DTCC has been reengineering its data model and files that support its corporate actions service, and working with SWIFT, Sifma and the Industry Standardization for Institutional Trade Communication (ISITC) to promote the use of the ISO 20022 standard.
For the past two years, the DTCC has been telling customers of the Depository Trust Company (DTC), a DTCC subsidiary, that they will have to transition to ISO 20022 by 2015. The DTCC is planning to decommission its legacy CCF files by then or sooner while supporting the legacy and the new ISO 20022 messages in the meantime. The DTCC’s 20022 messaging format and hub will be compatible with the SWIFT, DTCC’s SMART and MQ messaging standards.
The DTCC does provide messages based on an earlier standard, ISO 15022, as an option for its Global Corporate Actions Validation Service (GCA VS) clients; GCA VS will support ISO 15022 as a legacy format, which will include maintenance support; the DTCC has determined that ISO 15022 does not meet its future needs.
For BNY Mellon, the second phase will kick off during the fourth quarter of this year.
“We’re going to move onto the voluntary corporate action events, which are the more complex ones,” Kruse explains. “In the first quarter of 2013, we will do our mandatory redemptions and our remaining corporate actions events.”
Overall, the move to the DTCC’s new offering will take about six months to complete, Kruse says. During this period, BNY Mellon will be working “hand in hand” with SWIFT whose network and financial messaging services are used by many clients of the custody bank, he says. Ultimately, clients are likely to see cleaner and timelier corporate actions data.
“By partnering the way we did with the DTCC and SWIFT I think we’ve learned that you can incrementally move the ball down the field for everyone’s benefit.”
The standards-based service “allows the DTCC to get us the information a lot quicker,” Kruse explains. “Immediately after they’ve scrubbed [the data], we can see it. Before it was a bit of a batch process and we’d have to wait until they went through several of their controls. A lot more of their new controls are rules based similar to what the big custodians do with their own scrubbing engines. That should be a benefit to our clients.”
BNY Mellon clients that use the SWIFT network and its ISO 20022-compliant services will benefit from the enhanced data that will result from the “golden copy scrubbing” of the DTCC, Kruse says. “For those [SWIFT users] not on ISO 20022 yet, there is this parallel process where they can use their old messages and they’re not going to see any differences,” he says.
The transparency, standardization and faster delivery via the DTCC’s new platform should give BNY Mellon clients more time for their investment decisions, says Stephanie Keppenne, BNY Mellon managing director and head of Core Custody Product Management, in a prepared statement.
Yet “there will be a lag effect until [clients] see a big benefit,” Kruse adds. “The biggest benefit near term is between us and DTCC directly.”
Being part of the DTCC’s pilot program since 2010 has helped BNY Mellon stay “a bit ahead of all the participants that deal with the DTCC and that may or may not be ready to get off the DTCC’s proprietary platform,” Kruse says. Brown Brothers Harriman, JPMorgan Chase and National Financial Services also took part in the DTCC pilot test for all event types, including dividends, principal and interest, and redemption and reorganization events, such as rights, tender offers, and warrants.
The testing and validation feedback that BNY Mellon provided through the pilot project paved the way for the DTCC’s launch late last year for the announcements feature of its revamped corporate actions platform.
The pilot process for the new corporate actions platform has taught him that, “moving industry infrastructures is a long process,” Kruse says. “Because we got involved early on, it let us help set some of the parameters. … By partnering the way we did with the DTCC and SWIFT I think we’ve learned that you can incrementally move the ball down the field for everyone’s benefit.”
Kruse cautions that the push to standardize corporate actions is taking longer than other standardization efforts for custody banking such as messaging standards for settlements because it’s far more complex. “People will start to see the benefits over the next couple of years,” he adds
In its capacity as a depositary bank, BNY Mellon is also working with the DTCC to pilot XBRL for American Depositary Receipt (ADR) corporate actions announcements. The project aligns XBRL taxonomy with ISO 20022 to foster standardized, computer-readable announcements that less expensive and have fewer errors than manual processes, officials say.
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