As SunGard expands its corporate actions line-up with the XSP acquisition, the industry giant is hoping that a challenging market will see growth in 2013.

SunGard is betting on growth in the corporate actions market with its acquisition of products and service provider XSP, which was announced yesterday. But as with many areas of securities operations, getting firms to automate corporate actions may take some time and a lot of persuasion.The acquisition, which actually took place on Dec. 21, 2012, will mean that XSP’s offerings, including the XSPrisa cloud-based service, will become part of SunGard’s capital markets unit, specifically the securities part of this business, say SunGard officials, who add that the acquisition will not have a material impact on SunGard’s financial results. SunGard has not disclosed what it paid for XSP.

XSP’s corporate actions services include data sourcing and cleansing, position monitoring, notification and response and entitlement processing, officials say. XSP offers deployed, hosted and software-as-a-service (SaaS) solutions.

The XSP offerings are a good match for SunGard’s key customers— sell-side traders, custodians, asset managers, hedge funds, private bankers and wealth managers—because corporate actions processing has become fundamental to their operations. “The volume of corporate actions announcements is growing year-over-year and becoming more complex in nature,” the spokesperson adds. “The XSP offerings will complement SunGard’s solution portfolio in these areas.”

The addition of XSP is in keeping with SunGard’s campaign to fill out its offerings in this area,

says Virginie O’Shea, an analyst with market research firm Aite Group. “SunGard has been gradually building out its asset servicing and asset management-focused portfolio over the last few years with the addition of strategic assets in adjacent complementary areas—look at its acquisition of ValueLink Information Services in 2011 for another example,” O’Shea says.

“The addition of XSP to its fold will allow SunGard to extend its offering from the validation of corporate actions data (as offered by the ex-ValueLink solution under Asset Arena) to support for the full corporate actions lifecycle (as offered by XSP),” O’Shea says.

In addition to product integration, SunGard has begun to add XSP’s employees into SunGard’s capital markets business. “The XSP team becomes part of SunGard’s capital markets business,” the SunGard spokesperson says. “The XSP team will continue to support the XSP business and customers.”

SunGard has retained Brendan P. Farrell, Jr., XSP’s CEO, and given him the new title of executive vice president and president, XSP, at SunGard Financial Systems. He will report to John Grimaldi, head of the North American securities business for SunGard. “Becoming part of SunGard will help us grow our global footprint and further enhance the breadth of our offering,” said Farrell in a prepared statement.

Prior Strategic Partnerships

XSP has several third-party arrangements such as its agreement with Interactive Data Corp. (IDC) that enables Interactive to offer its global corporate actions data via XSPrisa.

In September, XSP expanded a strategic partnership with SIX Financial Information by integrating SIX’s Valordata Feed (VDF), a back-office solution for securities reference, descriptive and corporate actions data and pricing with XSP’s XSPrisa. The VDF global data service offers the ability to link reference data to pricing, issuer information and events. The ISO 15022-compliant service is intended to facilitate straight-through processing (STP), officials say. The agreement also enables XSP customers to use SIX Financial Information’s global security ID cross-reference capability via the XSP v5 platform and XSPrisa.

XSP also has a strategic relationship with SunGard competitors Broadridge Financial Solutions and DST Global Solutions.

XSP’s agreement with Broadridge allows it to offer the XSP, version 5, corporate actions automation software suite as either a fully integrated service on the Broadridge application service provider (ASP) platform or a standalone solution. Broadridge clients can also link the XSP v5 platform to Broadridge’s Brokerage Processing Services (BPS), Impact and Gloss back-office applications. DST Global Solutions recently launched the HiPortfolio corporate actions automation solution, supported by XSP.

XSP will “continue to work with its partners as it does today,” the SunGard spokesperson says.

“The acquisition is unlikely to have a significant impact on relationships with data vendors such as IDC and SIX, but it is likely to impact relationships with SunGard competitors such as Broadridge and DST in the long-term—even if the company is run as a separate subsidiary and is not integrated into the wider portfolio,” O’Shea says.

In response, officials at Broadridge issued the following statement: “Broadridge’s relationship with XSP is currently strong and we look forward to continuing to work together. We do not anticipate that the acquisition of XSP by SunGard will change that relationship.”

DST Global Solutions officials also say that there will be no change as a result of the SunGard acquisition.

“DST Global Solutions and XSP began discussions about a partnership agreement early in 2012,” says Geoff Harries, global head of Asset Servicing for DST Global Solutions. “From the outset, we were aware that XSP could be an acquisition target. We took the decision that the complementary fit between the HiPortfolio and XSP’s solutions was likely to be of such significant operational benefit to our clients that a partnership was still strategically advantageous.”

Corporate actions automation is clearly a priority area where investment firms can gain significant operational improvements and achieve major cost savings, Harries says. “Our partnership is core to both DST Global Solutions and XSP’s future plans. We remain jointly committed to successfully delivering operational improvements to our clients and regional markets respectively going forward.”

Status Quo for XSP’s Rivals

It may also be status quo for XSP’s rivals as the acquisition may not cause them “to be unduly worried in the short term,” says Aite’s O’Shea. “It takes time and effort to successfully integrate a new acquisition. The corporate actions solution arena has been fairly static over the last few years, with a number of quiet exits—Mondas, Fiserv—and very little in the way of new entrants, aside from a few new vendors in the data validation space.”

But XSP will get more investment capital to boost its R&D and “if integration with SunGard’s existing portfolio of products is handled intelligently, then the market could see an uptick in take-up for the vendor’s solution set, particularly from the much-coveted lower tier of the market,” O’Shea says.

A key competitor, Information Mosaic expects the acquisition will have a minimal impact upon its business, says Gerard Bermingham, senior vice president, business strategy, for the corporate actions solution provider. “Like SunGard, Information Mosaic is a global organization with both clients and offices located in North America, EMEA, Asia and Australia,” Bermingham says. Corporate Actions is only one of the company’s many offerings.

“SunGard has various applications that cover some of the functionality contained within Information Mosaic’s integrated, full asset servicing platforms, such as IMSecurities,” Bermingham says. “We have seen a lot of success and will no doubt continue to do so within the custody and wealth management sectors. … The decision to choose an application provided by Information Mosaic or SunGard will always be based on the best fit for the customer in meeting those needs.”

Market Growth?

Bermingham says he agrees with SunGard that there will be growth in the corporate actions market because manual, highly risk-based processes will have to be weeded out in favor of full processing that offers integration for capturing feeds and links to back-office and books and records systems.

“As organizations look to reduce their overall costs and risk exposure, corporate actions automation improvements have been a major area of focus and success thanks to the standard market practice working groups both here in the United States and globally,” Bermingham says. “The DTCC rollout of ISO 20022 messaging for announcement and processing will significantly improve the quality of data and automation; reducing overall risk.”

Regulatory and market infrastructure reforms will force the automation and efficiency issues for many firms, says O’Shea, who cites the Target2-Securities and CSD Regulation efforts. “Those active in the asset servicing area are likely to be upping their competitive game and the market could see reinvestment in corporate actions technology as a result,” she says. However, the high costs of compliance combined with thin margins may cause firms to think twice about automating corporate actions.

“I don’t see all players rushing to invest in corporate actions, but it will be a strategic investment item for those hoping to net non-settlement related business in the T2S world,” O’Shea says. “It is also still currently an area of massive inefficiency among the majority of market participants, so firms seeking to bring down their cost base may turn to technology for a solution. As always—the sales cycle will continue to be a bit of a slog though.”

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