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For investment banks and brokers in the Asia Pacific region,
the trading landscape is changing rapidly and creating a new sense
of urgency around the need for operational efficiency, especially
when it comes to corporate actions processing.
Despite the financial volatility caused by the pandemic, retail
brokerages, as well as trading services for investment, retail and
online banks, continue to see strong revenue increases worldwide.
Far from dampening enthusiasm for investing, the events of the past
18 months have only driven markets higher and encouraged a broader
segment of the population to participate in the capital markets. In
the Asia Pacific (APAC) region, investment activity is very much in
line with this trend. Increased interest in investing (especially
among younger generations), the wider availability of
consumer-friendly technologies and a trend toward zero commissions
are rapidly democratizing access to markets and investment
management.
This creates exciting new opportunities for the brokerages
managing these investments, but it also creates new challenges,
especially around corporate actions processing. In addition to
dealing with a larger volume of investors, these intermediaries are
also facing a broader diversification of portfolios beyond local
markets and into mature markets like the US , which is compounding
the volume and complexity of corporate actions that need to be
processed.
And while wider participation in the financial markets is a
positive development, it is placing new pressures on intermediaries
who must increase the level of support and the velocity of service
to meet the needs of clients who tend to be both less sophisticated
and more demanding.
Heightened operational risks and rising service
expectations
As the volume and complexity of corporate actions rises with
brokers serving broader portfolios, the majority of brokerages in
the APAC region are unprepared for the growing risk and client
servicing expectations. For most, corporate actions processing is
still a manual process, which introduces an unacceptable level of
operational risk in several ways.
Market complexity
For decades, brokerages have relied on their staff to process
corporate actions manually, but as investing has become more
global, those processes have become more complex. For most
brokerages, resolving complex or non-standard actions requires a
deep knowledge of market nuances and risks. Staff members who
developed their skills when the markets were simpler and more
straightforward may not be ready to process these advanced cases
confidently. Providing staff training and implementing technologies
that validate and augment corporate actions data can help to
prepare the back office to tackle tougher markets.
Reputational risk Historically, depositories and custodians were solely
responsible for the accuracy of corporate actions, but brokerages
can no longer rely solely on these sources in the same way. The
market has undergone a paradigm shift, and the intermediary is now
expected to verify and validate the information independently. When
a corporate action is processed incorrectly or incorrect
information is disseminated to the client, that erodes the
reputation of the investment bank or brokerage directly even if
their agents are liable to cover the losses, which hurts long term
growth prospects. In today's market, investors expect accuracy from
the institution they transact with, even if the custodian issued
incorrect information.
Increasing client expectations Investors are more aware of the service levels they
receive from their broker and more likely to take their business
elsewhere if they don't see value for the fees they pay. They
expect to receive accurate and reliable information and will not
tolerate errors—especially if it impacts investment value.
However, that is simply the baseline expectation: investors are
becoming savvier and more discerning—especially retail
investors—and they are gravitating towards firms that offer the
types of data-driven, digital experiences that are incompatible
with manual processes.
Brokerages in the APAC region are witnessing good growth
opportunities as a new generation of investors comes online. Those
that modernize key operations and focus on supporting the evolving
needs of the marketplace will lead the market and have the
potential to see substantial returns. But in order to make the most
of this rare opportunity, firms must be ready to support swift,
frictionless transaction mechanisms that encourage and empower
institutional and retail clients with trusted, real-time data.
Digital processing alleviates pressure
While manual processes and a reliance on in-house expertise have
been part of the status quo for decades, this operational model
needs an overhaul. As the volume of retail and institutional
investment activity continues to rise, it is straining the capacity
of even the most well-resourced and efficient brokerages and
motivating them to seek new solutions. Global adoption of platforms
that automate corporate actions processing and enable digital
self-servicing for investors and clients is now gaining traction in
the APAC region.
For intermediaries seeking to enhance the workflow, lightweight
SaaS solutions offer best-practice workflows and access to a
centralized source of validated corporate actions data. (IHS
Markit's corporate actions solution, for example, includes
validated data for nearly 3 million equities, fixed income and
structured securities across 170 countries and territories.) For
organizations with their own established workflows, there are more
robust, customizable cloud-based and on-premise enterprise
solutions.
By digitizing corporate actions processing, firms can mitigate
the risks that their current manual processes expose them to at
this pivotal moment in the region's trading history.
Preparing for APAC's trading future
In 2021, market participation in the APAC region is heating up
and attracting a broader range of institutional and retail
investors than ever before. For the region's investment banks and
brokers, this represents a significant opportunity for growth, but
competition for this business is fiercer than ever, and there will
be winners and losers in the coming years.
Corporate actions processing is a surprisingly critical piece of
the puzzle, enabling intermediaries to support greater transaction
volumes and optimize the value of those trading opportunities for
their clients. Firms that focus on digitizing key
processes—especially those that materially enhance the
investing experience and outcomes for their customers—will
surge ahead of the pack.
