Corporate actions are integral to capital markets’ day-to-day operations, facilitating dividends, mergers, stock buybacks, and other processes that underpin corporate governance and capital allocation.
However, communicating corporate actions to shareholders is plagued by costly errors, resource-intensive and duplicated practices, and unnecessary complexity as they are passed from issuers down a chain of various intermediaries, largely because they lack a verifiable structured data output that serves as a single source of truth for all market participants.
What Are Corporate Actions?
Corporate actions consist of any event or activity taken by a publicly traded company that may have a material impact on its capital structure or financial position, which needs to be shared with investors, asset managers, and other stakeholders. In the US alone, there are over 3.7 million event announcements every year.
While corporate actions include a wide variety of events, they are typically grouped into three categories based on shareholder participation:
- Mandatory actions where the flow of event information is strictly one way, from issuer to investor. Examples include cash dividends, stock splits, and mergers.
- Mandatory actions with options where the communications flow is bidirectional, with information flowing downstream from issuer to investor and instructions on which action to take flowing back upstream from investor to issuer. Examples include selecting between cash or stock dividend options.
- Voluntary actions are either one-way or bidirectional, depending on whether the shareholder responds to the corporate action. Examples include optional dividends and rights issues.
These events dictate the governance of the world’s largest corporations and the flows of trillions in capital, making them fundamental to the modern market economy and efficient capital allocation.
What’s the Business Cost of Corporate Actions?
The average cost of operating a regional corporate action unit is $3-5 million.
Inefficiencies in corporate action processing are costing each market participant $3-5 million a year on average, according to a survey by The ValueExchange with the support of ISSA, and potentially hundreds of millions at a corporate level. A key reason for the costly inefficiencies is that 46% of event data is processed manually.