Bond Market Association recommends best practices for corporate action processing

By Angela McDaniels

Seattle, Oct. 9 - The Asset Managers Forum of the Bond Market Association released a draft of its recommended best practices for processing corporate actions on Monday, according to an association news release.

The recommendations were developed by the Corporate Actions Committee of the association and are aimed at increasing automation and standardization across the corporate actions processing cycle.

A corporate action occurs when changes are made to the capital structure or financial position of an issuer of a security that affect any of the securities it has issued. The association gave tender offers, bankruptcies, mergers, redemptions and cash dividends as examples of corporate actions.

The processing of these corporate actions in the securities industry has historically been based on manual exchanges of information, the association said, and many of the recommendations deal with the need for standardization of corporate action information.

The draft contains such recommendations as:

• Asset managers, custodians and other industry participants should use at least two sources for corporate actions information when available and cross check them for accuracy;

• Market participants should follow the market guidelines and standards set by the applicable national market group. In the United States, this is the International Securities Association for Institutional Trade Communication;

• Market participants should use standardized formats for communicating corporate actions information. More specifically, the custodian should send market information to the asset manager in a standardized electronic format that is stated upfront in the offering document; and

• Corporate actions must be clear and understandable, and it is the responsibility of asset managers to educate their analysts and portfolio managers on the use of the electronic systems and standards for market information.

The exposure draft includes additional best practice recommendations that apply to all corporate action events including capital change events, income and principal payment events and mergers and acquisitions.

The best practices also cover multiple markets and instrument types and refer to both fixed-income and equity securities.

The comment period for the exposure draft ends on Nov. 30.

The Bond Market Association, with offices in New York, Washington, D.C., and London, represents securities firms, banks and asset managers that underwrite, invest, trade and sell debt securities and other financial products globally.

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