Asset Managers Endorse Use of XBRL for Corporate Actions
October 30, 2009
The corporate actions committee of the Asset Managers Forum has thrown its weight behind the efforts of Depository Trust & Clearing Corp. (DTCC), and Swift to promote the use by issuers of the extensible business reporting language (XBRL) format for corporate actions.
“We believe that the current climate of reform affords an opportunity to move forward in reducing risk exposure to market participants that arises from corporate actions processing of today,” wrote Tina Davis, chairperson of the AMF’s corporate actions committee in an Oct. 26 letter to Meredith Cross, director of the Securities and Exchange Commission’s Division of Corporation Finance.
“By the very nature of the asset management business holdings of a single security may be held by many custodians who independently receive and pass on corporate action information to us,” added Davis who is also vice president at The Bank of New York Mellon, one of the world’s largest custodian banks. According to the AMF’s website the corporate actions committee also includes representatives from Citi; DTCC; JP Morgan Chase; Jennison Associates and MFS Investment Management.
About 200,000 corporate actions, such as dividends, bond redemptions, rights offerings and mergers are announced each year by publicly traded companies in the U.S. DTCC, as parent of the U.S. depository system, provides its participants with information on corporate action events.
Because of the disparate ways in which issuers disclose corporate action notifications, the data must typically be reinterpreted by financial intermediaries and asset managers before reaching end investors. Such a scenario is ripe for mistakes and delays. And banks, brokerages and asset managers could be financially liable if they give clients bad data on corporate action notifications or provide it too late for a decision to be reached.
While financial intermediaries are eager to promote the use of XBRL for corporate actions, Swift, DTCC and XBRL U.S. need support from issuers who may not be eager to take on the costs or potential liabilities from changing their current practice of including corporate action notifications in offering documents, without a requirement from the Securities and Exchange Commission.
As reported by Securities Industry News, on Sept. 18, XBRL U.S., Swift and DTCC have created three separate committees of issuers, financial intermediaries and institutional investors to evaluate how U.S. companies can tag their corporate action notifications in XBRL format. That evaluation will include a cost-benefit analysis of the use of XBRL to corporate issuers which the SEC will require should it decide to mandate or even endorse the use of XBRL by issuers in corporate action notifications.
The XBRL protocol allows data to be tagged in a way that databases, financial reporting systems and spreadsheets can easily identify the type of information represented by each data entry and the value reported. XBRL International’s U.S. branch, messaging consortium Swift and DTCC, parent to the U.S.’ depository and clearing systems, are now creating a taxonomy for U.S. corporate issuers to use in tagging corporate actions in XBRL.
The goal of the taxonomy, to be made publicly available by the end of next year, is to make it easier for financial intermediaries – banks and brokerages – to translate corporate actions data from XBRL into the International Organization for Standardization (ISO) compliant message types which could be used by financial intermediaries to notify their customers. Those message types flow through the Swift network.
