Transcript Slide 1

XBRL and Corporate Actions
Presentation to Financial Executives International (FEI)
December 8, 2009
1
SEC’s US GAAP Rollout
• Average 7% of elements are extensions
• Range from 0 to 52%
• Reasons for extensions:
– Aggregate elements not available in the taxonomy – creating a new element
that captures several elements added together
– Develop new elements that were more specific than what was available
– Reflect accounting changes if the 2008 taxonomy was used, which did not
include new FASB pronouncements
– Use new FASB pronouncements that came out in the last few months, even
since the 2009 taxonomy release was published
– Depict elements excluded from the taxonomy as not allowed in US GAAP
– Provide extensions for the same element in Cash Flow and Income statement
– Reflect industry specific extensions not yet covered in the taxonomy
– Development of dimensional equivalents (i.e. Trade Receivables)
What is a corporate action?
• A mandatory corporate action is an event initiated by the corporation by
the board of directors that affects all shareholders. Participation of
shareholders is mandatory for these corporate actions. An example of a
mandatory corporate action is cash dividend. Other examples of
mandatory corporate actions include stock splits, mergers, pre-refunding,
return of capital, bonus issue and spinoffs.
• A voluntary corporate action is where the share holders elect to
participate in the action. A response is required by the corporation to
process the action. Examples include a tender offer, rights issue, making
buyback offers to the share holders while delisting the company from the
stock exchange.
• Mandatory with choice is a mandatory corporate action where share
holders are given a chance to choose among several options. An example
is cash/stock dividend option with one of the options as default. Share
holders may or may not submit their elections.
Corporate Action information flows between
many parties in a more complicated chain than GAAP
Issuer driven Corporate Action information is passed
between many parties in the flow and often results in
changes to the corporation structure or entitlements to
the investor which need to be correctly communicated
and accounted for.
Due to the transactional nature of the information ISO
messaging has grown to support communication within
the Financial Services Industry
Background: Multiple versions, of what should be the same information,
travels from the issuer to intermediaries before reaching investors
Issuer / Agent
Sub-Custodian B
Sub-Custodian A
Prospectus
CSD
Data Provider Y
Exchange
Data Provider X
Global Custodian J
Global Custodian K
IM / AM
Portal
Corporate Actions: Improving Issuer-Investor Communication
DTCC Non Confidential
6
1 Tender Offer on 250 securities required the
manual creation of 250 ISO electronic announcements
Eg Event Type, Issuer Name,
Security name and ID
Cash Option and Rate
Eg Dates, Times
Terms
Proposed process flow for XBRL tagging a U.S.
event based upon ISO 20022 plus other market data
Financial Market
Turmoil
With the economic down turn, there
is an increased focus to reduce the
risks and improve transparency
through any means possible,
including increased regulation
9
Perfect
Storm
XBRL
Maturity
With the need to do ‘more with less’, there is
customer demand for solutions that offer high
STP, that align with standards and that use
a universal ‘unique ID’
Customer
Pressure
Why Now?
SWIFT is driving the next generation
standard, ISO 20022 building on the
success of ISO 15022, and DTCC’s
‘CA Re-engineering’ project will
service the entire US market, using
new ISO 20022 messages in favor of
existing legacy files
Industry Initiatives
Converging on ISO 20022
XBRL has been institutionalized with the SEC
mandate for the GAAP quarterly financial
reporting, and with the replacement of EDGAR
with XBRL-based IDEA system. XBRL for CAs,
based upon ISO20022, is a solution for issuers
to electronically tag data within reports directly
at the source. Enforcement may be garnered via
regulatory mandate
Proposed Solution
• Straight through Processing of Corporate Actions from Issuer to Investor
• Strategy
– Build out taxonomy for corporate actions
– Establish ISO 20022 standard for financial transactions
– Establish Stakeholder group and develop the business case
• Issuer stakeholders:
– AGL Resources, Duke Energy, ENGlobal, Pfizer, Inc., United Technologies, Microsoft
– issuer agents including Merrill Corporation, Wells Fargo Shareholder Services, NYSE
Euronext and PR Newswire
• Intermediary stakeholders: DTCC, custodians
• Investor stakeholders: AllianceBernstein, Citi, Goldman Sachs Asset Management, State Street
Global Advisors, T. Rowe Price, Vanguard, AMF (Asset Managers Forum), ICI, CII
Business Case – Survey
•
Survey Process
–
–
•
Each stakeholder Group received a tailored survey but containing common questions
The specific results and responders will remain confidential
Questions Asked
–
Demographics
•
•
–
Volumes
•
•
–
How many U.S. vs Non U.S events are processed by Mandatory, Voluntary and Choice
How many updates received per event
Cost (Current and estimation post XBRL)
•
•
–
Markets covered,
Markets of interest
Estimation of losses (Actual/Near misses)
FTE to announce and process evetns
STP Rates (Current and estimation post XBRL)
Stakeholder group members completed a survey
Background Numbers
"Typical"
Investment Manager
55%
23%
18%
18%
"Typical"
Custodian/BrokerDealer
58%
32%
33%
8%
Market Served
US
Canada
Europe
Asia
US Event Type Volume
Mandatory
Choice
Voluntary
9,750
880
430
227,250
3,000
13,100
Non-US Event Type Volume
Mandatory
Choice
Voluntary
8,500
1,025
830
48,000
7,875
12,250
Number of Internediary Firms
Providing Information
Mandatory
Choice
Voluntary
32
21
18
Update Frequency
Mandatory
Choice
Voluntary
3
4
5
3
3
3
Over 50% of assets
held in the U.S. with
the U.K identified
as the next market
to address
Over 3 updates per
event from many
intermediaries
results in a great
detail of redundant
work
• Investment Managers serve about 30 clients
• Investment Managers receive information from about 25 Intermediaries
• Investment Managers had a average of 7 staff focusing on corporate action announcements while
Custodial Banks had an average of 52
• The survey included expect increases in STP and $$ Savings
Business Case – Issuer results
•
•
50% of mandatory and choice actions require updates (from 1-20)
Creating corporate action messages is labor-intensive
– At minimum, a release is managed by IR, reviewed by Finance, with minimum 3-5 FTEs,
working 6-12 hours
– More complex regulatory filing, handled by Legal, reviewed by Finance, can require as
many as 10+ FTEs
•
•
Messages are delivered to multiple outlets: newswire, corporate web site,
EDGAR/SEDAR, data vendors, depending on message type
Volume of questions can be significant
– Mandatory and choice get 0-100 questions and require 1-5 FTEs, often with call center
support
– One company saw 86% spike in average daily call with merger, 122% spike with spinoff
– One company receives approximately 5,000 questions on dividends
•
•
•
Extensions are seldom granted
Estimated time to tag a corporate action ranged from < 1 hour (release) to 1-3
hours for a regulatory filing
Issuers expect no reduction in inquiries
The Arguments
PLUSES
CONCERNS
Net savings
Change in liability (mitigate by: initially
introduce limited number of tags, most
logical tags)
Improved clarity of content and intent
of corporate action, increased certainty
Ease of use (mitigate by: ensure tools
are available, structure taxonomy to
make process easy as possible)
Improved quality in asset servicing to
investor
Cost (mitigate by: leverage existing
tools, existing knowledge base about
XBRL among issuers)
More control in hands of issuer
Primary benefit to investor and
intermediary; less benefit to issuer
Reduced cost = more funds in the
marketplace for investment
Issuer learning curve – corporate
actions infrequent, does not become
“core competency”
Taxonomy Design Principles
• All meta-data is in the taxonomy
– Issuer Taxonomy
– ISO 20022 Corporate Actions Notification Message Schema
– Mapping Logic
• Issuers will only see a subset of the Taxonomy
– Only present what is relevant to the Issuer
• Create concise definitions that allows any issuer to tag a
document.
XBRL & CA synergy - opportunity
XBRL financial
reporting countries
Interest or planning
XBRL for CA
SMPG members
Active in CA Stds
Committed to
XBRL for CA
The Way Forward & Next Steps
4Q 2009 - DTCC data model
January 2009 - business case for first review
January 2009 – ISO 20022 CA messages available
1Q 2010 - DTCC event templates
2Q 2010 - taxonomy for public comment
3Q 2010 - publication of taxonomy, start pilot
4Q 2010 - ISO 20022 Corporate Actions on SWIFT
4Q 2010 - DTCC Pilot ISO 20022 CA Announcements