Blockchain for corporate actions disruptions on

Size: px

Start display at page:

Download "Blockchain for corporate actions disruptions on"

Donald Hill
6 years ago
Views:

1 Blockchain for corporate actions disruptions on the brink blockchain

2 Corporate action blues Despite the technological innovations in the industry, corporate actions (CA) processing has been inefficient and risky due to market anomalies. Security issuers communicate corporate actions information in a non-standardized format, which is further circulated to shareholders by multiple intermediaries. These intermediaries intervene to provide a defined structure to the data and to refine it. However, this adds to the complexities that lead to delays and higher probability of circulating incorrect information. The need for sourcing data from multiple data sources, central securities depositories (CSDs) and data providers also creates a dependency, thereby adding to the cost of operations. However, despite the spike in corporate action volumes and increasing complexities, the industry stands ready towards redefining corporate actions processing. It holds the promise of reducing processing errors by minimizing problems that stem out from non-standard communication protocols and data formats that need constant changes to be compatible with in-house systems. The financial industry is plagued with manually processing CA, overwrought with risks and financial losses that can go up to millions of dollars due to a small error. Up until recently, automating the process of CA has been difficult due to in-house systems being unaccommodating of new technology, difficulty in quantifying ROI, no standardized regulatory norms and the lack of a cost-effective scalable system. Added to this, CA data management is an expensive affair that is also complex and time consuming. The use of Blockchain technology can address the problem by obtaining a golden source of CA data. The latest PwC Global Fintech report shows that 77% of FIs are expected to adopt Blockchain as part of an in production system or process by Blockchain process will achieve an edge with the inception of a moderator who would help in establishing an international standard for CA. A moderator is a member elected from the Blockchain network who takes on the responsibility of aggregating data from multiple member contributions. The moderators representing data providers, the governing council of international acceptance of corporate actions, and the financial institutions (FIs) would collectively work towards paving a common format and process mechanism ahead and creating the golden copy of corporate actions data. Essentially, it would eliminate all intermediaries between security issuers and investors, decentralize transactions and lower costs. Creating golden copy of data Central Securities Depositories (CSD s) Public sources - News, articles, etc. Exchange Data vendors like SWIFT, IDC, Telekurs, etc. Corporate action event data collected from multiple data sources Cleansing and scrubbing of data involves significant resource allocation Multiple stage of cleansing required due to data inconsistencies Inconsistent and incomplete data from multiple sources Time Effort spent Increased risk High cost involved Overheads Involved Hierarchical flow from one member in the data flow to another creates different versions of data 2

3 The solution: possibilities on the blockchain landscape The proposition: current vs change Issuer Stock Exchange CA Data CSDS Data Providers Bloomberg, Reuters, Swift, Telekurs CA Data CA Data Data Channels CA data Custodians TV, Newspaper Multilayer Communication Fund Managers Investors - Institutional State Street, BNYM, JP Morgan Figure 2: As-Is flow As-Is Flow: When a CA announcement is made, the information flows from the issuer to the investor via multiple intemediaries. These intermediaries would be layers of data providers, channels, exchanges, custodians, CSDs, etc. When there are so many intermediaries within an information flow, inaccuracies & errors will crop in. 3

4 Issuer Issuer Moderator Node Data Providers Member Node Custodians Investors - Institutional GAS/ETHER GAS/ETHER Investors - Institutional Member Node GAS/ETHER Golden Copy Of Corporate Action Data GAS/ETHER Member Node Custodians Investors - Institutional Investors - Institutional Fund Managers Fund Managers Figure 3: To Be Flow To-be flow: Blockchain technology helps resolve the complexity involving overheads and infrastructure costs by connecting the members in a distributed ledger network and retrieving a single point of information as the golden source of corporate action data. The moderator node will help achieve a common format and process mechanism ahead. 4

5 The corporate action use case Blockchain Network: Blockchain technology connects the members in a distributed ledger network wherein the members could initiate from a group with a moderator to facilitate agreement upon a specific format for the golden source of data. In the process, groups may merge and join as they decide to work on a single version of golden copy of data and this would result in a burgeoning network. Blockchain Network for Handling Corporate Action Data Master data contributor from amongst members Application Atop Blockchain Member 1 Group A Moderator / regulator of data Blockchain Network Member 2 Group A Member groups on agreed golden copy of data Swift, idc, telkurs etc Member N Member groups align and join on an agreed golden copy of data format and processing rules specific to different corporate action events Figure 4: The Solution-Blockchain network 5

6 The process Blockchain Network On The Internet Data Cleansing Rules Data Format & Consolidation Scrubbing Rulea As Voted Upon Event Definition Rules As Voted Upon Management Rules As Voted Upon Moderator Analytical Engine Data Warehousing Blockchain Scripting/ msg Protocol Announcement Capture-feed Scrubbing Engine Reporting Engine External Nodes Sub-custodians CSDs Golden Data Copy Seeker Communcation Messaging Notification Partners Event Feed Market Information Master Data Iterative Versions Of Draft Data (Template Based Exchange) Between Seekers And Moderator Accounting System Treasury System Tax System Golden Data Copy Moderator Trading System Golden Copy of Data In-house Applications Format Conversion Tool Figure 5: The Blockchain Solution The Re-defined Corporate Action Process The reformed CA process 1 As network gets defined with members and groups aligned upon a golden copy of data, a master data contributor or a secondary data contributor could upload the data from the source they find legitimate and create the first version of data. 2 Financial Institutions (FI) will be integrating with Data Providers in which alternate Blockchains interact with each other. The segregation amongst Data Providers can be in terms of geographical location, revenue or on a cost-sharing mode. 3 The FIs acting as nodes will agree on a common format for each class of CA in a way that is facilitated by the information provided by data providers. Data Providers can have a moderator that moderates and discusses internationally accepted standards and formats with the FIs and facilitates structural changes and data points across all member nodes of the data providers. 4 A regulator or data moderator is assigned from the network (voted) to amass data from multiple member contributions and to create the single version of truth that was previously agreed upon by all members of the group. 5 Members get access to all the components of the build version of the golden copy of CA data. Members can choose to take up the data from the source and utilize it directly, paying for only a fraction of the cost (feature of shared distributed ledger) or directly choose to get a copy of the golden source of data in the format compatible with their in-house systems for a fee. 6 Members vote upon cleansing, scrubbing and data definition rules on the network, whereas the data moderator carries out the action. Data can be provided to the participants in the required format. 6

7 7 A universal body of corporate action or multiple international corporate action governing bodies can represent the regulatory laws across different geographies. For the Blockchain system to be accepted worldwide, FIs can agree upon a standard to be followed. Alternatively, networks can join hands wherein members can vote for a moderator to collectively establish international standards for corporate actions. For example,australia is set to develop Blockchain standards under ISO/TC 307 Blockchain and electronic distributed ledger. 160 International Organisation for Standardisation member bodies are said to be participating in developing international Blockchain standards. 8 Consulting and integration providers can help develop the system, infrastructure, security and other aspects of establishing Blockchain. The providers ensure the safety, integrity and availability of frameworks for multiple stakeholders. They can further facilitate the maintenance, support and testing of the system to ensure its sustainability. 9 The digital ledger is regularly appended over a period and each member gets to be an informed entity of the incremental change. Groups can merge upon similar requirements and industry can converge at a futuristic point where one single copy works out for all in detail end-to-end convergence solution for all. The objective can lead to efficient and representative means of achieving higher cost savings, non interest fee income, and help in establishing international standards & uniformity across world bodies. The corporate action Blockchain use case: what does it bring to the table? Resolve Complexity and Overheads Blockchain technology can help resolve the complexity and the problem involving overheads and costs by connecting the members in a distributed ledger network and retrieving a single point of truth as the golden source of corporate action data. Long run cost reduction - a goal for every smart decision maker! Time, Cost and Resource Efficient The advantages follow terms of time, cost and resource efficiency for the members, consistency and mitigated risk, scalability of member base, single processing flow with no hierarchical copy of data along with auto-scrubbing and auto-cleansing features on the Blockchain. Reduced risk-a value add! International Standards Moderator shall help establish international standards for corporate action and enabling the whole Blockchain set up to be internationally accepted. Sourcing Easiness Sourcing undergoes multiple challenges- like sourcing for current, past and future CA s is difficult, but the ledger helps resolve this issue by maintaining a single version of truth. Records forever! Easier Procurement Using golden source of CA on the Blockchain, members can source data at local exchange code level instead of only from composite exchange code levels, because of which significant number of CA s are not sourced. Easier procurementan industry problem solver! Many such benefits follow! Figure 6: Advantages of using Blockchain for CA 7

Conclusion 7 Currently, Blockchain processes are still being explored and its integration into capital market/ corporate actions needs to be closely regulated.

8 Conclusion 7 Currently, Blockchain processes are still being explored and its integration into capital market/ corporate actions needs to be closely regulated. Cryptocurrencies like Bitcoin can handle only 20,000 transactions per hour with a delay of over an hour for transactions to be trusted. CA is time-intensive process, latency in processing is highly inconvenient for all stakeholders involved. As greater standardization and networking takes place in the industry, the golden source of CA will be redefined by the Blockchain approach. It replaces the need for any intermediaries/ third-party institutions to provide a secure financial transaction platform. Having a moderator to pave the path towards an established format shall help the technology achieve international acceptance. The application and usability of Blockchain technology relies heavily upon the acceptance and interest that the disruptive technology generates. As financial services/fintech embrace disruptive technology, Blockchain would bring about the necessary trust factor and transparency between countries or stakeholders. Federating Blockchain would essentially create a cost-effective system that is secure for all parties involved. 8

9 About the author Manjali Dhar Managing Consultant, Financial Services Securities and capital Markets Manjali Dhar brings 14+ years of Business Consulting & Project Management experience in Securities and Capital Markets industry. Her work experience includes Business Requirement Gathering, Business Process Flow, Business Process Modelling and Financial Analysis in domain areas focusing on Fixed Income, Equities, Trading Cycle, Portfolio Analysis, Asset Management and Asset Servicing. In her current role, Manjali is SS Domain Lead and manages a team of Business Analysts in Wipro s SCM Industry Advisory group. She can be reached out at Manjali.dhar@wipro.com Special mention for their contributions towards creating this document Rashmi Kumari Consultant, Financial Services, Securities and Capital Markets Sonali Shivaji Pawar Consultant, Financial Services, Securities and Capital Markets References _GSFI_Journal_V3-I3_Sharing_Ledgers_final.pdf /insight/blockchain_understanding_the_potential.pdf corporate-actions-processing BlockChain-In-Capital-Markets.pdf 9

Wipro Limited Doddakannelli, Sarjapur Road, Bangalore-560 035, India Tel: +91 (80) 2844 0011 Fax: +91 (80) 2844 0256 wipro.

10 Wipro Limited Doddakannelli, Sarjapur Road, Bangalore , India Tel: +91 (80) Fax: +91 (80) wipro.com Wipro Limited (NYSE: WIT, BSE: , NSE: WIPRO) is a leading global information technology, consulting and business process services company. We harness the power of cognitive computing, hyper-automation, robotics, cloud, analytics and emerging technologies to help our clients adapt to the digital world and make them successful. A company recognized globally for its comprehensive portfolio of services, strong commitment to sustainability and good corporate citizenship, we have over 160,000 dedicated employees serving clients across six continents. Together, we discover ideas and connect the dots to build a better and a bold new future. For more information, please write to us at info@wipro.com IND/B&T/JUN-NOV2017

Engineering data clean-up & transformation

Engineering data clean-up & transformation Improving data integration across EAM, IT, OT and engineering landscape. energy Introduction In the engineering information world, we often find missing metadata,