24/04/2023
The SWIFT interbank system has performed testing of an innovative blockchain-based solution designed to optimize algorithms for informing investors of important corporate events in the securities market.
As part of our strategy to enable instant and frictionless transactions globally, we identified the need to tackle this securities industry pain point and find a fresh approach to corporate actions processing – one that’s capable of reducing data errors, removing manual intervention, and significantly lowering costs for market participants.
ISSUE: Asset managers often receive notifications from up to 100 different sources about the same corporate event, and the data is often different or contradictory from one source to another, as they use different data transmission standards.
Jonathan Ehrenfeld, Securities Strategy Director, SWIFT:
When an event takes place at a publicly listed company – such as a merger, general meeting, dividend payment or other corporate actions – the information must be quickly shared with investors, creditors, and all other relevant stakeholders. Due to the number of players involved in any given investment chain, however, performing this task is a highly complex business for market participants.
PILOT: We brought together six key custodians and asset managers to pilot a peer-to-peer matching solution to bring clarity to some of the most complex events — such as tender offers, full calls, stock splits and Dutch auctions.
With sensitive account numbers and holdings redacted, the participants provided extracts of Swift MT 564 messages for the selected event types. Swift’s Translator tool was used to convert the data into a blockchain-system readable format, which was uploaded onto a dedicated platform developed for the pilot.
TECHNOLOGY: Our experiments harnessed the power of blockchain technology to give all market participants a single, accurate view of a corporate action event, explains Tom Zschach, Chief Innovation Officer at Swift. We will now work closely with our community to assess all the features that are needed for developing a scalable industry-wide solution to this longstanding problem.
OUTCOME: The peer-to-peer matching functionality demonstrated the ability to give participants a clear view on any given corporate action, as well as quickly alerting them if there are any changes to an event, and highlighting any remaining inconsistencies in the data for further investigation.
In addition, the approach demonstrated the high level of data privacy required for this use case. All messages holding corporate action data were authenticated as to their source, stored in a chronological audit trail, and shared privately only with designated counterparties. No third party – including the platform provider – was able to see events and allocations related to a specific asset owner.
FUTURE: With the pilot project proving a success, SWIFT will now work to assess the most appropriate technology to implement, and the full requirements needed for a viable solution capable of being rolled-out across the industry.
Source:
How can the securities industry reduce costly frictions in communicating corporate actions? Learn more about the results of our latest collaborative experiments to find out.
