SWIFT and Corporate Actions Processing

Global custodians use SWIFT messages as the main way to communicate corporate actions information. The industry currently uses two message standards: the older MT (Message Type) format and the newer ISO 20022 format. Understanding both is crucial as the industry moves toward ISO 20022.

The traditional MT messages use the 500 series for corporate actions. The MT 564 announces events, MT 565 carries instructions, MT 566 confirms results, and MT 567 gives status updates. These messages have served the industry well but have limitations. They use fixed fields with strict character limits. They also use many codes that aren't always clear to everyone.

ISO 20022 brings major improvements to corporate actions messaging. It uses XML format, which is more flexible and easier to understand. The main ISO 20022 corporate actions messages include seev.031 for event notifications, seev.033 for instructions, seev.036 for confirmations, and seev.034 for status updates. These replace the MT 564, 565, 566, and 567 messages respectively.

The new format makes corporate actions clearer in several ways. First, ISO 20022 uses full words and phrases instead of codes. Where an MT message might use code "DVCA" for a cash dividend, ISO 20022 spells out "CashDividend." This makes messages easier to read and reduces confusion.

ISO 20022 can carry more detailed information. For example, in a dividend announcement, it can include specific tax rates for different investor types. It can show exact calculation formulas for complex events. It can handle multiple currencies and multiple markets in one message. The MT format often needs several messages to share the same information.

The new standard helps with complex corporate actions. Take a merger where shareholders can choose between cash and shares. ISO 20022 can clearly show the exchange ratios, price calculations, and any restrictions. It can include detailed timelines for different markets. It can even explain special conditions for certain types of investors.

Validation improves with ISO 20022. The format has strict rules about what information must appear and in what order. Systems can check messages more thoroughly. This helps catch errors early. For example, if a message is missing required dates or has incorrect option details, systems will flag it immediately.

Global custodians benefit from better automation with ISO 20022. The clear structure lets systems process messages with less manual work. They can extract data more reliably. They can update client records automatically. They can generate reports more easily. This saves time and reduces errors.

The new format helps with legal and tax requirements. ISO 20022 can include detailed ownership information, tax status, and regulatory details. This matters for complex events like rights issues or tender offers. Custodians can better track who can participate and under what rules.

Market claims and compensation become easier to handle. ISO 20022 can clearly show who should receive payments when trades settle around corporate action dates. It can explain exactly how adjustments should work. This helps resolve disputes and ensure fair treatment.

Client communication improves with ISO 20022. Custodians can give clients more detailed information about their options. They can explain complex events more clearly. They can provide better audit trails of decisions and actions. This helps clients make better choices about corporate actions.

However, moving to ISO 20022 brings challenges. Custodians must update their systems to handle both old and new formats. They need new software to process XML messages. They must train staff on the new standard. They must work with clients and partners who might still use MT messages.

The change also affects market infrastructure. Stock exchanges, central securities depositories, and local custodians must all update their systems. Some markets move faster than others. Global custodians must handle both standards during this transition period.

Despite these challenges, ISO 20022 represents a clear improvement in corporate actions messaging. It provides more detailed information, better automation, and clearer communication. As markets become more complex, this new standard helps global custodians process corporate actions more efficiently and accurately.