CLOUD Finance (Scenario - Corporate Actions) - CLOUD, Inc.

CLOUD Finance Scenario Corporate Actions – Connecting WHO and WHAT to Reduce Friction, Fraud and Risk While Accelerating Value and Adoption Before CLOUD Corporate actions are events initiated by public companies that affect equity or debt securities. They can include tender offers, stock splits, mergers, dividends, and other mandatory and voluntary actions. There are phases of corporate actions, from initial announcement to shareholders’ decisions and elections to final payment. The efficiency of corporate actions is the subject of significant attention from global financial leaders: In the current economic climate, lack of a standardized way to generate corporate actions ‘data’ immediately at the time of an issuer/offeror’s announcement effectively delays the communication of this information to investors, burdens their intermediaries, and maximizes the possibility for erroneous or inaccurate communication of the necessary details. Improving Issuer-to-Investor Communication: Corporate Actions Reducing Risk and Cost through Technology Standards May 2009 SIBOS Background Supplement (DTCC, XBRL US, SWIFT)

In just one recent corporate action we handled at DTC, for example, there were 17 issues involving 246 participants and the submission of 876 instructions. The possibilities for error in this one corporate action alone were frighteningly large. And to give you the real scale of potential horror stories, DTCC handled over 400,000 such “announced” transactions last year – part of the total of 6.3 million unique distributions, worth a total of $3.5 trillion that we processed in 2008. Donald F. Donahue, Chairman and CEO, the Depository Trust & Clearing Corporation

In May 2009, DTCC, SWIFT and XBRL US said, "although a data standard (ISO 15022 and a soon to be released update ISO 20022) is in widespread use today by custodians, stock markets, asset managers, clearing houses and others, that standard is not consistently applied and it is not used at all by the most important link in the chain — the issuer."

© Copyright 2010 CLOUD, Inc.

SWIFT, DTCC and XBRL US have earned well deserved accolades for their shared efforts to advance a new corporate actions taxonomy, including being named Most Innovative Solution Provider by Financial-i magazine. Leveraging the global success of XBRL for financial reporting is wise, and the global capability of DTCC and SWIFT to transport these messages, securely, in new and more useful formats, is vital. The significant benefits of this collaboration call for fast and wide deployment of the solution. Getting a handle on more than 200,000 corporate actions in the US alone – and more than $1 billion in losses suffered each year – is an imperative.

About CLOUD CLOUD, Inc. is the Consortium for Local Ownership and Use of Data. CLOUD is a nonprofit technology standards consortia that believes the next evolution in Internet communication requires a language for people and not just web pages. CLOUD's view of the Internet and its future, the concept of ME 1.0 versus Web 2.0, the power of WHO I Am™ to center the Internet around people, and how WHO I Am™ can be better connected to WHAT I Am™ are fully explained in four vignettes at its website. This concept of connecting WHO I Am to WHAT I Am is a vital catalyst to the unfolding work of DTCC, XBRL US and SWIFT. As with electronic health records in the United States, one of the most significant constraints to making various data standards pervasive is cracking the code for connecting data across silos that are now separated by web pages, legacy industry classification codes, and privacy issues. In the case of healthcare, the connection is the patient. In corporate actions, the connections are issuers, intermediaries, and investors.

After CLOUD So how can CLOUD make a difference with corporate actions? If you think of the leaders in the field (DTCC, XBRL US, and SWIFT) as ingredients in a powerful chemical reaction, then the new XBRL taxonomy can be thought of as a formula. CLOUD's new language for people on the Internet doesn’t change the formula but is a potential catalyst and accelerant. Announcements, elections, payments, and other steps in the corporate action process can involve hundreds of people –when investors are counted, millions of people. For this after-CLOUD scenario, we focus on the announcement phase and how a CLOUD-enabled Internet could make the adoption of ISO 20022 and the XBRL Corporate Actions taxonomy even more effective and pervasive.


In a CLOUD-enabled world, securities and other financial instruments would be tagged with information about their owners, as well as other people with relationships to the instrument. As with a health record, it is one thing for a patient to have local ownership and use of data, but the patient’s doctor must also be connected to the information. In fact, the doctor is a vital 'cross-tag' for an electronic health record since they bring authenticity and reliability to the data. Similarly, with corporate actions, one not only needs to know the investor, but also needs to know the various agents, custodians, and banks involved with the instrument in question. Given the analogies between corporate actions and health data, this grid provides a rudimentary snapshot of similarities between corporate action records and medical action records: Concept Key Link

Corporate Action Record Between Issuer and Investor

Source of authenticity Diagnosis Response

Issuer Financial statements, strategic planning Merger, dividend, spin-off

Payment

Distributions, tax records

Medical Action Record Between Doctor and Patient Doctor Exam records, testing records Prescription, testing, surgery Insurance, patient, and government billing

So, how might this work in the announcement of a corporate action? When a corporate action is approved, the company tags the action with the necessary ISO 20022 and XBRL Corporate Actions Taxonomy messages. At this point, nothing in the evolving workflows envisioned by DTCC, XBRL US or SWIFT would change. However, in a CLOUD-enabled world, the communication process during the announcement would change dramatically. Once the necessary approvals are complete for the issuer, not only is the process of “scrubbing” press releases obviated by the new corporate actions taxonomy, but the process of communicating the action is transformed by CLOUD’s language for people. Straight-through processing is enabled by connecting WHAT I Am™ to WHO I Am™. Latency can approach zero. Since the instrument itself will be tagged to show WHO is associated with it, every investor can receive instant notification of the action, immediately when it occurs. Whether investors wish to see their information via e-mail, a pop-up message on their iPhone or iPad, or directly via a new corporate actions pane in an E*Trade application, bringing WHO


into the process yields more instantaneous and secure interaction with information. Custodians, another WHO, would know their exposure to an action by looking at an aggregated view of all the clients for whom they serve as agent. Since their clients' WHO tags would already be associated with them as custodian, it would allow the custodian to put together a composite view of the specific corporate action message (WHAT I Am in CLOUD terminology) filtered by the necessary investors (WHO I Am in CLOUD terminology). The bottom line is this. Corporate actions create a lot of systemic risk and exposure, as articulated by the DTCC and Mr. Donahue, as well as many others in the industry. The vital work underway for better tagging of the data is critical, but without the ability to connect that data to the many WHOs in the corporate actions workflow, the contextual framework for that tagging will be missing the logical model that connects issuers, intermediaries and investors.
