Corporate action processing: what are the risks?

Sponsored by the Depository Trust and Clearing Corporation, this study presented Oxera’s analysis of the risks involved in corporate action processing in the global securities markets. Despite progress towards straight-through processing of securities transactions, corporate action processing has remained an area where there has been only limited automation. Several industry initiatives have acknowledged the potential impact of this on the risks to which intermediaries and investors are exposed. The aim of the Oxera research was to provide a first systematic attempt to quantify the major risks involved in processing corporate actions. This was achieved by defining a typology of corporate action failures and the associated risks faced by intermediaries, and estimating the value of funds at risk with regard to each type of risk. The results presented in the report highlighted that the potential monetary value of the risks is indeed high, not only for the back office but also for firms’ trading strategies.

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Rail and bus consumer survey analysis

This Oxera study was undertaken at the request of the Competition Commission, to examine evidence from previous studies on bus and train elasticities, and to analyse data collected during the course of the Commission’s inquiry into the proposed acquisition by FirstGroup of the ScotRail franchise.

The aim of the study was to produce estimates of elasticities relevant to the merger situation, including bus and rail own- and cross-price elasticities with respect to fares, journey times and frequency.

The report presented the results of the analysis, drawing together the two strands of research, highlighting how the results of Oxera’s analysis compared with the results of the literature review.

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Are UK households over-indebted?

This study, prepared by Oxera on behalf of the Association of Payment Clearing Services, the British Bankers’ Association, the Consumer Credit Association and the Finance & Leasing Association, examined UK consumer debt. The aim of the study was to provide a realistic assessment of the scale of the debt situation in the UK, based on existing reports and available data. Having established a conceptual framework for analysing over-indebteness, the study provided a compendium of statistics on the subject and an understanding of the scale of the debt situation in the UK against a background of the current economic climate.

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Regulatory Impact Assessment of proposed changes to the Consumer Credit Act 1974: survey results

Oxera was commissioned by the Finance and Leasing Association to undertake a Regulatory Impact Assessment of the Department of Trade and Industry’s (DTI) changes to the Consumer Credit Act 1974, proposed in its December 2003 White Paper.

The study focused on the regulatory changes that were most likely to have a significant impact on credit providers and consumers. These included the changes to the extortionate-credit provision, rules on early settlement, and financial limits, with particular attention paid to the impact on securitisation.

Providers envisaged significant costs resulting from the imposition of retrospective changes to the rules. These included the direct costs of making changes to existing agreements and the indirect cost due to the increase in the risk of lending, through the greater uncertainty caused by ex post regulatory intervention.

Oxera surveyed credit providers to collate quantitative evidence on the behavioural response of credit providers and the compliance costs they would incur in implementing the proposed changes to the Act.

The Oxera report was included in the FLA’s response to the DTI White Paper.

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Review of the impact of the Financial Services and Markets Act 2000 on competition

Oxera was commissioned by the Office of Fair Trading (OFT) to conduct an assessment of the impact of the Financial Services and Markets Act 2000 on competition in the UK financial services industry. The Act created a new regulatory regime and established the Financial Services Authority as the single statutory regulator for the industry. It is a complex piece of legislation covering many different markets, including banking, insurance and investment business.

The Act’s competition review, to which the UK government committed itself when the Act was going through Parliament, is being carried out by the OFT in three stages. The first stage involved the design of a methodology to allow identification of the key areas where the Act is likely to have had a significant competition impact on the UK financial services industry.

The second stage was an application of the methodology to the Act to identify and rank those areas of the legislation that are of particular concern in terms of likely competition impact. At the third stage, the OFT may decide to undertake a more detailed market investigation into the most problematic areas identified. Oxera was commissioned by the OFT to carry out the first two stages of the review.

The research report for the first stage set out in detail Oxera’s methodology to carry out the FSMA competition review, while the report for the second stage, ‘Competition review of the Financial Services and Markets Act 2000’ was published in 2004 and can downloaded by going to All reports.

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Cost–benefit analysis of local-loop unbundling in New Zealand

Oxera undertook a cost–benefit analysis for the New Zealand Commerce Commission (NZCC) on local-loop unbundling. New Zealand is one of the few OECD countries not to have forced the incumbent telecoms provider to open up local access to new entrants.

The NZCC reviewed the situation in line with the requirements of its Telecommunications Act 2001. Having examined the issues and the local environment, Oxera used this information to build a cost–benefit analysis model of unbundling, which was relied on by the NZCC in its determination to unbundle the local loop

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Estimating the relative efficiency of Telecom New Zealand

Oxera undertook a performance assessment of Telecom New Zealand for the New Zealand Commerce Commission. Oxera’s performance assessment was based on numerous models using regression analysis, stochastic frontier analysis and data envelopment analysis, and examined both operating and capital expenditure, using the US local exchange carriers as comparators to Telecom New Zealand.

The analysis dealt with monetary conversion issues, differences in the operational, regulatory and the data reporting environment faced by telecom companies in the USA and New Zealand. In addition, a substantial cost standardisation exercise was undertaken, and, given the uncertainties surrounding the data underpinning the analysis, Oxera carried out extensive sensitivity analysis of the relative efficiency estimates.

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The cost of flexibility provision by electricity generators

The government’s 2003 Energy White Paper has, at its core, a commitment to the environment and renewable energy. As we move towards a future in which a significant proportion of renewable energy development is expected to come from wind generation, and the remainder of the generation mix changes in response to environmental concerns—in particular, a reduction in coal-fired generation—there is a question about the ability of the system to maintain its real-time fluctuations in demand, and the cost associated in doing so.

To address this question, The Coal Authority commissioned an Oxera study to evaluate the cost of keeping the electricity system in balance under a range of generation mixes, differentiating between ramping costs, imbalance costs and system-security costs.

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Passenger rail services and economic performance

Oxera was commissioned by the Strategic Rail Authority to investigate the impact on the wider economy of rail punctuality and reliability. In particular, Oxera examined the impact of rail performance on business travellers, businesses via impacts on commuter productivity, individuals, and services such as tourism.

Oxera applied the theoretical model derived by Bates et al. (2001), using punctuality data from the SRA and assuming individuals will choose an optimum departure time that minimises their disutility from poor rail performance. Values of time and journey certainty were then applied to the outturn arrival times relative to simulated desired arrival times, in order to evaluate the disutility associated with current levels of rail performance for business, commuter and leisure travellers. The simulation modelling was backed up with surveys carried out of businesses, government departments, employee and business organisations. In addition, data from Visit Britain was used to analyse the impact of rail performance on tourism.

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A review of PWCC’s efficiency study for Telecom New Zealand

Oxera provided a critical review of the comparative efficiency analysis implemented by Price Waterhouse Coopers Consulting (PWCC) on behalf of Telecom New Zealand.

The review provided a discussion on the use of comparative efficiency for the regulation of telecom operators, the various estimation techniques available, the likely issues the analysis will have to face when using international comparisons (the analysis compared Telecom New Zealand with US local exchange carriers) and dealt with issues relating to the standardisation of costs and operating characteristics, the application of a variable selection methodology and PWCC’s application of stochastic frontier analysis.

See ‘Efficiency analysis to support cost–benefit analysis: report by Oxera’ in the attached report.

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