Transcript Document

DTCC Update
Securities Transfer Association Conference
October 20th 2006
“Change is coming” to DTCC Asset Services
• Reengineering Asset Servicing Platforms
• Dematerialization Initiatives
• Partnership Strategies
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• Globalization
Platform Reengineering
SOURCE
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Securities Origination Underwriting Reliable
Corporate action Environment
The Renaissance of DTCC’s Infrastructure
We continue to proactively modernize core depository processing
Established
RDC
2002
2003
“Transform
CA
Processing”
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Identified
CA
Challenges
Completed
CNS
Re-Write
2004
Established
SBC
2005
Completed
UW/CA
BRD
Evaluated
CDS - NCS
Platform
2006
2007
2008
UW UAT &
Roll-out
Begins
Launched
UW/CA
Funct. Design
CA UAT
Roll-out
Begins
Current CA Platform
• Presents barriers in servicing evolving
securities types and events:
• Relies upon single security identifier
• Communicates with proprietary formats
• Processes mostly end-of-day batch
• Leverages unique procedures (e.g. contra-CUSIP,
envelopes)
• Uses hard-coded processing rules
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• Comprises over sixty distinct, customized
sub-systems - many implemented over
twenty years ago (Cobol)
Pieces of the solution
A unified end-to-end platform from issuance through the entire asset
servicing life cycle: Underwriting – Corporate Actions – integrated
with Master files and other Core Depository functions
Corporate Actions
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Underwriting
* NIIDS
Security Master Files
Shared
Interfaces
Reengineering Objectives
• Provide more accurate and timely servicing information
• Replace legacy sub-systems with newly architected
platform
• Automate and streamline redundant processes
• Increase flexibility with rules-based system
• Enhance functionality: ISO15022, multi-currency,
international numbering systems
• Reduce ongoing technology support costs
• Eliminate redundant data stores
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• NIIDS - Allow firms to meet MSRB G-14 15 minute new
issue information dissemination rules
Changes to Current
• Eliminate Contra CUSIPs
• Changes to event structures, naming conventions,
and event identifications
• One announcement with multiple options
• Fewer claims for same day events (e.g calls)
• Expanded rate fields to 8 x 6 floating decimal
(structured products)
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• Ability to process pro-rata calls
Benefits Summarized
Stakeholder Service Benefits
• Mitigate risk with elimination of manual processes and improved
operational controls
• Enhanced processes incorporating international standards and best
practices
• Corporate Action “dashboard” presents actionable information
that intuitively supports client’s operations
DTCC Enhancements
• Common platform designed with improved workflow
63 subsystems replaced reducing maintenance
Enhanced Security Master File that works in unison with
Underwriting
• Cobol and Assembler upgraded to Java and C++
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•
•
.
DTCC 2007 – 2008 Dematerialization
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Initiatives
Anticipating and measuring change
• Vigilantly monitor transaction volumes
• Manage Securities Processing operations expenses
against the backdrop of decreasing volumes /
revenues.
• Shift revenue flow to new product lines from
traditional paper processing based existing products
(full cost revenue).
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• Deliver world class customer satisfaction
Dematerialization Initiatives
• Dematerialization Update
– Direct Registration System (DRS)
– Withdrawals-by-Transfer (WTs)
– Paperless Legal Deposit Processing
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– FAST
Direct Registration System (DRS)
• Nasdaq, Amex and NYSE and ARCA drafted SEC
rule filings:
• All listed issues coming to market on or after
January 1, 2007 must be DRS eligible
• All listed issues must be DRS eligible by
January 1, 2008
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• SIA approaching regional exchanges
Progress on DRS (a/o Q3 2006)
- 1,270 issues are DRS eligible vs. 960 one year ago
- 23% Avg. of withdrawals (for DRS eligible securities )
vs 4% one year ago
- Average Daily DRS Txns 38,500 vs 31,000 one year ago
- More BDs are programming WT statement as “default”
and conducting front office and investor awareness
programs.
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− BDs are joining DRS as DRS issuers
The 2006 - 2007 DRS Strategy
• 2H 2006 Promote Underwriter Awareness
•Information flow to Syndicate Operations Division
•Letters to Underwriters
•Communication via @DTCC
• 3Q 2006 DTCC files new TA FAST and DRS requirements
• 3Q 2006 DTCC drafts new TA FAST on-boarding workflows
• 1Q 2007 Continue to raise WT disincentive fees to change
behavior
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• 2006-2007 Continue Participant outreach to raise awareness
of DRS
Other Items under consideration for 2007
• Q2: Evaluate limited days for physical processing (WTs
and Deposits)
• Q3: Implement various DRS processing enhancements.
– Move “all” shares, sell fractions; move “all” shares,
terminate account, sell fractions and move “all” full
shares
• Mid 2007 Rule filing for defaulting all WT transfers to statement
in mid-2008
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• 2008 become the “Roach Motel” All withdrawals will be done via
full DRS – No more physical WT’s
Withdrawals by Transfer
• 2Q 2007:
• Explore limiting WT processing to one or two days each
week
• 1H 2008:
• Implement limited WT processing (following elimination of
“certificate request” option on DRS-eligible issues)
• Prepare to eliminate DMD processing
• 4Q 2008:
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• Eliminate DMD processing
The 2007 Non-Transferable Securities Strategy
•Aggressively manage downward our vault inventory of NonTransferable securities (no TA, for over 6 years)
•Current Vault Inventory = 3.0 MM certificates, 1.0 MM NT
Vault Inventory 12/2001 = 6.8 MM certificates, 1.2 MM NT
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•Will destroy a minimum of 342,000 certificates in 2006
Paperless legal deposits
• Medallion signature guaranty:
•
signature is genuine
•
signer is the appropriate person
•
signer has legal authority
• Broker responsible for verifying and maintaining all paper documents
• Investor benefits/cuts costs
• 95% of all DTC transfers are eligible
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• More issuers and small/mid size agents
Legal Deposits
• 2Q 2006: Continue cooperative effort with brokers, agents, and
regulators to expand Paperless Legal program
• Letters and flyers to agents
• @DTCC articles
• One-on-one contacts with non-participating agents and
participants
• January 2007:
• Goal: “No paper” processed for legals
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• Six month compliance period
Legal Deposits
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July 2007:
• Implement measures for compliance of all-in approach for DAM
deposit:
• Participant submits paper for a PLA agent
• Participant submits paper for a non-PLA agent
• Participant does not submit paper for non-PLA
• Presentations outside of DTC for non-participating agents
•
September 2007:
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• DTC begins to charge for paper legal transaction rejects
Regular Deposits
• 4Q 2007:
• Explore limited processing days each week for regular
deposits
• Implement 1st phase of CASS
• Certificate verification process
• Explore agent capacity and willingness to pursue CASS
Phase II
• Truncate certificates at DTC
• 2Q 2008:
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• Limit regular deposit processing to 2X each week
FAST Requirements
• Agents must be FAST agent to participate in DRS
• DTCC filed new FAST requirements with SEC in
Sept 2006
• Standardize insurance requirements
• Safeguarding DTC assets (BCP, security)
• Regulatory and compliance (OFAC)
• Others…
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• Established on-boarding procedures, timelines, and
workflow
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DTCC “Partnerships” Strategy
DTCC’s 2005 – 2010 New Mission Statement
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To be the acknowledged world-class provider of
servicing solutions to financial markets through
leadership, innovation, technology, risk
management and strategic alliances.”
DTCC Partnership Objectives
• Without compromising our reputation for certainty
and reliability we strive to:
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 Leverage partner skills and attributes to create
competitive advantages for our participants
 Increase “speed to solution”
 Repurpose our technology and leverage other’s
platforms to minimize start-up investment
 Broaden our market reach
 Better serve the entire industry
 Reach our 2010 mission
DTCC Partnership Objectives
• To create “3 Win” relationships benefiting the
industry, DTCC, our Partners
• To align with “best of breed” partners within the
boundaries of competitive free markets and our
charter as the register clearing agency.
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• Operate with a for-profit mindset when establishing
partnership business relationships.
DTCC is a desirable partner
• The DTCC name
 Unblemished reputation for integrity and trust
 Highest standards of governance and compliance
 The accuracy of high volume throughput processing
• Our position in the industry
 Networked community links virtually all trading parties in the US
 Offer economies of scale – distribution channels
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 Established relationships with all industry constituents
 Broad industry involvement and representation
DTCC is a desirable partner (Cont.)
• Financial Strength – AAA credit rating
• Reputation for creating pragmatic solutions and greater
customer processing efficiencies
• Objectivity that comes from being industry owned with a
charter to serve both large to small participants of
varying business charter.
 Domain expertise applied to establishing and driving
lasting industry standards
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 Quality Culture: 6 Sigma, CMMI 3, ITIL
 Reliability and resiliency of our systems
Cost Basis - The Problem:
• Investors require an efficient, cost effective
and proven tool to accurately calculate cost
basis for securities that are sold, gifted, etc.
• They seek one source for historical and
current pricing as well as corporate action
transactional history.
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• Issuers and agents find this task unwieldy,
causing investor dissatisfaction.
Cost Basis - The Solution:
• DTCC, together with NetWorth Services, offers a
solution, customized for you and your
investors:
• Equity and mutual fund adjusted cost basis
calculations back to 1925
• Historical data on:
• Pricing
• C/A and entitlement
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• Reinvestments
Cost Basis -- Potential Business Models
• Link from site-to-site
• Enterprise solution
• Call center – cumbersome but a start
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• Combination of all of the above
Cost Basis - The Benefits
• Enhanced customer service
• Move shareholders to web
• Generate new business
• Reduction in costs
• Call center
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• Research
Cost Basis - The Benefits:
• Customized for your needs
• Outsource capabilities
• New product offerings
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• Portfolio management for investors
Cost – Basis – For more information
• To see a demo of the newest DTCC Issuer
Services Product, please contact:
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Joyce Rosen, Product Manager, 212-8553935, or [email protected]
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Globalization of the Exchanges
Changes brought on by a global exchange?
• Canadian Dollar Settlement went live in 2006
• More questions then answers at this time
• Will DTCC be asked to support clearance and settlement?
• Will DTCC be asked to support full asset servicing?
• What will happen to global listings, ADRs, GDRs?
• Will we see growth in 144a security issuances?
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• More…
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Questions