Corporate Action Reengineering

BDUG Conference

October 18th 2006

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Security Master Files

Shared Interfaces

Corporate Actions

Underwriting* NIIDS

SOURCE:Securities Origination Underwriting Reliable Corporate action Environment

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

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Reengineering ObjectivesReengineering Objectives

• Provide more accurate and timely servicing information

• Replace legacy sub-systems with newly architected platform

• Automate and streamline redundant processes and data storage

• Increase flexibility with rules-based system

• Enhance functionality: ISO15022, multi-currency

• Reduce ongoing technology support costs

• Consistency of processing – Common field definitions and business rules

• Revamp New Issue Information Dissemination

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• New Issue Information Dissemination

• Syndicate Desk – Communicate to members of the underwriting syndicate – Automated/Manual

• Syndicate Desk – Communicate to the street (Vendors/non syndicate members) – Manual

• Trading of New Issue

• Middle Office (Trade support) – Procurement/Receipt and Set up of New Security Master Data - Manual at firm or vendor

• DTC Eligibility, Closing and Distribution

• Syndicate Operations – Communication to DTC and other industry utilities - Manual

• New Issue Information Dissemination

• Syndicate Desk – Communicate to members of the underwriting syndicate – Automated/Manual

• Syndicate Desk – Communicate to the street (Vendors/non syndicate members) – Manual

• Trading of New Issue

• Middle Office (Trade support) – Procurement/Receipt and Set up of New Security Master Data - Manual at firm or vendor

• DTC Eligibility, Closing and Distribution

• Syndicate Operations – Communication to DTC and other industry utilities - Manual

Current State of New Issue Processing

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Future State of New Issue Processing

• New Issue Information Dissemination – How will DTCC automate?

• DTCC is linking with major book building/running services (Bondesk Syndicate, Dealogic, i-Deal, Marketpipe, NAPA, Bloomberg Deal, ZIA)

• DTCC has flexibility to link with underwriters proprietary book building/running, trade processing, security master system(s) or service bureau

• DTCC is linking to information service providers, service bureaus, participants, and regulators

• Trading of New Issue – How will DTC automate?

• DTC will provide for real time distribution of new issue information required for security master set up for DTC Participants and Bank Custodians.

• DTC Eligibility, Closing and Distribution – How will DTC automate?

• Syndicate Operations – DTC will store new issue information for the purposes of eligibility closing and distribution

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Future State Benefits New Issue Information Dissemination

• Avoids re-keying – STP from bookbuilding/running systems

• Automated regulatory compliance of MSRB rule G34 and NASD rule 6260

• Automated dissemination to vendors in real time – Bloomberg, Interactive, S&P, ect

• Facilitates faster processing of secondary market trades - Automated receipt of security data in real time

• Facilitates compliance of new SEC access = delivery rules for prospectus delivery

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• Completed Proof of Concept Q3 2006

• Commence UAT Q4 2006

• Commence testing with vendors and pilot firms – Q1 2007

• Begin transition Q2 2007

• Go live - August 2007

NUWS / NIIDS Project MilestonesNUWS / NIIDS Project Milestones

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Corporate Action Processing and Announcements

Corporate Action Processing and Announcements

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• Complete analysis and functional design Q2 2006

• Release file layouts to industry Q4 2006

• Complete development Q3 2007

• Initiate UAT Q4 2007

• Commence transition Q3 2008

Project MilestonesProject Milestones

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• Aggressive outreach program includes

• Participants

• Vendor/service bureaus

• Agents

• Guidance Council

• Communications approach

• Focus sessions

• Website (host webcams, FAQs, and presentations)

• eLetter

• News releases

Industry Outreach - CommunicationIndustry Outreach - Communication

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• Current focus on data migration

• Parallel testing

• Execute migration procedures

• User access

• Testing of all functionality

• Phased approach

• MMI

• Distributions and Redemptions

• Mandatory events

• Voluntary events and Mandatory with Option events

System Implementation (Transition and Migration)System Implementation (Transition and Migration)

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• Risk mitigation is key decision driver

• Process

• Architectural proof of concept

• Test concepts

• Test code compliance with industry standards

• Use of best practices

• Security analysis (code vulnerability)

• Iterative

System Implementation (Transition and Migration) System Implementation (Transition and Migration)

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System Implementation (Transition and Migration)System Implementation (Transition and Migration)

• Testing Game Plan

Final UAT - 9 months

Scripted - 4 months

Parallel - 5 months

• Execute “talkback” process between production and parallel e.g. instructions

• Transition to begin post successful parallel

• Testing Game Plan

Final UAT - 9 months

Scripted - 4 months

Parallel - 5 months

• Execute “talkback” process between production and parallel e.g. instructions

• Transition to begin post successful parallel

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• DTCC has partnered with a vendor for Underwriting as test case

• Learning Approach

• Context sensitive help

• E Learning

• Instructor lead training

• Job aids

• User manual

• Service guide

TrainingTraining

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Corporate Action Announcements - @Source2007 Strategic PlansCorporate Action Announcements - @Source2007 Strategic Plans

• Service Offering

• Fees based on existing fee schedule

• No additional charge for the universe

• Implementation of more comprehensive service standards on DTC-eligible announcements

• Remove dependency on selected vendors by strengthening DTCC’s ‘manufacturing’ capability

• Introduce future rationalized events, fields and statuses as part of the re-engineering of the existing announcement files

• Service Offering

• Fees based on existing fee schedule

• No additional charge for the universe

• Implementation of more comprehensive service standards on DTC-eligible announcements

• Remove dependency on selected vendors by strengthening DTCC’s ‘manufacturing’ capability

• Introduce future rationalized events, fields and statuses as part of the re-engineering of the existing announcement files

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@Source Impact on Service Bureaus@Source Impact on Service Bureaus

• Service Bureaus will receive universe file from DTCC

• Service Bureau will be required to submit to DTCC a list of all non-Participants they represent and respective SOI’s

• Service Bureau will be charged on behalf of all non-Participant clients

• Service Bureau must execute a legal contract defining use of the data

• Service Bureaus will receive universe file from DTCC

• Service Bureau will be required to submit to DTCC a list of all non-Participants they represent and respective SOI’s

• Service Bureau will be charged on behalf of all non-Participant clients

• Service Bureau must execute a legal contract defining use of the data

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Guiding Principles for the New DTCC Corporate Action Announcement: Event Content (A reminder)Guiding Principles for the New DTCC Corporate Action Announcement: Event Content (A reminder)

• Single event ID for the life of the announcement

• Currently, announcement IDs are based upon CUSIP/Activity Code

• Elimination of DTC function codes

• Simplify the Event Types and remove ‘processing’ references

• Provide more information on Options and Payouts

• Remove Contra CUSIPs

• Option tracking done by RRG Account

• Single event ID for the life of the announcement

• Currently, announcement IDs are based upon CUSIP/Activity Code

• Elimination of DTC function codes

• Simplify the Event Types and remove ‘processing’ references

• Provide more information on Options and Payouts

• Remove Contra CUSIPs

• Option tracking done by RRG Account

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Guiding Principles for the New DTCC Corporate Action Announcement: File ConceptsGuiding Principles for the New DTCC Corporate Action Announcement: File Concepts

• Publish Information in 2 formats

• ISO15022

• XML

*Currently DTC publishes in propriety formats

• Publish ALL Events in a single file

* Currently DTC announces within 3 main files: REORG, REDEM and DIVANN

• Publish Information in 2 formats

• ISO15022

• XML

*Currently DTC publishes in propriety formats

• Publish ALL Events in a single file

* Currently DTC announces within 3 main files: REORG, REDEM and DIVANN

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Guiding Principles for the New DTCC Corporate Action Announcement: File ConceptsGuiding Principles for the New DTCC Corporate Action Announcement: File Concepts

• Publish Event Details in a single message

• General event information

• Option details

• Payout details

* Currently DTC provides separate messages per event option

• Intra-day delivery option for all announcements

* Currently end of day batch processing

• Publish Event Details in a single message

• General event information

• Option details

• Payout details

* Currently DTC provides separate messages per event option

• Intra-day delivery option for all announcements

* Currently end of day batch processing

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The ISO15022 MT564 (notification) will be primary format and supplemented, as needed, with the MT568The ISO15022 MT564 (notification) will be primary format and supplemented, as needed, with the MT568

Receipt and Delivery of XML will take a similar path but without defined XML standards for Corporate Actions, DTC

will take a lead with our own format.

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ISO15022 Format: Data mapped where possible, otherwise information will be published within the ‘Text’ BlocksISO15022 Format: Data mapped where possible, otherwise information will be published within the ‘Text’ Blocks

• The additional data will be provided in the Text blocks within MT564 Sequences D, E and F; mapped to the most appropriate Sequence

• For example:

• ‘Chill’ On/Off Days will be found in Sequence D under the qualifier INCO (information Conditions)

• Tax information will be found in Sequence D under the qualifier TAXE (Taxation Conditions)

• Fractional Share Information on payouts will be found in Sequence E under the qualifier TXNR (Narrative Version)

• Additional information will flow onto the MT568 when the MT564 10k byte limit is reached

• The additional data will be provided in the Text blocks within MT564 Sequences D, E and F; mapped to the most appropriate Sequence

• For example:

• ‘Chill’ On/Off Days will be found in Sequence D under the qualifier INCO (information Conditions)

• Tax information will be found in Sequence D under the qualifier TAXE (Taxation Conditions)

• Fractional Share Information on payouts will be found in Sequence E under the qualifier TXNR (Narrative Version)

• Additional information will flow onto the MT568 when the MT564 10k byte limit is reached

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ISO15022 Format: Data mapped where possible, otherwise information will be published within the ‘Text’ Blocks.ISO15022 Format: Data mapped where possible, otherwise information will be published within the ‘Text’ Blocks.

• ISO15022 ‘text’ blocks accommodate 10 lines of 35 bytes (10*35x) but can be expanded by using tag 70e qualifiers, of which certain qualifiers are repeatable

• Additional data presented with the same name as XML version, for example:

• ‘Hearing Date’ will be shown as <HearingDt> or ‘Chill Release Day for Deposit’ will be shown as <ChillReleaseDayForDeposit>

• A single line will consist of only 1 data element name/value, for example:

• :70E::ADTX//<HearingDt>20060831</>

• Where the data name and the value exceed 35 characters the data will flow into the second line, for example:

• (Line 1) :70E::INCO//<ChillReleaseDayForDepo (Line 2) sit>20060831</>

• ISO15022 ‘text’ blocks accommodate 10 lines of 35 bytes (10*35x) but can be expanded by using tag 70e qualifiers, of which certain qualifiers are repeatable

• Additional data presented with the same name as XML version, for example:

• ‘Hearing Date’ will be shown as <HearingDt> or ‘Chill Release Day for Deposit’ will be shown as <ChillReleaseDayForDeposit>

• A single line will consist of only 1 data element name/value, for example:

• :70E::ADTX//<HearingDt>20060831</>

• Where the data name and the value exceed 35 characters the data will flow into the second line, for example:

• (Line 1) :70E::INCO//<ChillReleaseDayForDepo (Line 2) sit>20060831</>

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A side by side example of a Cash Dividend in XML and ISO15022A side by side example of a Cash Dividend in XML and ISO15022

:16R:GENL:20C::CORP//1234567890123456:20C::SEME//1234567890123456:23G::NEWM:22F::CAEV//DVCA:22F::CAMV//MAND:98C::PREP//20060718101500:25D::PROC//PREC:16S:GENL:16R:USECU:35B::ISIN/US/CUSIP1234:16R:ACCTINFO:97C::GENR:16S:ACCTINFO:16S:USECU:16R:CADETL:98A::RDTE//20060731:98A::XDTE//20060730:98A::PAYD//20060815:70E::ADTX//<EXDATE>CA/20060728</><HistoryStatusDate>20060731</>:16S:CADETL:16R::CAOPTN:13A::CAON//001:22F::CAOP//CASH:11A::OPTN//USD:17B::DFLT//Y:98A::PAYD//20060815:92F::NETT//USD1.00:16R::ADDINFO:70E::PACO//<ADD1>DTC Customer Support</><ADD2>55 Water Street</><City>New York</><State>NY</><Country>USA</><Phone>1-888-DTC-CUSP</><Fax>1-212-855-1000</><Email>Customer.Support@dtcc.com</>:16S::ADDINFO

Event Type

Record Date

Rate

XML Version ISO15022 Version

Non ISO Field

Placed in Tag 70E‘General Details’ (Seq. D)

Option

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Unsupported Files in ISO Format published in XMLUnsupported Files in ISO Format published in XML

Function Name File Description Outbound

CSHDAL MMI Cash Settlement Dividend Allocation File Y

CSHDPJ MMI Cash Settlement Dividend Projection File Y

CSHDUN MMI Cash Settlement Dividend Unallocated File Y

CSHEUD Cash Settlement End of Day Unallocated Funds File Y

CSHPRJ Cash Settlement Projection File Y

CSHRAL MMI Cash Settlement Reorg Allocation File Y

CSHRPJ MMI Cash Settlement Reorg Projection File Y

CSHRUN MMI Cash Settlement Reorg Unallocated File Y

CSHSET End of Day Cash Settlement Y

CSHSTA thru G Hourly Slice of Cash Settlement Activity Y

CSHSTL Dividend/Reorg Cash Settlement Information Y

CSHUNL Cash Settlement Unallocated Funds File Y

RDMENT Reorg Deposit Mandatory Entitlements Y

STKPND Next Day Projected Stock Loan ash Settlement Information Y

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Questions?Questions?