Securities Transfer Association

DTCC UpdateOctober 2010

Cheryl Lambert & Joseph Clemente

A service offering of DTC and DTCC Solutions, a subsidiary ofThe Depository Trust & Clearing Corporation

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Agenda

� P&I RefinementD t i li ti U d t� Dematerialization Update

� DTC Issue Eligibility RequirementsFAST Requirements: CUSIPs and Agents� FAST Requirements: CUSIPs and Agents

� Elimination of FAST Balance Certificate� Asset Services – Status of Underwriting System Reengineeringg y g g� Update on Relocation from Lower Manhattan to Jersey City� Cost Basis

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P&I Refinement

� DTC’s current allocation process – allocate “all”Whit P l d i N b 2009 d� White Paper released in November 2009 announced changes effective January 2011

� Allocation statistics:� Allocation statistics:

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Dematerialization - DRS Stats Update

Default to Statement

� Since January 2009, 100% of all requests on DRS-eligible and participating issues were processed as statementsand participating issues were processed as statements

� Effective July 2009, DTC limited withdrawals for non-participating issues to DWAC and rush withdrawals (RWT)participating issues to DWAC and rush withdrawals (RWT) only

DMD WT li i t d i D b 2009� DMD WTs were eliminated in December 2009

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Dematerialization - DRS Stats Update

Statistics

� 6,949 equity issues now DRS eligible

– DRS Statement or Certificate – 5,809 issues (83.6%)– DRS Statement only – 465 (6.7%)

Exchange listed but not participating 675 (9 7%)– Exchange listed but not participating – 675 (9.7%)

� Need help migrating all issues to full DRS, e.g., p g g , g ,Toyota Motors ADR has not yet migrated

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DTC Issue Eligibility Requirements

DTC Issue Eligibility

DTC f i f b th d ld iDTC performs reviews for both new and older issues,including those added from corporate actions. Eligibility requests mayrequire any and all of the following:require any and all of the following:

� Issues must be:– registered under the Securities Act of 1933,g ,– or provide a valid exemption from registration, – or eligible for resale under either Rule 144A or Reg S

– Generally require an offering documentGenerally, require an offering document– Subject to a compliance review with a focus on certain asset

types such as:L i d iti

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– Low priced equities– Certain asset classes e.g., life settlement issues

DTC Issue Eligibility Requirements

DTC Issue Eligibility (Cont’d)

� Introduced by the underwriter and participant clearing firm or a participant sponsoring the request

Dependant upon asset class certificate type and form of� Dependant upon asset class, certificate type and form of issuance, e.g., BEO:

– Opinions of issuer counselOpinions of issuer counsel– Applicable riders– Letters of Representation (LOR)

� For older eligibility requests, a signed Attestation from the Agent representing the security

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DTC Issue Eligibility Requirements

DTC Issue Eligibility (Cont’d)

� Detailed requirements are included in the DTC Operational Arrangements (OA) available on the DTCC.com website

� Further guidelines will be issued in a DTC Important Notice

� Through YTD September 2010, 27,000 new issues (132,000 CUSIP ) d li iblCUSIPs) were made eligible

� Through YTD September 2010, DTC has reviewed 181 older li ibilit t f hi h 172 d li ibleligibility requests of which 172 were made eligible

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FAST CUSIP Eligibility Requirements

FAST Program Eligibility – Issues

DTC f h i d dili b f ddi� DTC performs comprehensive due diligence before adding securities to the DTC FAST program

As part of the process we look to several criteria such as:� As part of the process we look to several criteria such as:

– Sub-penny stocks with questionable public events, e.g., open ligation proceedings and velocity of corporate actionsopen ligation proceedings and velocity of corporate actions

� Through YTD September 2010, 14,000 new issues (91,000CUSIPs) ere added to FASTCUSIPs) were added to FAST

� Through YTD September 2010, DTC has reviewed 2,986 older issue requests (CUSIPs) of which 2,807 were added to FAST

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q ( ) ,

FAST Agent Eligibility Requirements

FAST Program Eligibility – Agents

� Status of FAST agent SEC Rule Filing, currently on hold

� DTC is reviewing FAST applications based upon pre-rule filing guidelinesfiling guidelines

� Through YTD September, 2010, seven applications have g p , , ppbeen reviewed and all have been accepted

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FAST Balance Certificates

Elimination of FAST Balance Certificates

� Rule filing will be necessary and is currently drafted by DTC’s GCOGCO

� Will apply to DRS eligible and participating exchange listed issues

� Supports the spirit of dematerialization� Supports the spirit of dematerialization

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Reengineering of Underwriting System

Reengineering of Legacy Underwriting System

Implemented first phase in September 2008 to support new� Implemented first phase in September 2008 to support new issuances in the municipal market

Developed the New Issue Information Dissemination Service (NIIDS)– Developed the New Issue Information Dissemination Service (NIIDS) in conjunction with the MSRB to help support trading in the when-issued markets

� Implemented second phase to support equity issuances in October 2009

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Reengineering of Underwriting System

Reengineering of Legacy Underwriting System (cont’d) On target to release third phase to support corporate debt� On target to release third phase to support corporate debt issuances - including CDs - on October 21, 2010

– Underwriters will have the remainder of the year to optionally use theUnderwriters will have the remainder of the year to optionally use the new system before it is mandatory

� The fourth phase is anticipated for the 4th quarter 2011 and will include the following relatively low volume issue types:

- Units - ETFs- Insured Corporate & Muni Bonds- Rights- Warrants

- UITs- Open End Funds- Depository Shares

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y

Update On Relocation

Relocation - NY to New Jersey:y

� Relocation to Jersey City planned for 2013 (1,600 l )employees)

� Operations’ Functions:Securities Processing– Securities Processing

– Underwriting– Asset Services– Settlement– Inventory Management

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Cost Basis Reporting

� The Emergency Economic Stabilization Act of 2008 contains requirements for financial intermediaries to qperform cost basis reporting

� The requirements will be phased in over a three year period� The requirements will be phased in over a three year period beginning in 2011. The effective dates of these phases are as follows:

January 1 2011 for securities transactions (e g equities)– January 1, 2011 for securities transactions (e.g., equities)– January 1, 2012 for mutual funds and dividend reinvestment

plans J 1 2013 f fi i l i t t h d bt– January 1, 2013 for financial instruments such as debt securities and options

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Cost Basis Reporting

CBRSC t B i R ti S i (CBRS) i th lt f� Cost Basis Reporting Service (CBRS) is the result of the industry looking for a standard to pass the cost basis of assets transferred from one firm to another

� Business requirements were drafted in concert with transfer agents, STA, SSA, SIFMA CAT Division, gmutual funds

� CBRS will be expanded as the “hub” for the industry

� The Cost Basis Steering Committee continues to meet to unify these efforts

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Cost Basis Reporting

DTC Transactions In Scope:

� Deposits– Physical

D i Wi hd l C di (DWAC)– Deposit Withdrawal at Custodian (DWAC)– DRS Profile

� Withdrawals by Transfer (WTs)y ( )– Physical– DWAC

DRS Statements– DRS Statements� Deliver Orders

– Trade Settlement

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– Account Transfers (ACATS) between DTC Participants

Cost Basis Reporting

Data Enrichment

DTC ill t d it t fil th t it ill� DTC will create a deposit expectancy file that it will transmit to agents prior to their receiving securities. It will include a CBRS unique identifierq

� Agents to populate cost basis information for each unique identifier and transmit back to DTC where it will then be routed to the appropriate participants

� Participants will communicate cost basis information using the same file layout

� WebDirect will be available to low volume users (data

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needs to be key entered)

CBRS Files

� Four file types:� Four file types:– Original– Correction– Request– Reject

� Each one consist of an asset record file and a tax lot record fileCBRS ser master file� CBRS user master file

Fees

File Sender ReceiverFile Sender ReceiverOriginal $0.01 $0.09Correction $0.01 $0.09Reject $0 $0.05Request $0.03 $0.03

Note: DTCC will only bill transfer agents who accumulate $100 in transactional fees for theaccumulate $100 in transactional fees for the month.

Fees

Cost Basis DataCost Basis Data

� For deposit activities (deposits, DWAC deposits, DRS Profile, etc.), TAs are the senders

� For withdrawal activities (WTs, DWAC withdrawals DRS statements etc ) TAs are thewithdrawals, DRS statements, etc.) TAs are the receivers

� Using 2009 volumes, TAs would be billed a cumulative $80,000

� Many TAs will not be billed: < $100!

Cost Basis Reporting

CBRS Documents, Links

Document LinkFAQs: http://www.dtcc.com/customer/participant/cbrs/index.phpp p p p pUser Guide: http://www.dtcc.com/products/documentation/cs/cbrs.phpAccount Forms: http://www.dtcc.com/products/documentation/cs/cbrs.phpRecord Layouts: http://www.dtcc.com/products/documentation/cs/cbrs.phpy p p p p

1. Asset Input2. Tax Lot Input3. CBRS Application Header and Trailer4. Transaction MRO5. Cost Basis User Master File MRO

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Cost Basis Reporting

Important Notices

http://www.dtcc.com/products/documentation/cs/cbrs_notices.php

1. Original Record Layouts and System Functionality2. How to access the Clearance Learning Center and Webcastg3. Updated Record Layouts4. New account forms and instructions, User Guide, new

account instructions and formsaccount instructions and forms5. User Testing, Product ID numbers

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Cost Basis Reporting

Additional Information:

� Changes that DTC is making to the CBRS Service are detailed in an Important Notice available at: htt // dt /d l d /l l/i ti /2010/ / 6988 dfhttp://www.dtcc.com/downloads/legal/imp_notices/2010/nscc/a6988.pdf

� There is also a CBRS webcast Information about how to sign-up� There is also a CBRS webcast. Information about how to sign up is available at: http://www.dtcc.com/downloads/legal/imp_notices/2010/nscc/a7004.pdf

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