Operations Conference and Exhibit

Operations Conference and Exhibit
The Westin Diplomat
Hollywood, FL
April 26 – April 29, 2009

Re-engineering Account Transfers
•Moderator:
•Panel:
Steve Callan
Vice President
JPMorgan Clearing Corp.
Bill Kapogiannis
Director, Product Marketing & Development
Depository Trust & Clearing Corporation
Kevin McCosker
Director
Pershing LLC
President, SIFMA's Customer Account Transfer Division
Kristie Thompson
Group Leader
Edward Jones
2

Reengineering Account Transfers
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
January February March April May June July August
Septemb
er
October
Novembe
r
Decembe
r
Accounts 241,550 237,319 238,206 260,961 246,213 246,056 245,250 231,491 251,669 315,176 256,263 323,979
3

Re-engineering Account Transfers
Agenda
Lessons learned from failing firms
Customer Complaint review
Passing Cost Basis expanded
New Service, Mutual Funds
A Review of the proposed Liquidation process
What’s next ?
4

Reengineering Account Transfers
Lessons learned from failing firms
5

Lessons Learned from Failing Firms
Issues :
ACATS is not a guaranteed service unless the
settlement cash is received
Brokers not paying settlement balance – NSCC
ACATS reversal processing
Protection of fully-paid-for customer assets
settled through CNS
6

Lessons Learned from Failing Firms
Solutions : ?
Include ACATS transactions in NSCC’s clearing
fund calculation
Establish a separate segregation location for
positions
Eliminate ACATS movements through CNS
Consider free deliveries through ACATS
7

Reengineering Account Transfers
Customer Complaint review
8

Customer Complaints
Quarterly meetings with FINRA/SEC
– Discuss strategic plan
– Solicit support for inclusion of banks
– Reviewed NSCC Rule # 50 - paperwork requirement
– Supplied list of complaint categories
9

Customer Complaints
Categorize customer complaints - identify problems
– DRS
– Liquidations
– Insurance Companies
– Banks –request TIFLESS
– Non-NSCC ACATS
10

Customer Complaints- DRS
Issue:
DRS Items take to long because of rejects
• Resolution:
DRS Move All and Secondary Tax ID check
– Systems changes by Transfer Agents were funded by SIFMA Broker
Dealers
– Implementation date - November 7, 2008
> Enables firms to request the entire position for a customer’s account
– Allows liquidations of fractional shares
– Rejects reduced by 60% for participating firms
– Not all firms have made systems changes
11

Customer Complaints- Liquidations
Issue:
Transfers involving liquidations take to long
Resolutions:
Recommend customer request liquidation prior to transferring
the position (speed to Market)
Design automated approach for positions that can not be held
and are identified in the transfer process
12

Customer Complaints -
Insurance Company
Issue: No easy way to move contracts between
firms and same liquidation issue
Resolution:
For liquidations always recommend customer request
liquidation prior to transferring the position (speed to Market)
IPS Service available through ACATS to easily move
contracts
13

Customer Complaints- Bank Transfers
Issue:
Banks are requesting paperwork for simple
transfers:
Rely on Rule 50 Section 17
Letter to OCC
Request help from SEC / FINRA
14

Customer Complaint
Non-NSCC Transfers
Issue: Non-Acat transfers take to long
Resolution:
Make more firms ACAT eligible
Automate Liquidation process on Mutual Funds
Request help from SEC
Educate Customers
15

Reengineering Account Transfers
Passing Cost Basis expanded
16

Cost Basis
Brokers will be required to file annually with the IRS
Report gross proceeds and adjusted cost basis of the
security sold/exchanged
Identify whether the gain or loss is long-term or short-term
Provide customers with statements reporting gross proceeds
and cost basis filed with the IRS (identifying the gain or loss
as long-term or short-term)
Transfers of basis information
17

What transactions will need to pass
Cost basis
Physical Certificates
DRS
If a customer request a certificate for an equity purchased after
12/31/2001 the broker will be required to pass the cost basis.
If a customer request a DRS statement for an equity purchased after
12/31/2001 the broker will be required to pass the cost basis.
Free Receives / Delivers / DWAC
Basis will be required to follow the account positions from or to the
broker.
18

Who needs to start passing basis
Broker Dealers
Banks
Transfer Agents
Stock Plan Administrators
Issuers
Employee Compensation Plans
Mutual Funds Companies
Transfer Agents
Stock Plan Administrators
Issuers
Employers
Custody Banks
General Partners
Hedge Funds
‣Anyone who maintains cost basis or acts as a
middleman between a customer and a sale
19

Reengineering Account Transfers
New Service, Mutual Funds
20

Reengineering Account Transfers
A Review of the proposed Liquidation process
21

KRISTIE THOMPSON
Group Leader
EDWARD JONES
22

ACATS Mutual Fund
Transfer Service
•Too many options
•Inefficient and costly
•Extensive number of bilateral
agreements
•Cost basis requirement
23

Phase 1
•A translation service between ACATS, ACATS Fund/SERV, ToRA and
Fund/SERV
•DTCC live January 2009
•2 scenarios - firm initiated transfer to and from Fund Company "in
kind"
•Concept paper available at:
http://www.dtcc.com/products/documentation/cs/acats/AutomatingTran
sferswMFConcept.doc
•Best Practices User Guide will also be posted on DTCC website
shortly
24

Participants
(target implementation dates)
Firms
Edward Jones - LIVE
Morgan Stanley - LIVE
Merrill Lynch – May
Funds
PFPC Funds (approx. 35 fund co.) - LIVE
Fidelity Funds - June
T. Rowe Price - June
Pershing - July DST – July 24
UBS – September
VanKampen - July
Goldman Sachs - Sept Sungard – Q1 - 2010
25

Firm initiated in-kind
transfer in
26

Future phases
•Fund-initiated in-kind requests
•Fund and firm initiated liquidation
requests
27

Phase II
•ICI/BDAC Transfer Working Group
defining requirements
•ToRA vs. Fund/SERV vs. new
28

Possible option
29

Opportunities
•NSCC Rule 52 modified
•ToRA – retirement accounts and
liquidations only
•Regulatory approval
30

ACATS Liquidations
•Client wants entire account moved –
liquidations are outside ACATS
•Receiving firm can delete mutual funds
from transferring
•85% are ultimately liquidated
•Average timeframe is 30 days
31

Proposed functionality
•All non-transferable mutual funds
Proprietary and non-proprietary
•Receiver deletes and requests liquidation
•Deliverer accepts or rejects within 24 hours
•Proceeds will be sent as residual balance
32

Next steps
•Regulatory approval via rule changes
•Working group to create detailed specs
•2010 implementation
•White paper – www.sifmacat.org under
Mission/History > Subcommittees
33