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DTCC Update Securities Transfer Association Conference October 20 th 2006 DTCC Update Securities Transfer Association Conference October 20 th 2006.

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Presentation on theme: "DTCC Update Securities Transfer Association Conference October 20 th 2006 DTCC Update Securities Transfer Association Conference October 20 th 2006."— Presentation transcript:

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2 DTCC Update Securities Transfer Association Conference October 20 th 2006 DTCC Update Securities Transfer Association Conference October 20 th 2006

3 2 “ Change is coming” to DTCC Asset Services Reengineering Asset Servicing Platforms Dematerialization Initiatives Partnership Strategies Globalization Reengineering Asset Servicing Platforms Dematerialization Initiatives Partnership Strategies Globalization

4 3 Platform Reengineering SOURCE Securities Origination Underwriting Reliable Corporate action Environment Platform Reengineering SOURCE Securities Origination Underwriting Reliable Corporate action Environment

5 4 The Renaissance of DTCC’s Infrastructure Completed CNS Re-Write We continue to proactively modernize core depository processing Established SBC Established RDC Identified CA Challenges “Transform CA Processing” Evaluated CDS - NCS Platform Completed UW/CA BRD Launched UW/CA Funct. Design UW UAT & Roll-out Begins CA UAT Roll-out Begins

6 5 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 Comprises over sixty distinct, customized sub-systems - many implemented over twenty years ago (Cobol) 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 Comprises over sixty distinct, customized sub-systems - many implemented over twenty years ago (Cobol)

7 6 Security Master Files Shared Interfaces Corporate Actions Underwriting * NIIDS 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

8 7 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 NIIDS - Allow firms to meet MSRB G minute new issue information dissemination rules 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 NIIDS - Allow firms to meet MSRB G minute new issue information dissemination rules Reengineering Objectives

9 8 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) Ability to process pro-rata calls 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) Ability to process pro-rata calls

10 9 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++.

11 10 DTCC 2007 – 2008 Dematerialization Initiatives DTCC 2007 – 2008 Dematerialization Initiatives

12 11 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). Deliver world class customer satisfaction 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). Deliver world class customer satisfaction

13 12 Dematerialization Initiatives Dematerialization Update –Direct Registration System (DRS) –Withdrawals-by-Transfer (WTs) –Paperless Legal Deposit Processing –FAST Dematerialization Update –Direct Registration System (DRS) –Withdrawals-by-Transfer (WTs) –Paperless Legal Deposit Processing –FAST

14 13 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 SIA approaching regional exchanges 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 SIA approaching regional exchanges

15 14 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. −BDs are joining DRS as DRS issuers - 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. −BDs are joining DRS as DRS issuers

16 15 The DRS Strategy 2H 2006 Promote Underwriter Awareness Information flow to Syndicate Operations Division Letters to Underwriters Communication 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 Continue Participant outreach to raise awareness of DRS

17 16 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 become the “Roach Motel” All withdrawals will be done via full DRS – No more physical WT’s 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 become the “Roach Motel” All withdrawals will be done via full DRS – No more physical WT’s

18 17 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: Eliminate DMD processing 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: Eliminate DMD processing

19 18 The 2007 Non-Transferable Securities Strategy Aggressively manage downward our vault inventory of Non- Transferable 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 Will destroy a minimum of 342,000 certificates in 2006

20 19 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 More issuers and small/mid size agents 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 More issuers and small/mid size agents

21 20 Legal Deposits 2Q 2006: Continue cooperative effort with brokers, agents, and regulators to expand Paperless Legal program Letters and flyers to articles One-on-one contacts with non-participating agents and participants January 2007: Goal: “No paper” processed for legals Six month compliance period 2Q 2006: Continue cooperative effort with brokers, agents, and regulators to expand Paperless Legal program Letters and flyers to articles One-on-one contacts with non-participating agents and participants January 2007: Goal: “No paper” processed for legals Six month compliance period

22 21 Legal Deposits 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: DTC begins to charge for paper legal transaction rejects 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: DTC begins to charge for paper legal transaction rejects

23 22 Regular Deposits 4Q 2007: Explore limited processing days each week for regular deposits Implement 1 st phase of CASS Certificate verification process Explore agent capacity and willingness to pursue CASS Phase II Truncate certificates at DTC 2Q 2008: Limit regular deposit processing to 2X each week 4Q 2007: Explore limited processing days each week for regular deposits Implement 1 st phase of CASS Certificate verification process Explore agent capacity and willingness to pursue CASS Phase II Truncate certificates at DTC 2Q 2008: Limit regular deposit processing to 2X each week

24 23 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… Established on-boarding procedures, timelines, and workflow 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… Established on-boarding procedures, timelines, and workflow

25 24 DTCC “Partnerships” Strategy DTCC “Partnerships” Strategy

26 25 DTCC’s 2005 – 2010 New Mission Statement To be the acknowledged world-class provider of servicing solutions to financial markets through leadership, innovation, technology, risk management and strategic alliances.”

27 26 Without compromising our reputation for certainty and reliability we strive to:  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 Without compromising our reputation for certainty and reliability we strive to:  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

28 27 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. Operate with a for-profit mindset when establishing partnership business relationships. 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. Operate with a for-profit mindset when establishing partnership business relationships. DTCC Partnership Objectives

29 28 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  Established relationships with all industry constituents  Broad industry involvement and representation 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  Established relationships with all industry constituents  Broad industry involvement and representation DTCC is a desirable partner

30 29 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  Quality Culture: 6 Sigma, CMMI 3, ITIL  Reliability and resiliency of our systems 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  Quality Culture: 6 Sigma, CMMI 3, ITIL  Reliability and resiliency of our systems

31 30 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. Issuers and agents find this task unwieldy, causing investor dissatisfaction. 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. Issuers and agents find this task unwieldy, causing investor dissatisfaction.

32 31 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 Reinvestments 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 Reinvestments

33 32 Cost Basis -- Potential Business Models Link from site-to-site Enterprise solution Call center – cumbersome but a start Combination of all of the above Link from site-to-site Enterprise solution Call center – cumbersome but a start Combination of all of the above

34 33 Cost Basis - The Benefits Enhanced customer service Move shareholders to web Generate new business Reduction in costs Call center Research Enhanced customer service Move shareholders to web Generate new business Reduction in costs Call center Research

35 34 Cost Basis - The Benefits: Customized for your needs Outsource capabilities New product offerings Portfolio management for investors Customized for your needs Outsource capabilities New product offerings Portfolio management for investors

36 35 Cost – Basis – For more information To see a demo of the newest DTCC Issuer Services Product, please contact: Joyce Rosen, Product Manager, , or To see a demo of the newest DTCC Issuer Services Product, please contact: Joyce Rosen, Product Manager, , or

37 36 Globalization of the Exchanges

38 37 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? More… 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? More…

39 38 Questions


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