DTCC Launches Service to Help Meet Regulatory Requirements on Market Timing

Business Wire, August 17, 2006

NEW YORK -- The Depository Trust & Clearing Corporation (DTCC) announced today the launch of a new service designed to help the mutual fund industry comply with an impending deadline under a new Securities and Exchange Commission (SEC) rule designed to combat short-term trading and market timing.

The SEC's Rule 22c-2 requires fund companies to create agreements with intermediaries in order to access shareholder data within omnibus accounts and evaluate trading patterns for possible market-timing activity. Leveraging technology that already exists within Networking, one of its key Mutual Fund Services, DTCC has developed a solution that will allow funds to more accurately track and record instances of frequent trading in omnibus accounts (a pool of individual accounts combined into one account, usually in the name of an intermediary firm), and then use that information to impose short-term redemption fees, if applicable.

Networking is provided by DTCC's subsidiary, National Securities Clearing Corporation. It is used by the mutual fund industry to exchange and reconcile customer account-level activity between fund companies and broker/dealers and other distributors, and offers centralized settlement of cash dividends and capital gains distributions. A new data stream in the service, created specifically to support the industry's compliance requirements, will provide fund companies with an automated, standardized and centralized method of requesting and receiving information through DTCC's secure and reliable infrastructure.

Service ready in advance of deadline

"With close collaboration from a working group of the Investment Company Institute, we've been able to deliver a solution two months ahead of schedule and provide the industry with ample time to program and test prior to the SEC's October 16 deadline," said Barbara Simon, DTCC vice president, Relationship Management.

Kathy Joaquin, director of Operations & Distribution, Investment Company Institute, explained that the group cooperated on multiple levels. "While the working group provided guidance in dealing with the requirements of the SEC ruling, three additional task forces dealt specifically with key initiatives we identified as critical to the development and implementation of a solution - communications, guidelines and technical design." These task forces developed a standard agreement package for the industry, a set of best practices, user guides, and an outline for business functionality and systems requirements.

How it works

The new service, called Networking for Standardized Data Reporting, allows fund companies to request, and distributors to transmit, information at two levels:

--the summary level for super omnibus accounts (comprising multiple plans, trusts and/or investor omnibus accounts). Data can include account numbers, dollar amounts and numbers of buys and sells.

--the detail level, where a fund company uses summary level data to request more specific information, such as details on shareholders in a 401(k) or retirement plan.

Service open to secondary intermediaries

Frequently, more than one firm exists in the intermediary chain, which can mean that the primary intermediary does not have the level of information that a secondary intermediary - a recordkeeper, for example - has. For firms using Networking, the information can be passed automatically through the service. For firms in the chain who are not Networking participants, DTCC offers a Data Services Only (DSO) membership, which has fewer requirements than a full-service Networking membership, and allows for information-exchange only. In this case, a DSO member would be able to use Networking to pass information directly to the funds requesting it, or to their transfer agents.

Other systems enhancements to support SEC rule

While the development of Networking for Standardized Data Reporting is by far the most ambitious service enhancement undertaken by DTCC in relation to Rule 22c-2, other earlier service extensions made to both Networking and Fund/SERV(R) give funds the ability to identify redemptions that are either subject to redemption fees or not; process and settle the fees; and provide firms with detailed information on direct redemptions, which are distributor transactions handled outside of Fund/SERV.

Established 20 years ago, Fund/SERV is the standard for automating and centralizing order entry, confirmation, registration and money settlement of fund transactions. In 2005, Fund/SERV processed nearly 118 million transactions, worth $1.7 trillion. Daily transactions reached an average of 467,000, worth $6.6 billion. The average number of daily transactions at July 31, 2006, was just over 576,000. In 2006, the service twice reached a milestone of more than one million transactions a day.

About DTCC

The Depository Trust & Clearing Corporation (DTCC), through its subsidiaries, provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities and over-the-counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks. DTCC's depository provides custody and asset servicing for more than 2.5 million securities issues from the United States and 100 other countries and territories, valued at $31.2 trillion. Last year, DTCC settled more than $1.4 quadrillion in securities transactions. DTCC has operating facilities in multiple locations in the United States and overseas. For more information on DTCC, visit www.dtcc.com.