DTCC Update

Securities Transfer Association Conference

October 20th 2006

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“Change is coming” to DTCC Asset Services “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

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Platform Reengineering

SOURCE

Securities Origination Underwriting Reliable Corporate action Environment

Platform Reengineering

SOURCE

Securities Origination Underwriting Reliable Corporate action Environment

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The Renaissance of DTCC’s Infrastructure

CompletedCNS

Re-Write

We continue to proactively modernize core depository processing

20032002

EstablishedSBC

EstablishedRDC

20052004 20072006 2008

IdentifiedCA

Challenges

“Transform CA

Processing”

Evaluated CDS - NCSPlatform

CompletedUW/CABRD

LaunchedUW/CA

Funct. Design

UW UAT & Roll-outBegins

CA UATRoll-outBegins

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Current CA PlatformCurrent 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)

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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

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• 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-14 15 minute new issue information dissemination rules

Reengineering ObjectivesReengineering Objectives

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Changes to CurrentChanges 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

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Benefits SummarizedBenefits 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++

.

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DTCC 2007 – 2008 Dematerialization

Initiatives

DTCC 2007 – 2008 Dematerialization

Initiatives

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Anticipating and measuring changeAnticipating 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

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Dematerialization Initiatives 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

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Direct Registration System (DRS)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

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Progress on DRS (a/o Q3 2006)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

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The 2006 - 2007 DRS Strategy The 2006 - 2007 DRS Strategy

• 2H 2006 Promote Underwriter Awareness

•Information flow to Syndicate Operations Division•Letters to Underwriters•Communication via @DTCC

• 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

• 2006-2007 Continue Participant outreach to raise awareness of DRS

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Other Items under consideration for 2007Other 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-2008

• 2008 become the “Roach Motel” All withdrawals will be done via full DRS – No more physical WT’s

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Withdrawals by TransferWithdrawals 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

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The 2007 Non-Transferable Securities StrategyThe 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

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Paperless legal depositsPaperless 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

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Legal DepositsLegal Deposits

• 2Q 2006: Continue cooperative effort with brokers, agents, and regulators to expand Paperless Legal program

• Letters and flyers to agents

• @DTCC 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 agents

• @DTCC articles

• One-on-one contacts with non-participating agents and participants

• January 2007:

• Goal: “No paper” processed for legals

• Six month compliance period

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Legal DepositsLegal 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

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Regular DepositsRegular Deposits

• 4Q 2007:

• Explore limited processing days each week for regular deposits

• Implement 1st 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 1st 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

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FAST RequirementsFAST 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

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DTCC “Partnerships” Strategy

DTCC “Partnerships” Strategy

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DTCC’s 2005 – 2010 New Mission Statement 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.”

To be the acknowledged world-class provider of servicing solutions to financial markets through leadership, innovation, technology, risk management and strategic alliances.”

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• 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

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• 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

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• 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

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DTCC is a desirable partner (Cont.)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

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Cost Basis - The Problem: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.

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Cost Basis - The Solution: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

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Cost Basis -- Potential Business ModelsCost 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

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Cost Basis - The BenefitsCost 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

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Cost Basis - The Benefits: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

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Cost – Basis – For more information Cost – Basis – For more information

• To see a demo of the newest DTCC Issuer Services Product, please contact:

Joyce Rosen, Product Manager, 212-855-3935, or jrosen@dtcc.com

• To see a demo of the newest DTCC Issuer Services Product, please contact:

Joyce Rosen, Product Manager, 212-855-3935, or jrosen@dtcc.com

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Globalization of the ExchangesGlobalization of the Exchanges

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Changes brought on by a global exchange?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…

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QuestionsQuestions