Introduction to DTC’s Asset ServicingIntroduction to DTC’s Asset Servicing

Cheryl T Lambert

ACSDA 2007

Cheryl T Lambert

ACSDA 2007

2

DefinitionDefinition

•We take over after a trade is executed on an Exchange

•Sellers receive money and buyers receive securities

•Billions of dollars each day

•We take over after a trade is executed on an Exchange

•Sellers receive money and buyers receive securities

•Billions of dollars each day

Clearing and Settlement

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Servicing ResponsibilitiesServicing Responsibilities

• Electronic ownership (book entry) of securities is the standard

• Physical certificates (physicals) may be held by an investor (beneficial owner). This presents more risk and is more expensive to process than book entry

• DTC services all securities

• Electronic ownership (book entry) of securities is the standard

• Physical certificates (physicals) may be held by an investor (beneficial owner). This presents more risk and is more expensive to process than book entry

• DTC services all securities

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Asset Services SchematicAsset Services Schematic

Start

Set-up Receive

documents, enter preliminary data in UNDX, create ID

& folder

UnderwriterEligibility Questionnaire, prospectus & LOR

EligibilityReview and verify documentation and process issue.

Quality Assurance

Verify critical data fields

Closing

Close issue & confirm Fast Bal with agent

VerificationMaster file caparison vs. Bloomberg

Master File updated MFC & Position Capture

Dividend Announcements

Validate announcement is correct

Agents/Vendors/ Web/ Internal

areasReceive Announcements info MFC, vendor and agent feeds

Dividend Announcements

Announce income event. update ANNA

RedemptionsReceive

notification of upcoming

Redemption event

Agent/ Vendors/WebRedemption informationPartial Call Full CallCash Maturities

RedemptionsVerify information

is sufficient to accurately process

notice

RedemptionsPre-

Lottery - prepare and correct data

RedemptionsRun Lottery Redemption

amount assigned to Participant s

RedemptionsVerify results of

lottery corresponds to notification requirements

RedemptionsAnnouncement to

Participant

Stock Dividends

Identification & Notification

Stock Dividends

Announce the distribution

Stock Dividends

Allocate to Participant

Stock Dividends

Process entitlements

Agent/ Vendors/ Web/Newspapers

Corporate action information

Reorganization Announcements

CollectionValidation

Reorganization Announcements

Announce Reorganization event.

Cash ReceiptsConfirms created in DIRE (CUSIPS $ dollars agents will pay on payable date)

Cash ReceiptsSystemic match compares CUSIPS in DIRE to Agent Detail

Expectancy File created in DIRE

from MFC, Announcement &

ATP & DPAL

Agent Sends confirms to DTC with detail breakdow n CCF, DANO, Fax to Data & Hard copy

Agent Funds DTC's Account at Chase

Cash ReceiptsSystemic match dollars received equals dollars confirmed

Cash ReceiptsClose wire and receivable in DIRE

Cash ReceiptsCDM allocation to Participants via Chase

MandatoryIdentification & Notification

MandatoryEvent Settlement

MandatoryClose event

VoluntaryIdentification & Notification

VoluntaryEvent Settlement

VoluntaryClose event

VoluntaryElection Processing

Participant

Allocation via SDAR

Announcement via DIVA

Announcement

Announcement

ResearchOverpaymentsUnderpaymentsClaimsCollection

ŸŸŸŸ

UnderpaymentsOverpayments

ClaimsAdjustments

A J ourney Through Operations

"See where you fit and how you contribute"

Settlement Net settlement

Securities Processing

Participant customers Deposits, Withdrawals

& Custody

Election selected

Allocation

Allocation

Cash ReceiptsCUSIPS sent to Bookkeeping BKS

Underpayment OverpaymentNon-receipt

Announcement

CHCCustomer Inquiry

PINSPhone

ŸŸ

Inquiry

Transfer AgentIssue certificates Non-FASTFAST add to Balance

Securities Processing Packaging

Receive certificates from Agent (non-FAST) examine certificates

File in vault

Non-FAST

Securities Processing

Reorg Control pull certificates & send

to agent

Securities Processing

Redemption Control pull certificates Send to agent

Agent Funds DTCC

Account

WT Processing

Pull Certs from Vault (Non-FAST)Send to Agent to

transfer registration

Agent transfers

registration to CEDE add to

Balance

J uly 2007

Participants trade in market

Rejects

LOR TeamProcess LOR

Error Research/Lost Cert

Processing, adverse claims,

worthless securities, month

end confirms

Aging Transfer/FAST,

TA services

P&I Post ProcessingBank Rec,

Escheatments274 SCLs

DAM DepositsBranch

Branch/Legal

Restricted Deposits

Inner Vault Operations

Vault Storage

Receive Full Service & Merrill

LynchDeposits

Reorg Control match LTs/PMLs,

package

NY Window

Reorg Deposits

Custody

Deposit ProcessingCredit deposit

Image Sort , Match SCL

& Bag

Full Service Legal Deposits

Deposit ProcessingExamine & Credit

depositImage

Sort , Match SCL & Bag

Deposit ProcessingExamine & Credit

depositImage

Sort , Match SCL & Bag

Central Delivery Sends Deposits to

Agent

Transfer Ops/TroubleshootingReceives Transfer

Agent transfers change registration sends

to DTCC

FAST

Non-FAST

Transfer Opsstrip,image,data

enter & examine& Sort

TroubleshootingReject processing

Out-of Balance

Aged SCLs

In Balance

Proxy Service

Non-Fast

Receive transfer instructions

Negotiability Review

Send to Transfer Agent to transfer

registration

Sold

Return to Participant

Custody Vault process

Pull transfer request

Negotiability Review

Receive OTC or Envelope Service

File

Unsold

Deliver OTC or Envelope Service

Deliver to Customer OTW or

ESS

Deposit processing wand match &

Image Funds received by

Agent

Custody Reorg Deposits

Deposit processing

wand match & Image

Funds received by Agent

Reorg Control Custody - Restricted

match LTs/PMLs, package

Allocate

Send to Agent

Returned portion received from

Agent

Send to Agent

Returned portion received from

AgentAllocation

SPR Reports

Stock Record Research

Bank Reconciliation

Bank Reconciliation

Bank Reconciliation

R/D & Interium adj

Store in Custody Vault if no Delivers

Agent/ Vendors/

DTCCorporate action information

GCAComposit Record

Created

GCAVerification of

data

GCAAuthorization of

data

GCAFinal

announcement

Announcement

Underwriting Announcements CashProcessing

•Assets Services represents a major part of Operations

•Launched an employee engagement activity

•Can be summarized in several logical process steps

•Assets Services represents a major part of Operations

•Launched an employee engagement activity

•Can be summarized in several logical process steps

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Examples of Asset ServicesExamples of Asset Services

Cash dividend

Stock dividend

Stock split

Periodic cash payments

Cash dividend

Stock dividend

Stock split

Periodic cash payments

Spin-off

Acquisition

Bond call

Spin-off

Acquisition

Bond call

Name change

Redemption

Reverse split

Merger

Name change

Redemption

Reverse split

Merger

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UnderwritingUnderwriting

• Allows for book-entry distribution and settlement

• Facilitates straight-through processing

• Provides all asset servicing for the life of securities and other financial instruments

• Allows for book-entry distribution and settlement

• Facilitates straight-through processing

• Provides all asset servicing for the life of securities and other financial instruments

The DTC Underwriting area is responsible for the eligibility and distribution of newly issued securities, including municipals, corporate, and money markets instruments

The DTC Underwriting area is responsible for the eligibility and distribution of newly issued securities, including municipals, corporate, and money markets instruments

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Announcements – Start ProcessAnnouncements – Start ProcessCollection

• Collect corporate action event information

• Consolidate data and prepare for comparison

Collection

• Collect corporate action event information

• Consolidate data and prepare for comparison

Validation

• Normalize, reconcile and enrich data

• Validate for accuracy and completeness

• Produce “scrubbed” announcement record

Validation

• Normalize, reconcile and enrich data

• Validate for accuracy and completeness

• Produce “scrubbed” announcement record

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’07 Volume Data - Announcements’07 Volume Data - Announcements

0

100,000

200,000

300,000

400,000

500,000

600,000

Jan Feb Mar Apr May Jun Jul

Dividends, Redemptions and Reorganizations

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Announcements – End ProcessAnnouncements – End Process

Settlement

• Deliver securities, if necessary

• Receive securities and/or money payment

Settlement

• Deliver securities, if necessary

• Receive securities and/or money payment

Reconciliations

• Allocate entitlements to investors

• Notify investors of final transactions

• Close out the event

Reconciliations

• Allocate entitlements to investors

• Notify investors of final transactions

• Close out the event

Notification

• Determine investors impacted by event and calculate entitlements

• Notify investors of announcement information

Notification

• Determine investors impacted by event and calculate entitlements

• Notify investors of announcement information

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Mandatory and Voluntary EventsMandatory and Voluntary Events

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Average Monthly Fund AllocationAverage Monthly Fund Allocation

$255 Billion Allocated *99.9%

* Cash Receipts and Reorganizations

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Leveraging Six Sigma ToolsLeveraging Six Sigma Tools

•15 Green Belts in Asset Services

•Monthly tracking and review

•Improvement projects

•Enterprise-Wide Scorecard reporting

•Asset Services Sigma Level IndexAsset Services Sigma Level Index Timeliness and Accuracy Metrics across 6 Timeliness and Accuracy Metrics across 6 Business UnitsBusiness Units

Steady improving trend to 4.12 Sigma (0.44% Steady improving trend to 4.12 Sigma (0.44% defectives) in Junedefectives) in June

•15 Green Belts in Asset Services

•Monthly tracking and review

•Improvement projects

•Enterprise-Wide Scorecard reporting

•Asset Services Sigma Level IndexAsset Services Sigma Level Index Timeliness and Accuracy Metrics across 6 Timeliness and Accuracy Metrics across 6 Business UnitsBusiness Units

Steady improving trend to 4.12 Sigma (0.44% Steady improving trend to 4.12 Sigma (0.44% defectives) in Junedefectives) in June

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Tracking The Results (June 2007)Tracking The Results (June 2007)

Sigma Levels By Month

3.53.63.73.83.9

44.14.24.3

Jan Feb Mar Apr May Jun

Sigma Level

Accuracy Timeliness Average

Our focus is on “continuous improvement”Our focus is on “continuous improvement”

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Upcoming TopicsUpcoming Topics

•Lori Trezza – Corporate Actions Reengineering

•Bill Salva – International Tax Services

•David Hands – Global Corporate Actions

•Lori Trezza – Corporate Actions Reengineering

•Bill Salva – International Tax Services

•David Hands – Global Corporate Actions