ACATS
Fall Seminar 2011
Welcoming Remarks
Fidelity Investments
Host Firm
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 1
ACATS
Fall Seminar 2011
Opening Remarks
Derek Yen – Edward Jones
SIFMA CAT Section Board
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 2
CNS ACATS/Non-CNS ACATS
Settlement Proposal
Louis Lepore
DTCC
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 3
Agenda
I.


II.
III.
IV.
V.
Non-CNS ACATS
Mutual Funds Proposal
DTC Eligible (but not CNS eligible) Assets
Proposal
CNS ACATS Modifications
ACATS Default Pricing
PTF Transfer Enhancements
ACATS Statistics
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 4
Non-CNS ACATS
Risk Today
 If NSCC ceases to act for a Member and initiates a close-out of its
account, non-CNS ACATS money incentive charges may be
reversed as they are not guaranteed
Many of these assets settle away from DTCC
 This may create settlement exposure for Members as transactions
may have settled versus money in the various settlement market
places
 This may require contra Members to negotiate claims of settlement
reversal money incentive charges directly with the SIPC trustee

 Industry working group consisting of SIFMA CAT and SOD Member
firms, Services Providers and Regulators was created to address
these issues
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 5
Mutual Funds Proposal
Modifications
1) Addition of Settle-Prep Status 300 to all non standard ACATS transfers that
contain a mutual fund asset with settlement location 10 (ACATS- Fund/SERV)




Ensures ACATS settlement date of transfer always equals last day Mutual Fund Company
can respond to fund re-registration
Impacts the following non-standard transfer types:
 Partial Transfer Receiver (PTR), Partial Transfer Deliverer (PTD) and Residual Credit (RCR )
Testing made available in NSCC’s PSE test environment as of August 1, 2011
Production implementation scheduled after close of business on October 20, 2011
2) Segregation of mutual fund transaction activity (settlement location 10 ACATSFund/SERV) within NSCC money settlement code 007





Original incentive charges for these assets will be removed from NSCC money settlement
code 006/008 for consolidation and tracking purposes
Acknowledgement reversal charges will continue to be applied under NSCC money
settlement code 007
ACATS Settlement Report Autoroute #02090712 will be updated with new total sections
 “Totals Included in Net Cash 007” and “Totals Not Included in Net Cash 007 ”
No testing available as there are no NSCC programming modifications required
Production Implementation scheduled after close of business November 3, 2011
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 6
Mutual Funds Proposal
Modifications (continued)
3) Creation of new Mutual Fund Reversal Files for a Member close-out event
MRO Reversal
MRO Comma Delimited
Production Autoroute#
02091076
02091077
Production Implementation
November 4, 2011
November 4, 2011
Features
Programming required;
Empty file distributed daily
when no event occurs
“Canned” Test Autoroute#
02981076
02981077
Testing Available
August 1, 2011
August 1, 2011
No programming required; File
distributed only when event
occurs
4) Creation of NSCC Settlement Category Code 34 for posting of mutual fund asset
incentive money reversals resulting from a Member close-out event
 Important Notices A# 7213, P&S# 6783 dated May 19, 2011 (revised
June 8, 2011) and Important Notice A# 7244, P&S# 6814 dated July 13,
2011 outline all the modifications
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 7
DTC Eligible (Non CNS Eligible) Proposal
Conceptual Proposed Solution
 Members would settle assets “free of value” on ACATS settlement date
 NSCC would utilize its Obligation Warehouse (OW) to track the settlement
status of these ACATS transactions
 NSCC would apply incentive charges only on those transactions which
have not completed or failed
 Members would receive instructions from NSCC to re-price the settlement
money on these failed transactions to the original ACATS market value
 Members would subsequently settle these failed transactions versus the
original ACATS market value
Next Steps




Finalize this solution with industry working group – Q4 2011
Design this solution – Q1 2012
Implement this solution - Q4 2012
Finalize and design a solution for the remaining Non-CNS ACATS settling
assets (i.e., government securities) – Q4 2012
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 8
CNS ACATS Modifications
 As a result of the “CNS for Value” initiative, ACATS transactions can no
longer be “netted” in CNS with other settling trade obligations
CNS ACATS transactions are not guaranteed
 CNS ACATS transactions settle “free of value”

Proposed Solution
 NSCC proposes to create a new CNS sub-account just for ACATS
transactions
Sub-account will net ACATS transactions on settlement date
 CNS ACATS long allocations (receives) and short covers (delivers) would
occur through a new DTC account (i.e., 889)
 Open transactions on ACATS settlement date will net with regular CNS
transactions after money settlement completed and 100% of the market
value has been collected on open fails

412 Customer Account Transfer Section, Inc. A Section of SIFMA - 9
ACATS Default Pricing
Current Process
 When ACATS cannot find a price for a security it uses the greater of the
submitter’s value or the default price determined by the Asset Pricing
category chosen by the submitter on asset validation
 Currently, asset pricing categories EQU, FEQU, FDEB are capped at $20,000
New Process
 If ACATS cannot find a price for a security, always use submitter’s value
 When entering assets in an ACATS transfer, the submitting firm should value
each asset the same as it is reported on their customer’s statement
 This was approved by both the SIFMA CAT Division and FINRA
 NSCC planning to implement change by Q2 2012
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 10
Enhancements for PTF Transfers
I. Fund/SERV 018 Record – Support Passage of Cost Basis
 The following field will be added on Fund/SERV 018 record and extracted
from ACATS “TI” record for a Position Transfer Fund (PTF) transfer type
only

Originating Deliverer Customer Account Number at Firm field
 To be populated on all PTF transfers when firm = deliverer
 No programming changes required for firms
II. PTF- Gift Indicator
 ACATS will add code to system reject any PTF transfer whereby the firm is
receiver and “pulling” the account from Fund Company indicating it as a
gift
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 11
ACATS Statistics
Users
Firm Type
141
Brokers
38
Banks
114
Mutual Funds (PTF’s Only)
Month
Transfer Type
# Submitted
August 2011
Full (broker to broker)
253,229
July 2011
Full (broker to broker)
211,938
August 2011
Full (bank on at least one side)
4,917
July 2011
Full (bank on at least one side)
4,426
August 2011
PTF (firm and fund)
40,458
July 2011
PTF (firm and fund)
38,855
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 12
Questions?
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 13
Process Service Improvement
Subcommittee Updates
Evan Oliveaux
National Financial
Steve Goodrich
TD Ameritrade
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 14
PSIS Defined
The Process and Service Improvement
Subcommittee looks to leverage new technology
and assess alternative solutions to improve
transfer processes.
As of 8/13/11
126 Members
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 15
Working Groups
All PSIS members are in a working group
• One to two leads per group
• Meets in-between the monthly PSIS meeting
Mutual
Funds
Mutual Funds
27
Best Practices
27
Non-ACAT
Regulatory
Client Experience
27
PSIS Chair
Regulatory
2
Grand Total
Best
Practices
24
19
126
Non-ACAT
Client
Experience
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 16
Recent Working Group Topics
Mutual Fund Working Group:
•
Reject Analysis
•
PTF Best Practices
•
Continued use of default
registrations and impact
on cost basis
•
PIER Report Update for
2012
Best Practices Working Group:
•
Document best practices
on corrections/reclaims
•
Transfer paperwork
requirements
•
Settlement functions
Non-ACAT Working Group:
•
Non-standard TOA
requirements
•
Firm survey’s
•
•
•
•
Client Experience Working Group:
•
Non-transferable fund
communication analysis
•
Carryover of dividend
instructions for equities
opportunity
•
Explore timing of ACAT
compared to other methods
Internal procedures
Process requirements
Signature guarantee
analysis
Contact list
Regulatory Working Group:
•
Rule 11870 educational piece
•
Analysis on Important Notices
•
Rule 4522 – AI’s – how firms are
handling
•
Partner with Best Practice group
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 17
Firm Contact List
•
•
•
Taken down from SIFMA site
PSIS group as the data gatherers
Michelle Padro has gathered contact information
•
1.
2.
3.
4.
5.
6.
7.
Michelle.Padro@etrade.com
Firm Name
Address
Contact Name
Capacity at firm
Phone number
E-mail Address
Which PSIS working group interests you?
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 18
Questions?
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 19
Seminar Break
Seminar will resume in 15
minutes
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 20
Cost Basis Working Group
Discussions
Ellen Bocina – Fidelity
Lydia Midwood – DTCC
Kelle Hennier – DST Systems
Derek Yen – Edward Jones
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 21
Cost Basis Reporting . . . A Long Journey
Options,
Fixed
Income
Mutual Funds
Industry Dialog with GAO,
Senate Finance, Joint
Committee on Taxation and
Treasury
Comment
Period
Various versions of Draft Legislation
2005
2006
2007
Stock
Comment
36 Q’S
Proposed Regs
Period
2008
Final Legislation to
Implementation
2009
2010
2011
2012
2013
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 22
Time… There’s Never Enough of It
9 weeks to CBRS Changes
13 weeks to systems freeze
15 weeks to 1/1/2012
Testing: CBRS
Production: CBRS
Testing: CBRS
Sign up for CBRS
Sign up for CBRS
Form Changes
Client Notification of default method
W-9 Solicitations for Corps.
Testing: Systems, manual transfer statements, Monthly Statements; Confirmations…
Development, Testing, Business Decisions, Communications, Training…
15 Weeks and Counting……………..
September
October
November
December
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 23
NICSA East Coast Regional Meeting, June 3, 2011, Sentry Centers, NYC
23
2011 Deliverables


Identification of S Corporations vs. C Corporations

S Corporations (other than financial institutions)

Final IRS Form W-9 (Rev. January 2011) issued January 31, 2011
Supplemental Information - Reconciliation with the breakdown of
lots on 1099-B
Box 1b: requires the date of acquisition
(allows for combining non-covered, shortterm covered and long-term covered lots)
Box 3: requires the reporting
of cost or other basis of the security
Box 5: requires the reporting
of disallowed wash sale losses
Box 6: requires notification
if the security is uncovered
Box 7: requires reporting of
the amount of the gain or loss
Box 8: requires identification
of the gain or loss as short-term
or long-term
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 24
Transfers – Relief ends 12/31/2011

Matching

Third Party Transfers

Manual statements

File Changes

Corrections


Gifted / Inherited
Mutual Fund Transfers –
Fund/Firm and Firm/Firm

Transfer Reversals




FRVs
RCLs
Other
Conversions


PTFs

Networking

Manual

Reversals
Industry Testing
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 25
2012 Transfer Statement Reporting




Transfer statement reporting will be required for shares eligible for average
cost beginning in 2012
The majority, but not all, transfer reporting will occur through Depository
Trust & Clearing Corporation (DTCC) cost basis reporting service (CBRS)

Joining CBRS service is not automatic

Testing/validation will be required before 2012

Challenges are expected with non-CBRS transfers
Missing transfer statements

Important for advisors and investment professionals to understand the process

Mandatory and optional requests for missing transfer statements
Transitional penalty relief for 2012 transfer statement reporting?

Not currently expected
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 26
CBRS Statistics
Firm Type
Signed Up
In Production
Brokers
99
71
Banks
32
20
Funds
54
0
Equity Transfer
Agents/Issuers
74
34
Out of 54 Fund Companies:
• 70% expect to be in Production on 12/09/2011 or earlier
• 30% expect to be in Production on 01/02/2012
On average, 3% of CBRS records are system rejected, 2% are firm rejected
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 27
This year’s CBRS enhancements

Excel upload on WebDirect implemented in June

Mutual fund enhancements



New requirements: Current Cost, Alternate Control
Number, Customer Account Numbers
Exempt recipient accounts indicator
System improvements

Remove ACATS edits

Removed Cost fields from Asset Input record
Changed some field names (e.g. Receiving Firm is now
412
Customer
Account Transfer Section, Inc. A Section of SIFMA - 28
Contra
Firm)

CBRS Resources

http://www.dtcc.com/products/cs/equities_clearance/cbrs.php

User Guide, FAQs, Record layouts, Important Notices

CBRS Working Group

Internet-based training available later in 2011
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 29
Mutual Fund Cost Basis




Investment Company Institute (ICI)

Tax Committee

TA Advisory (TAAC)

Broker-Dealer Advisory (BDAC)
BDAC CBR Task Force Activities

Lot Depletion

ACATS-Fund/SERV, Networking, Manual

Best Practices / Documentation
CBRS Steering Committee
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 30
SIFMA CAT Cost Basis Sub-Committee
Mutual Fund Cost Basis – Firm/Fund
Transfers PTF
ACATS PTF Push High Level Process Flow:
Dealer Firm
(Deliverer)
Initiator
NSCC ACATS
(DTCC)
NSCC Fund/SERV
(DTCC)
Fund Company
(Deliverer)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - DAY 1 - - - - - - - - - - - - - - - - - - - - - - - - - - -
Submits
ACATS PTF
Creates Fund
Registration
Transmits 018
Record to Fund
Company
Processes the
018 Record
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - DAY 2 - 3 - - - - - - - - - - - - - - - - - - - - - - - - - - - - ACATS
Transfer
Status Ages to
Settle Close
EOD
Receives 019
Record and
Creates
ACATS
Fund/SERV
Stat File
Sends 019
Record to
ACATS
Submits the
019 Record
to Fund/SERV
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - DAY 3 -18 - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
C
B
R
S
Submits the
CBRS Record to
DTCC After PTF is
Acknowledged
DTCC
Receives the
CBRS Record
from Firm
DTCC Sends the
CBRS Record to
Fund Company
CBRS Record
is Uploaded
C
B
R
S
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 31
Mutual Fund Cost Basis – Fund/Firm
Transfers Networking
Day 1
Day 2-4
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 32
Mutual Fund Cost Basis – Fund/Firm
Transfers Manual
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 33
Questions?
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 34
Lunch Break
Reminder
Lunch break
Seminar will resume in 45 minutes
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 35
Resume
Cost Basis Discussion
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 36
Mutual Fund Cost Basis
Firm/Firm Transfers for Mutual Funds
ACAT

Cost basis will transfer as it does today.
Non-ACAT

Cost basis may not transfer today - no agreement on TCN or other matching
criteria. The pertinent detail may be on the mutual fund acknowledgement
files:

Networking – F53 Transaction Type 2

Manual – F55 Transaction Type 13

"Manual Manual"
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 37
Other Mutual Fund Considerations








Manual paperwork from the receiving firm to the
delivering firm and logs / re-registration letters to the
fund needs to include
Revocation – sale, transfer or disposition– What
constitutes a transfer or disposition?
Transfers
Gifting in an average cost account
Exempt Recipient Account Indicator on CBRS Master File
Mutual Fund Transfer Reversals (code 33 and 34 on F55)
Delivering firm on an ACAT loading Level 4 Mutual Fund
assets
412 Customer
Account
Section, Inc.
A Section ofofSIFMA
Receiving
firm
on anTransfer
ACAT default
registration
Level- 38
0
or 4 Mutual Fund assets
Mutual Fund Cost Basis – Next Steps

Fund Default Elections

CBR for Mutual Funds – DTCC Supplemental Guides

On boarding for Mutual Funds

Complete Development

Testing

Operational preparations for January, 2012

Important dates

9/30 – CBRS Testing

11/18 – Production
12/15
- Changes
IN 7256
412
Customer
Accountfrom
Transfer
Section, Inc. A Section of SIFMA - 39


1/1/2012 – Penalty relief expires
Vision Concepts
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 40
Other Cost Basis Considerations

Inheritance -

User CUSIPs

Foreign CUSIPs

Testing


Inherited/gifted shares to multiple
individuals – s/b pro-rata.
Working Exception Reports and Manual
Transfer
Statements
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 41
Parking Lot

Mutual Funds





F53 is currently sent to the submitting firm only
Timing of CBRS records on PTF transfers and the need for a
PEND Process by the Firms or a Delay of 1 day by the Funds for
CBRS
Consistency of transaction types by Fund Companies on the F55
Industry consistency for "Manual Manual" Mutual Fund Transfers
CBRS
Add Cost field rules for fixed income assets
 Edits to Exempt Recipient Accounts indicator
 Develop a universal format for the Transfer Control Number
 Define how to use “Other Depository Deliveries” and “Physical
Movement Settlement” transaction types
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 42
 Define how to use User CUSIPs

What Will Confuse Your Customers

No lot selection after settlement date (cutoff)

Covered versus non-covered securities (ETFs and UITs)

New rules on the average Cost election (DRP covered vs noncovered)

Frustration about wash sales disallowance reporting

Additional burdens for gifted and inherited shares

Three-year and 18-month cutoffs for corrected 1099-Bs and transfer
statements.

Account defaults for lot depletion

New Forms
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 43
Special Rules: Inherited and Gifted
Inherited Securities




Transfer statement must indicate that the
transfer consists of an inherited security
Statement must report the date of death as
the original acquisition date and the adjusted
basis according to instructions or values
provided by an authorized representative of
the estate
If authorized representative of the estate
does not provide the instructions or valuations
regarding basis, the broker must report values
if readily ascertainable
If values are not readily ascertainable,
the transferor must indicate that the security
is inherited but can otherwise report it as a
noncovered security
Gifted Securities





Transfer statement must indicate that the
transfer consists of a gift, report the date of the
gift and include the adjusted basis, acquisition
date and holding period of the donor
Statement must also report the fair market
value of the security on the date of the gift (if
known)
If the securities are subsequently transferred
to a different account of the same owner,
the additional gift related information set forth
above must be included
If a transfer affects a “change of ownership,”
the transfer must be reported as a gift (and the
required information obtained, if available)
unless the transfer is between persons for
whom gift-related basis adjustments are
inapplicable—transferor will need to know WHY
Gifted mutual fund and DRP shares received
may not be average eligible
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 44
Education, Communication and Support
Internal
Branch
Client
Educational Tools






Policies and Procedures
Training Guides
Webinars
Round Tables
White Papers
Best Practice Documents
Support Needs






Phone Calls
Service Requests
Self Service Tools
Policies and Procedures
Data Mining and Rejects
Staffing Requirements
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 45
Open Issues Discussion
What Have We Missed?
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 46
2013
TO BE CONTINUED……
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 47
Questions?
412 Customer Account Transfer Section, Inc. A Section of SIFMA - 48