Depository Trust and Clearing Corporation
Fund Transfers Business Advisory Group
Industry Recommendation Paper
DTCC Fund Transfers Industry Recommendation Paper
V23
February 2007
Depository Trust and Clearing Corporation
Table of Contents
i) Acknowledgements.................................................................... 3
II. Business Considerations and Recommendations .................. 5
A.
B.
C.
D.
E.
F.
Contract Snapshot .......................................................................................................................... 5
Carrier Rules for Fund Transfers ................................................................................................ 7
Distributor Requirements and Expectations ............................................................................... 8
Regulatory Considerations ............................................................................................................ 9
Real-time vs. Batch Processing.....................................................................................................11
Decision to use XML .....................................................................................................................12
III. Prerequisites For Using Fund Transfers via NSCC........ 12
a)
b)
c)
ACORD Product Profile for Annuities (PPfA) (or similar mechanism). .................................12
NSCC Positions and Values (POV) ..............................................................................................13
Financial Activity Reporting (FAR) ............................................................................................13
IV. Proposed Fund Transfer Process....................................... 14
Product Profile (PPfA) (highlighted in orange in the Workflow Diagram)........................................14
Positions and Valuations (POV) (highlighted in blue in the Workflow Diagram) .............................14
Fund Transfer Process ............................................................................................................................15
V. Next Steps ............................................................................ 17
Appendix A - Assumptions and Notes ....................................... 18
Appendix B – Glossary of Terms ............................................... 19
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i) Acknowledgements
This paper was a collaborative effort by members of the Fund Transfers
Business Advisory Group. Below are the firms that contributed to this
paper.
COMPANY NAME
ACORD
Allstate
BlueFrog Solutions
DTCC
Edward Jones
Finetre
The Hartford
ING
John Hancock
Lincoln
Merrill Lynch
Met Life
Morgan Stanley
Nationwide
NAVA
Pacific Life
PCA Raymond James
Piper Jaffray
Sun Life Financial
Vertex Consulting
Wells Fargo Investments
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I. Executive Summary
The purpose of this document is to provide a summary of the Fund Transfers Business Advisory Group’s
(BAG) analysis and recommendations to the industry on how the proposed NSCC Fund Transfers service
will operate. This paper will discuss the business issues considered, the proposed process, complimentary
features of the service and next steps.
Development and implementation of the Fund Transfers process is the second phase in automating and
standardizing a broad range of inforce policy transactions, which started in 2005 with ACATS for
Insurance, internal rep changes (REP) and brokerage account number changes (BIN). Fund Transfers is in
line with the insurance industries straight through processing objectives and consistent with the continued
efforts to mainstream insurance products with other financial products.
Scope:
The scope of this initiative is confined to the following:
 One-time fund transfer and/or reallocation of the underlying securities within a variable contract
initiated by a registered representative (Rep). In addition, within the actual fund transfer
transaction, broker/dealers may update service feature that were impacted by the fund transfer.
These Service Features include:
o Standing Allocations
o Dollar Cost Averaging / Special DCA
o Systematic Withdrawals
o Automatic Investments
o Interest Crediting
o Asset Allocation
o Asset Rebalancing
 Real-time Contract Snapshot transaction (aka Values Inquiry Message). This transaction will
occur prior to the fund transfer. Broker/Dealers can request updated contract information rep has
the most current information possible prior to submitting a fund transfer transaction.
The scope of this project does not include: customer-initiated requests directly to the carrier.
The new service is intended to replace current processes used by reps today to request a one-time fund
transfer of assets, including online carrier website requests, telephone, fax, email, and other independent
transactions.
Background:
This initiative began as a result of several regulatory findings that enforced distributor responsibility for the
actions of their reps with regard to unethical business practices. These findings prompted the Securities
Industry Association (SIA) Insurance Panel to request that DTCC, through one of its subsidiary operating
companies, create an efficient and cost effective way to automate the fund transfer process enabling
distributors to better monitor the actions of their reps, and reduce the risk of unethical business practices.
Concerns over client suitability, market timing, and late day trading were factors that led to the proposed
fund transfer process outlined in this paper.
NSCC is a wholly owned subsidiary of DTCC and a clearing agency registered with the Securities and
Exchange Commission. Its membership includes broker/dealers, banks and insurance carriers. It operates
as an industry utility for various sectors of the financial services industry, including mutual funds and
insurance services.
Proposed Process:
The BAG proposal for fund transfer processing is based on an interactive request and response service via
NSCC’s Insurance Processing Service (IPS).
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




Distributors will provide the ability; either from their own internal system or solution provider
service, for reps to receive updated contract snapshots, enters fund transfer transactions and
receives immediate confirmation.
As a best practice, distributors will utilize several complimentary services to provide upfront
checks and balances to ensure both product rules and suitability rules are being followed.
Distributors will be responsible for “Time Stamping” of transaction to ensure that “No Late
Trading” is permitted; subject to SEC approval of proposed NSCC rule changes.
NSCC will play the role of centralized, secure processing source, which will receive, edit and
transmit transactions to all parties involved.
Carriers will receive fund transfer requests from the distributors and respond with responses that
convey the request status back to the distributor.
Fund Transfer Objectives:
 Automate and centralize the fund transfer process by creating real-time request and response
transactions, which will increase efficiency and lower operational costs.
 Create an efficient way for distributors to monitor and track rep-initiated fund transfer transactions
to comply with regulatory requirements.
 Increase the number of In Good Order (IGO) fund transfer transactions sent to the carriers.
 Improve the overall user experience for reps by mainstreaming the process, which will hopefully
lead to increased annuity sales.
Business Recommendations:
 Distributors and carriers will incorporate NSCC’s Positions and Valuation file (POV) and
ACORD’s Product Profile for Annuity (PPfA) as complimentary services to provide current
contract detail and carrier product rule information. This information can be used to ensure that
the rep is using the most current contract information on which to base the fund transfer and the
proper carrier product rules are being enforced on the front end.
 Distributors and Carriers will develop a contract snapshot real-time inquiry message to provide the
most updated contract information available. This will include, but not limited to, contract values,
fund restriction information, service feature information such as target and source funds.
 A selling agreement addendum will be created that allows the carrier to accept the distributor’s
time stamp as the end of the day control. This differs from the current process, where the Carrier
controls the end of the day time stamp.
 The Fund Transfers service will be built using the ACORD XML data model
Next Steps:
 Establish Pilot participants and systems development in 2Q07
 Pilot testing in 3Q07.
 SEC review and approval of NSCC proposed funds transfer service
 Subject to SEC approval, production rollout in 4Q07.
Fund Transfers Documentation, including working group minutes, business flows and implementation
procedures are available at http://insurance.dtcc.com.
II. Business Considerations and Recommendations
A.
Contract Snapshot
Distributors within the Business Advisory Group (BAG) expressed the need to access current
annuity contract information at the onset of a fund transfer request to be used to determine the
good order status of a request. A contract snapshot will provide pertinent annuity contract
information for the distributor to determine if a fund transfer request meets carrier business
rules. The snapshot will include information related to the contract, such as contract values,
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current fund allocations, fund restrictions and active service features. This information will
allow the distributor to supply its financial advisor or agent with a current portfolio picture so
that the agent may make a valid fund transfer request. The BAG considered two options to
obtain the necessary snapshot information – NSCC’s Positions and Valuations (POV) and an
ACORD XML real-time query. The BAG recommended that both NSCC’s POV service and
a real-time inquiry message would be the ideal solution. Each option considered by the BAG
and reasons for its recommendation is outlined below.
Option 1 – NSCC Positions and Values (POV)
Based on the current POV standard usage, position data would be sent on a daily basis in
batch mode to the distributor. The distributor would store and use the POV data to create
a contract snapshot for their agents’ review, and apply both carrier and distributor
business rules to this data as the fund transfer is requested. This option would allow both
carriers and distributors to use a process that is already in place in most firms.
Option 2 – Real-time XML Query
A real-time XML query would require the distributor to send an XML message to the
carrier requesting contract snapshot information at the time the agent is initiating the fund
transfer request. The carrier would be expected to respond to this request within a few
seconds (returned data would be consistent with POV file information). The distributor
would use the real-time XML response to create a contract snapshot for their agents’
review, and apply both carrier and distributor rules to this data as the fund transfer is
requested. To respond to the query, carriers would use either stored or real-time data.
This option would require most carriers and distributors to develop a new process, but it
would ensure the most up to date information and provide additional information that is
not on the POV.
POV Enhancements Required
In order for POV to support contract snapshot information, several enhancements will
need to be made. The following enhancements are proposed:
o
Fund Transfer Agent Authorization Information
The owner of an annuity contract must authorize the carrier to accept transaction
requests from an agent on their behalf, and may be asked to authorize specific types
of transactions and modes in which those requests can be made by the agent. Within
the proposed NSCC Fund Transfer process, the carrier will need to provide client
authorization information to distributors within the contract snapshot to allow them
to verify that the agent is authorized to submit an electronic fund transfer request.
New POV fields would include authorization type and authorization mode. These
fields would be added to the contract level within all POV record formats.
o
Fund Transfer Restriction Information
Carriers have the ability to restrict fund transfers on a contract for various reasons.
Examples include maximum annual transfer limits exceeded and reallocation
program already in place. A contract restriction indicator and reason field will be
added to all POV record formats.
Frequency Standard of POV
As a best practice recommendation, the Advisory Group agreed that distributors would
need to receive the POV data no later than the 6:00 AM output cycle in order to most
effectively utilize the contract snapshot. In order for the carriers to deliver the position
data to the distributors in the 6:00 AM output cycle, it will be necessary for firms to adopt
the suggested usage for POV, which includes receiving PFF and PNF daily and PVF
weekly or monthly.
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Real-time Inquiry Required
In order to support a contract snapshot, firms will need to develop an inquiry message
using ACORD XML that will be used in conjunction with the fund transfer process.
B. Carrier Rules for Fund Transfers
The BAG analyzed various carrier rules that may be required by distributor platforms in order to
support in-good-order fund transfers. A list of rules categories was identified. Please note that
these rules may differ by carrier and/or product and are not inclusive of all possible rules and
scenarios.
1.
Product rules requiring neither position nor transaction history
These are rules that are basic to the product and do not require any knowledge of the
specific contract. Examples include: funds available to the product; transfer options
available (i.e. dollar to dollar, dollar to percent, interest to percent); minimum transfer
amounts allowed.
2.
Product rules requiring position information but not transaction history
These are rules that depend on the product and may also require position information on
the contract. Examples include: funds available to the contract depending on issue date;
funds available to contract depending on active riders; and current allocation amounts.
3.
Product rules requiring position information as well as transaction history
These are rules that depend on the product and involve the transaction history of the
contract and possibly position information. Examples include: no more than one “round
trip” exchange for a fund per year; no more than a predefined number of transfers per
year.
4.
Special circumstance contract restrictions
These are non-systematic restrictions. Examples include: contract has violated frequent
transfer rules; divorce proceedings in progress (all transfers restricted unless agreed to by
both parties in writing).
5.
Agent Authorization checks
Verifications are done to ensure that the agent has the appropriate credentials to perform
the request. Examples include: requesting agent is agent-of-record on contract; agent is
licensed and/or appointed in contract owner’s state of residence; client has authorized
agent initiated fund transfers.
The BAG recommends that carrier rules and supporting contract information be provided to the
distributor via the following methods:
 Product level rules - ACORD’s Product Profile for Annuities (PPfA)
 Contract positions – NSCC’s POV
 Transaction history - Distributors will rely on the carrier to indicate when applicable
restrictions apply to a particular contract through the new restriction fields to be added to
the POV snapshot
 Special circumstance contract restrictions – Distributors should rely on the carrier to
indicate when special restrictions apply to a particular contract, either through the new
restriction fields to be added to the POV snapshot, or through manual methods
 Agent Authorizations – Distributors should use NSCC’s POV to verify contract-related
agent authorizations such as client authorization and agent-of-record, and may use
NSCC’s Licensing & Appointments (L&A) service to validate license and appointment
authorization.
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C. Distributor Requirements and Expectations
The need to overlay distributor rules with the carrier rules is important as we move forward in
automating Fund Transfers for several reasons:
 Ensure transaction is “in good order” from a distributor perspective
 Ensure the Advisor is the appropriate individual to initiate the transaction (from the
distributor’s perspective)
 Eliminate the need for Advisors to initiate transactions through alternative methods (for
example, telephone, carrier websites, etc.)
The distributor will be responsible for the following edits:
 Ensure the contract is linked to a valid broker dealer account
 Ensure both the contract and the broker dealer account are active without any distributor
restrictions
 Ensure the agent is the broker dealer’s agent of record for the insurance contract
 Ensure the agent is not prohibited from initiating such transactions, either electronically
or holistically
Below is a high level flow that outlines the edits the broker dealer will be responsible for:
User Enters Application
User Enters/Selects
Broker Dealer Account
Number
User Enters/Selects
Contract
User Enters Fund Transfer
Information (existing
process will continue from
here)
System will
determine if user
role (i.e. Advisor,
Associate, Branch
Manager) allows
entry of inforce
transactions
System will only
allow accounts to
be chosen or
entered that are
associated to the
Advisor
System will only
allow contracts to
be chosen or
entered that are
associated to the
account
System will ensure
the contract is
active and without
restrictions
Finally, distributors will be able to provide suitability review to determine if the transaction is
suitable for the client. Information that will be used to complete the suitability review will include
all information required pursuant to the NASD Rules of Conduct.
Funds deemed unavailable by a distributor for a specific product are not displayed to the user.
Prohibiting Advisor initiated transactions through other means, such as calling the carrier directly
or utilizing a carrier website, is at the discretion of the broker dealer. Cooperation from insurance
carriers may be requested to assist in the restriction of agents requesting transactions through
unapproved means.
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D. Regulatory Considerations
Overview
Over recent years, sales of variable annuities have grown tremendously as has interest in the sales
practices, suitability and supervision of these sales by the NASD, SEC, and states and, most
recently, the NYSE. Various notices and rulings, including NASD Notice to Members (NTM) 9686, NASD NTM 99-35, NASD NTM 04-45 and SEC Rule 2310 have made it very clear that
regulatory agencies governing the securities business are adamant about ensuring sound suitability
practices within member firms. More specifically, recent federal and state regulatory actions,
including penalties and large fines to firms, have provided a loud and clear message that firms are
responsible for monitoring broker-initiated fund transfers within variable annuities and preventing
unethical practices including late-day trading and market timing.
A number of new rules and requirements are under consideration by the various regulatory
agencies and it is anticipated that specific rules concerning variable annuities will be issued in the
coming months. We expect that these rules will continue to reinforce member firm responsibility
for determining the suitability of the sale as well as monitoring variable annuity sub accounts on
an on-going basis.
Market Cut-Off / Time Stamping
The BAG has identified a very real concern that the processing rule differences between annuity
fund transfers and other financial product trades, particularly in regard to time-stamping and
market close, may disadvantage the insurance consumer by reducing the time in which valid
market annuity trades can be made.
Fund transfer transactions are tied to the market pricing of the underlying funds within the annuity
product. As such these transactions may only be initiated before market close on any given day.
Currently, the cut off time for these transactions is set by the carrier. No matter what the initiating
medium is, the carrier is responsible for regulating the receipt time of the transaction and
processing with the appropriate pricing date. As a rule, carriers do not process fund transfer
transactions same day if they themselves do not receive the request before market close, regardless
of whether an intermediary working on their behalf, such as the broker-dealer or clearing agency,
effectively accepts a request from the consumer prior to market close.
For funds traded outside of insurance products, the distributor maintains the responsibility for
trade cut off time. Back office distributor systems allow for trading all the way up to market close
with the transaction being administratively processed after market close. The distributor
effectively acts as an authorized intermediary, and is thus able to legally accept trade requests up
to market close as an agent of the fund manufacturer.
For the NSCC Fund Transfer process, the distributor community sought to align annuity products
with other financial instruments in terms of ownership of the cut-off time for the transaction.
Ideally the distributor back office system would be available until market close and transactions
would be transmitted to the carrier for processing directly following system cut off. Each
transaction would be “time stamped” by the distributor to indicate the time the transaction took
place on the distributor system. Carriers would evaluate the distributor time stamp for each
transaction request received to determine whether a request should be processed same-day or held
over for next business-day processing.
The concept of not having ownership of the transaction cut off time is new to the carrier
community and has presented its share of concerns.
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Several options were discussed as possible solutions to this issue:
 Distributor would control transaction cut off time and would be the owner of the time
stamp. The carrier would process based on the time that the distributors inputs for each
transaction.
 NSCC will place a time stamp on each transaction when it passes through its system and
the carrier would process based on the NSCC time stamp.
 NSCC would implement a hard system shut down for Fund Transfer processing at market
close – transactions received after market close, or with a time stamp after market close
would be rejected. Rejected transactions would need to be resubmitted the next business
day
 Carrier would retain control of transaction cut off time and would reject transactions
received after market close from NSCC
Concerns with these options:
 Distributor ownership of the time stamp posed concern that the carrier would be
responsible for identifying that each distributor had the proper controls in place to
provide the time stamp.
 The NSCC time stamp would still pose a competitive disadvantage to insurance products
over other financial products such as mutual funds, as the distributor would still need to
cut their systems off sometime before market close to ensure receipt at NSCC by market
close.
 NSCC cut-off for processing as well as carrier rejection of transactions would impose
additional expense in the process due to reject and resubmission charges, and would
restrict those trading relationships that are able to effectively handle time-stamping at the
distributor.
Carriers were not entirely comfortable with the proposed processes that remove the carrier
ownership of the cut off time. Carriers and distributors looked to determine what the carrier would
need in order to allow for processing transactions received after market close. Two points were
identified:
 Mutual Fund Companies and distributors currently have a Matrix Level and/or FundServ
distributor agreement to address intermediary responsibilities and expectations. Based on
the agreement, Mutual Fund Companies assume that, regardless of when they receive a
trade request, any trade they receive was requested by the consumer before market close
and the distributor did its due diligence to assure that the trade request was completed
before market close. Including this type of language in the Selling Agreement Addendum
for this process was proposed.
 Proposed “Hard 4pm close” regulation is pending with the SEC/NASD which may
eventually provide more detailed guidance, but there is no established timing for this
decision or ruling. A regulatory decision outlining specific requirements for intermediary
acceptance of transactions on behalf of the carrier would ultimately address the carriers’
concerns. However, the BAG feels alternative solutions are required due to the
uncertainty of the timing and outcome of these decisions.
The recommended solution is the option in which the distributor would control the market cut off
time and would be the owner of the time stamp. The carrier would process based on the time of
the distributor’s time stamp for each transaction. A selling agreement addendum would be created
to account for this process. This recommendation is subject to NSCC’s filing a proposed rule
change with the SEC regarding the fund transfer service and SEC approval of the proposed rule
change.
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E.
Real-time vs. Batch Processing
The decision on whether to transmit fund transfer transactions in real-time or in a batch cycle
mode was discussed at length by the Advisory Group. The BAG identified and considered the
pros/cons for 3 potential options of processing identified below. The group is recommending
Option 3: Real Time Processing for this process.
Option 1: One Time Batch Processing
The concept of one time batch processing consists of distributors submitting one transmission a
day via NSCC (most likely at the end of the day) to be processed by the carrier. Carriers would in
turn submit a transmission the same day to the distributor via NSCC, indicating if the transactions
have been ‘pended’ or ‘failed’.
Pros:
 Ensures same day processing.
Cons:
 Does not provide a real time response for distributors.
 Does not allow adequate time for distributors to respond to NSCC ‘rejects’ for same day
processing.
 Distributors would not have time to react to carriers ‘failure’ status for same day
processing.
Option 2: Multi-Batch Processing
This option is the current method for IPS processing. Multi-batch processing for Fund Transfers
would consist of distributors submitting multiple batches throughout the day via NSCC for carrier
processing. Carriers would in turn submit multi-batch transmissions throughout each day to the
distributor via NSCC, indicating if the transactions have been ‘pended’ or ‘failed’.
Pros:
 By allowing multi batches throughout the day, distributors have time to react to NSCC
‘rejects’ and carrier ‘failures’ status.
Cons:
 Does not provide a real time response for distributors.
 For transactions that are submitted later in the day, does not allow adequate time for
distributors to respond to NSCC ‘rejects’ for same day processing.
 Distributors would not have time to react to carriers ‘failure’ status if transactions are
submitted later in the day.
Option 3: Real-Time Processing
This option allows distributors to submit real time requests to the carriers and receive real-time
responses to indicate if the transaction is ‘rejected’ by NSCC, ‘failed’ by the carrier or ‘pended’ by
the carrier for processing. Note: Actual fund transfer will occur at next available pricing cycle.
Pros:
 Enables distributors to react to ‘rejects’ and ‘failures’ as they occur.
 The utilization of request-response messaging enables all parties to reap the full benefits
of real time XML processing.
Cons:
 Due to the various hand shakes, editing and processing, we need to ensure that the
response time is within a reasonable amount of time.
 This is a first venture into real-time submissions for insurance via NSCC which creates
some processing uncertainty.
Why Real-time?
Real-time was selected as the best means of processing because of its efficiencies and ability to
best meet distributor’s expectations. Financial Advisors can currently utilize a number of existing
means to process a fund transfer “real time” (e.g. via phone or carrier website), therefore it was
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important to select a process that would provide a similar agent experience and be beneficial for
the distributors as well as the carriers.
Some distributors may still choose to batch their transaction in the real-time process. Regardless
of the transport frequency, the expectation will be that most of the rule vetting will be done
upfront by the distributor to minimize rejects, and that carriers will immediately perform up-front
rule vetting as they receive transactions and provide real time “pended” or “failed” messages back
to the distributor.
F. Decision to use XML
NSCC Insurance Services has determined, in partnership with industry members, that the use of
ACORD XML standard messaging is the best approach for fund transfer transactions. NSCC has
considered the needs of the insurance industry, both short and long-term, and has evaluated the
challenges and benefits involved with utilizing XML vs. the traditional flat file formats which
support current IPS services. This decision was in part driven by regulatory and budget
considerations. In these times of regulatory driven initiatives, greater development and
operational dollars are available for products that enable compliance oversight. In particular,
distribution firms believe they have a better opportunity to allocate budget dollars to new XML
technology solutions due to the regulatory climate, even though the start up costs to put this new
technology in place may be higher than for flat file development. The use of ACORD XML was
heavily favored by insurance carriers and solution providers whom have developed internal
systems architecture based on the ACORD XML model.
The required messages to support Fund Transfers were already documented and supported by
ACORD, therefore NSCC users can leverage existing technology and processing to support this
function. As with any XML language, there are several significant benefits:





XML is an extensible language. Fields may be added to the message without interrupting
the integrity of the current information.
XML is best suited for request-response messaging.
XML is best suited for complex messages that are not extremely high volume.
XML is best suited to support attachments.
Users can continuously leverage previous implementations of the ACORD XML model
with each new messaging solution going forward.
There is no additional security risk by using XML messaging. NSCC will implement all messages
with the same level of security regardless of file format. The new transactions will be transmitted
over current communication lines using the NSCC secure protocols. Documentation will be
provided which will define the process and procedures.
For more detailed information regarding NSCC’s position, see the XML Position Document
available at: http://insurance.dtcc.com.
III.
Prerequisites For Using Fund Transfers via NSCC
a) ACORD Product Profile for Annuities (PPfA) (or similar mechanism).
A major concern of processing in real-time was the amount of time it would take for carriers to
process a Fund Transfer request and in turn return the appropriate response message back to the
distributor. To reduce the amount of time it takes for carrier responses, it is suggested that
distributors build within their process the ability to do as many upfront checks on each fund
transfer to prevent transactions which are “Not in Good Order” (NIGO’s).
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PPfA is a highly suggested prerequisite of the fund transfer process to enable good-order
processing, but is not required to utilize the service. Details regarding the transfer of profile
information will be determined by trading partners and may include alternative methods for
communicating profile data.
The BAG recommends that carriers and distributors use ACORD’s PPfA as the vehicle for
product profile communications. As a best practice, the carrier will send PPfA information to the
distributor to provide product rules and allowable context for fund transfer transactions. This data
file will be shared directly between the carrier and distributor, outside of the NSCC IPS services.
b) NSCC Positions and Values (POV)
POV is also a highly suggested prerequisite of the fund transfer process which will further enable
good-order processing. As with PPfA, POV is not required to utilize the fund transfer service.
Details regarding the transfer of positions information will be determined by trading partners and
may include alternative methods for communicating positions data. Traditional NSCC editing
cycles and reject processing will apply.
The BAG recommends that Participants use POV files to obtain the contract and position
information required by the distributor to effectively determine if requests are in-good-order.
Either a daily PNF or PFF may be used within the Fund Transfer process since fund positions
(amount, units, fund numbers, etc) are present in both files. Together with product profile
information, the POV files will be used by the distributor to create and validate fund transfer
requests.
c) Financial Activity Reporting (FAR)
The carrier’s fund transfer response back to the distributors will have confirmed the transaction
status and status reasoning where appropriate, but will not contain transaction details of the fund
transfer, such as confirmation of post-processing fund positions. Therefore, it is strongly
recommended that distributors utilize FAR to obtain the details of the fund transfer for
reconciliation purposes.
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IV. Proposed Fund Transfer Process
This diagram is intended to illustrate the IFT Fund Transfer process.
DTCC INS FundTransfer Workflow
Distributor
Product Profiles
for Annuities
DTCC
Yes
PPF/PVF
Carrier
No
Pass DTCC
edits?
Returned to
Carrier for
Correction
DTCC Provides
Reject
Reason(s)
Product Profiles
for Annuities
PPF/PVF
Sent to DTCC
Rep decides to
transfer funds
Create Cancel
Message w/
GUID. Send to
DTCC
Rep Decided to
Cancel a Transfer
(Previously sent to the
carrier the same day)
No
Yes
Rep Initiates
Fund Transfer
Evaluate against
Product Rules,
Suitability Review
Pass?
Create
Message
Send to
DTCC w/
GUID
Carrier Receives
Message Request
Go To
*
Pass Day Time
rules?
Yes
Pass DTCC
edits?
No
Carrier Cancels
Pending Transfer
(If not processed &
received on time)
Yes
Pass DTCC
edits?
Response Created :
(Pass or Fail w/
reason code), GUID
Yes
NO
Update Distributor
System/status, notify rep
as needed
Successful Transfers with No errors:
DTCC Provides
Reject Reason(s)
Yes
Day 1: 102/212 Request
Day 1: 102/212 Response Pending
Day 2 : 102/107 Response Success
No
*
Pass DTCC
edits?
Response with
GUID rejected
reasons w/info.
Reasons.
B) Create Response
:Pending with GUID
Carrier sends to
DTCC
**
No
Successful transfer with carrier determined pre
batch errors:
Returned to
Carrier for
Correction
DTCC Provides
Reject Reason(s)
Day 1: 102/212 Request
Day 1: 102/212 Response Failure
Successful transfer with Post processing (batch)
errors:
Yes
A) Transfer Pending
Saved
Carrier Process
Nightly Cycle
Day
2
A)Response with
Pass or (Fail w
reason codes) GUID
B) If Transfer
Processed
Successfully, Create
FAR File
Pass DTCC
Batch edits?
Day 1: 102/107 Request
Day 1: 102/107 Response Pending
Day 2 : 102/107 Response Failure
No
Returned to
Carrier for
Correction
Product Profile (PPfA) (highlighted in orange in the Workflow Diagram)
Positions and Valuations (POV) (highlighted in blue in the Workflow Diagram)
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**
Depository Trust and Clearing Corporation
Fund Transfer Process
The Fund Transfer workflow begins within the environment of the distributor.
The distributor will integrate product profile, position information and the real-time contract inquiry into its
application system based on its own implementation requirements. Distributors may implement solutions
that differ in areas including levels of automation timing requirements, and limitations for data updates.
When the Rep initiates a request, they will enter the fund transfer information and any applicable service
feature changes into the distributor’s application.
 Recognizing that different distributors will support different levels of automation in their
application system with regard to allowable and required information, at least the information
required in the Fund Transfer Request per the NSCC Fund Transfer Implementation Guide is
expected to be included.
 Since this initiative results from distributor suitability and compliance requirements, each
distributor may require additional information to be provided by the Rep.
The distributor’s system is expected to validate the Rep’s data entry in accordance with carrier and
distributor transaction requirements. This process may include validation of data in accordance with
product rules, generic transfer rules (such as amount transferred from the source must equal the amount
transferred into the destination funds) and distributor requirements.
Once the Rep has submitted the transaction, the distributor may evaluate the fund transfer for suitability
and compliance or forward the transaction immediately to the carrier, as required by NASD Rules of
Conduct.
 If the distributor determines the fund transfer should not be sent to the carrier, the distributor will
perform the required actions (such as notifying the Rep).
o The carrier will never know of the proposed transaction that was rejected by the distributor.
 For those messages that the distributor decides should be sent to the carrier, the distributor will
create the Fund Transfer Request message.
o Some distributors may send the fund transfer to the carrier in “real time” (i.e. immediately)
and some may “batch” transfers together and send them periodically. For those that choose to
batch internally, they will still only be allowed to send one transaction at a time to DTCC.
NSCC will perform industry defined edits and assuming the transaction(s) passes NSCC edits, they will be
sent to the carrier. Once the Fund Transfer request is sent to the carrier, the carrier will perform immediate
or “real time” validation on the content of the request. This validation involves consideration of transaction
integrity that can be evaluated before fund prices are available and the actual transaction is processed by the
carrier’s administration system in overnight batch cycle. The validation that may occur includes edits such
as: the policy exists, the Rep was pre-authorized by the owner for electronic transfers, the value being
removed from the source fund(s) can be removed, the destination funds are valid, etc. The level of
validation that is performed during the day will be determined by each carrier and possibly “trading partner
agreement.”
Regardless of the complexity of validation, after receiving the original request, the carrier will create a
response message which indicates the results of the validation:
 If the transaction meets initial validation requirements and the carrier accepts the request, the
carrier will queue the transaction for processing on their administration system and create a
response indicating that the transaction is pending processing.
 If the transaction does not meet initial validation requirements, the carrier will create a response
indicating that they have rejected the transaction for reasons included in the response message. It
is likely but not required that the carrier will save the transaction for archival and research
purposes, but it will not be queued for processing. Distributors will be expected to submit a new
in-good-order request to correct the problem if so desired.
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After the response is created, the carrier will immediately send it to the NSCC. The response will include
the control number from the original request so the distributor can match the original request to the carrier’s
response. Presuming the response passes NSCC edits, it will be passed to the distributor.
If the fund transfer was pended by the carrier, it will be queued and processed in overnight batch cycle. As
the carrier’s administration system attempts to process the fund transfer, one of two situations will result:
the fund transfer processed successfully OR there was a problem with the transfer and it could not be
processed.
After the transaction is processed, the carrier will send a second response to the message indicating whether
the fund transfer processing was successful or that it failed. The response message will include the original
control number so the distributor can match the original request to both responses.
 If the transaction was successful, an “accepted’ status will be returned. Transaction details and
resulting fund values/units will not be provided in the Fund Transfer response since this
information is expected to be provided within daily Financial Activity Reporting (FAR) files if so
desired.
 If the transaction was not successful, a “Failure” status will be returned with the reason(s) why the
transaction failed. Note that the transaction will NOT be reprocessed by the carrier. Distributors
will be expected to submit a new in-good-order Fund Transfer request (with a new control
number) to correct the problem if so desired.
Cancel Fund Transfer (highlighted in yellow in the Workflow Diagram)
After a fund transfer is initiated by the Rep, he or she may decide to cancel the fund transfer within the
same market day. If the distributor has not yet sent the original fund transfer request to the carrier, they
will not send the original request to the carrier.
If the original request has been sent to the carrier earlier that day and market is still open, the distributor
will create a cancellation request.
Assuming the cancellation request passes the NSCC edits, the transaction will be sent on to the carrier.
When the carrier receives the request to cancel the original transaction, the carrier will evaluate the original
request and determine if it can be processed. The carrier will either:
 Remove the fund transfer from the queue to be processed and create a response message indicating the
cancellation transaction was successful, OR
 Create a response message to indicate the transaction could not be cancelled with corresponding reason
code(s).
The Response transaction will be sent by the carrier to the NSCC. Assuming the transaction passes NSCC
edits, the transaction will be sent to the distributor.
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V.
Next Steps
The pilot implementation of Fund Transfers is scheduled for 3rd quarter 2007. Production is scheduled for
4th quarter 2007.
Next Steps include:
 Establish a group of firms to pilot test the initiative.
 Complete a Customer Implementation Guide, which will include, but not limited to, the
following:
o NSCC Connectivity procedures
o Record Layouts and Messaging edit rules
o Data Element Definition
o Message Samples
o Standard Usage
 Construct the NSCC Fund Transfer Fee Schedule
 File for and obtain SEC approval of funds transfer service and fees.
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Appendix A - Assumptions and Notes








The word “may” is used in this Section IV instead of “must” or “should” to acknowledge different
levels of electronic support and automation capabilities of the carriers and distributors who plan to
utilize the NSCC IFT Fund Transfer service.
It is recognized that distributors or carriers may utilize a solution provider to assist with all or some
system components of this NSCC Fund Transfer service. The terms “Carrier” and “Distributor” are
used in this document to illustrate the responsibilities of each regardless of whether a function is
performed by that entity or if it is performed by another party on behalf of that entity.
The term “rep” is used to refer to the agent, representative or financial consultant that initiates or
cancels the fund transfer.
The fund transfer message will not include an effective date on submission. It is assumed that the fund
transfer is requested to be processed on the current business day (i.e. no forward-dated or back-dated
requests will be sent).
During the initial phase, the Fund Transfer service will not include the expectation for carriers to
support the immediate processing of a fund transfer that is not dependent on market close (such as
transfers involving only fixed funds which could be processed before waiting for fund prices and a
batch cycle).
No requirements or expectations are established within this recommendation paper regarding whether
carriers must prevent or continue to allow access to existing fund transfer servicing functionality
(phone, fax, web portal) for a distributor’s Reps. Such expectations will be established through trading
partner agreements and will be outside of the NSCC process.
Required enhancements to the Positions and Valuations (POV) files (new fields, new/revised edits) are
briefly described within section II.A of this white paper and will be fully defined through the existing
IPS enhancement request process.
The list of edits which the NSCC will perform against the Fund Transfer messages are fully defined
within NSCC Fund Transfer Implementation Guide, and will not be replicated in this recommendation
paper.
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Appendix B – Glossary of Terms
ACORD
ACORD (Association for Cooperative Operations
Research and Development) is a global, nonprofit
insurance association whose mission is to facilitate
the development and use of standards for the
insurance, reinsurance and related financial
services industries.
http://www.acord.org
Batch
Process in which transactions are bundled and
transmitted at certain times of the day.
Carrier
Reference to Insurance Company, which is the
manufacturer of the insurance products.
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, overthe-counter derivatives, emerging market debt,
insurance
products
and
mutual
funds.
Distributor
Firms responsible for distributing/selling insurance
products. Distributors encompasses all terms for
distribution which can include Broker/Dealers,
Banks, Independent Broker/Dealers and Agencies.
Financial Activity Reporting (FAR)
Financial Activity Reporting (FAR) enables
insurance carriers to provide their distributors with
the annuity and life insurance financial transaction
information they need in order to comply with the
anti-money laundering provisions of the USA
PATRIOT Act and general suitability regulations.
Fund/Serv
NSCC’s Fund/SERV is a highly automated system
that brings standardization to mutual fund
transaction processing. Fund/SERV centralizes
order entry, confirmation, registration and
settlement of mutual fund transactions for mutual
fund companies and distributors.
Licensing & Appointments (L&A)
Licensing & Appointments (L&A) automates the
two-way flow of information needed to manage
producer information between carriers and
distributors. It also provides for money settlement
between parties.
National Securities Clearing Corporation (NSCC)
National Securities Clearing Corporation, a
wholly-owned subsidiary of DTCC and a clearing
agency registered with the Securities and
Exchange Commission. It operates as an industry
utility for its members, offering services to various
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sectors of the financial services industry, including
insurance and mutual fund services.
Positions and Values (POV)
Positions and Valuations (POV) enables carriers to
send annuity and life insurance contract details to
its distributors on a daily, weekly, monthly or other
custom basis.
Product Profile for Annuity (PPfA)
Product Profile for an Annuity (PPfA) provides
a standardized definition of the attributes, features
and business rules of an annuity product, including
fixed and variable, deferred and immediate
annuities, for product analysis, new business
submission (IGO) and related business acquisition
processes.
Real-time
Process in which transactions are sent individually
or bundled and transmitted at any time of the day.
Trading Relationship
For this paper, a trading relationship is a business
exchange between a carrier and distributor
XML
XML (Extensible Markup Language) is a markup
language for documents containing structured
information.
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