Memo #
24397

Cost Basis Reporting Task Force - Recommended Practices for Firm-Initiated Fund/SERV Redemptions on Fund-Controlled Accounts
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[24397]

 

June 30, 2010

TO: BANK, TRUST AND RECORDKEEPER ADVISORY COMMITTEE No. 18-10
BROKER/DEALER ADVISORY COMMITTEE No. 25-10
OPERATIONS COMMITTEE No. 16-10
TRANSFER AGENT ADVISORY COMMITTEE No. 33-10     RE: COST BASIS REPORTING TASK FORCE - RECOMMENDED PRACTICES FOR FIRM-INITIATED FUND/SERV REDEMPTIONS ON FUND-CONTROLLED ACCOUNTS

 

In response to the “Energy Improvement and Extension Act of 2008” that mandates basis reporting for mutual funds beginning with shares acquired on or after January 1, 2012, the Investment Company Institute Broker/Dealer Advisory Committee - Cost Basis Reporting Task Force is recommending the following change to current industry best practice:

  • All required tax reporting completed on “fund controlled” mutual fund accounts shall become the responsibility of the fund as of January 1, 2012.

For the purpose of this document, fund controlled accounts are defined as those accounts held on the books of the fund either without a corresponding National Securities Clearing Corporation (“NSCC”) Networking matrix level (“level 0” or “non-networked”) or with a Networking matrix level 4 (“fund controlled”).  This recommendation excludes any accounts that are “Trust Networked.”

This recommended change is an alteration of current and widely-adopted best practice for redemptions (liquidations) and exchanges affected by broker/dealers through the NSCC Fund/SERV platform.  The change stems from a number of important operational considerations as the result of the basis reporting mandate for both funds and broker/dealers beginning in 2012.

The attached white paper briefly describes the current best practice, outlines the nature of the change, and highlights the operational challenges necessitating the new recommended best practice.

Follow-up questions or comments on the white paper may be directed to the undersigned (kjoaquin@ici.org or 202-326-5930).

 

Kathleen C. Joaquin
Director - Operations & Distribution

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