September 8, 1995
TO: BANK BROKER/DEALER ADVISORY COMMITTEE No. 21-95
BROKER/DEALER ADVISORY COMMITTEE No. 25-95
OPERATIONS MEMBERS No. 38-95
TRANSFER AGENT ADVISORY COMMITTEE No. 45-95
RE: ICI BROKER/DEALER ADVISORY COMMITTEE UPDATE
______________________________________________________________________________
A meeting of the ICI Broker Dealer Advisory Committee took place in Denver, CO on Thursday
August 10 and Friday, August 11, 1995. The following is a summary of the highlights of the meeting.
Important
The next meeting of the ICI Broker/Dealer Advisory Committee will take place Monday,
November 27, 1995 at the San Francisco Marriott in San Francisco, CA. This meeting precedes the ICI
Operations Conference & Vendor Exhibition Conference, which runs from Tuesday, November 28 thru
Friday, December 1, 1995. The Broker Dealer Advisory Committee on November 27 will run from
9:00am to 5:00pm. The period from 2:00pm thru 5:00pm will be an open session. Non-members are
invited to take part during this 2:00pm to 5:00pm session and ask questions, raise issues an/or offer
suggestions. If you are interested in being part of this non-member session, please contact Kevin
Farragher of the ICI at (202) 326-5848.
NSCC Update
At the August meeting, the National Securities Clearing Corporation provided updates on
numerous mutual fund related issues. A listing of these issues runs as follows:
Expanded Mutual Fund Profile
As mentioned previously, this project has 4 components: 1.) Member profile - characteristics of
and contacts at participating institutions; 2.) Securities profile - describes key characteristics of each fund
at participating fund complexes; 3.) Daily Price/Rate module - input and dissemination mechanism for
daily fund prices and daily dividend factors; 4.) Distribution Declaration module - provides notification
on non daily distributions. Based on the demand and scheduling of user-participants, the NSCC will
move ahead with development of the Price/Rate module, while continuing to consider design
implications of the other 3 components, including possible adaptation to a PC environment.
Networking Enhancements
Among enhancements that were ratified: a.) Transaction types are being added to the
Networking Activity Transaction to allow for Purchase Cancellations and Redemption Cancellations; b.)
The edits that restrict direct transactions on Level 3 Networked accounts are being dropped; c.) Pending
Networking Transfer Reminders will no longer be generated after 60 days; d.) NAV indicator codes on
Networking Account Maintenance records are being modified to conform with NAV indicator codes on
the Fund/SERV system; and e.) detail will be required when the Payable Information Indicator indicates
Automated Clearing House. These enhancements are tentatively scheduled for November 1995, and
the NSCC will be issuing Important Notices announcing them in September, 1995.
Commission Settlement Enhancements
The Commission Settlement Security Header Record will be enhanced to include Wrap Fee
Commission and Finders Fee Wire Order Commission type values, while the current Finders Fee
commission type will be redefined to Finders Fee Direct Purchase. Additionally, the withholding
Indicator field on the Commission Settlement Detail Record is being redefined as a Wrap Account
indicator field. Again, these enhancements are tentatively scheduled for November 1995, and the
NSCC will be issuing Important Notices announcing them in September, 1995.
In addition to the above, a forthcoming enhancement to the Global Update component of the
Commission Settlement Service will allow for the updating of branch and rep information on individual
accounts which are non-Networked. The NSCC expects to be able to implement this enhancement by
first quarter 1996, and, pending SEC approval, an Important Notice announcing this enhancement is
expected to be issued by the end of October, 1995.
Fund/SERV Enhancements
Among enhancements that were ratified: a.) The IRA Indicator is being modified to include
values for Non-Fund Prototype IRA and Non-Fund Prototype Qualified Plan; b.) The Liquidation
Indicator is being modified to include reason codes for Death, Disability, Mandatory Distribution, and
Systematic Withdrawal; and, c.) detail will be required when the Payable Information Indicator indicates
Automated Clearing House. Again, these enhancements are tentatively scheduled for November 1995,
and the NSCC will be issuing Important Notices announcing them in September, 1995.
ACAT/Fund/SERV Enhancements
Re-registration input is being modified to require the Branch ID Number and Account Rep Name
and Number Fields. Also, an optional Dividend Payable indicator field will be added to the ACAT
Asset Input and Residual Credit Input Record. These enhancements are tentatively scheduled for late
1995/early 1996, and the NSCC will be issuing Important Notices on them prior to implementation.
Same Day Funds Settlement
The NSCC began offering T1 same day funds settlement in June. Four fund families are
participating thus far (Federated, T. Rowe Price, Janus and Dreyfus). DST will shortly begin introducing
its client funds to same day settlement as well. Same day settlement will be implemented industry-wide
in Feb. ‘96, and the NSCC is examining the need for a settling bank network. They will be conducting a
3survey seeking information from all participants on settlement contact person, settlement coordinator
and settling bank.
Further, the NSCC will begin netting settlement amounts across all products in October ‘95 and
are looking for volunteers to implement as of the October time frame. Pioneer agreed to volunteer at the
meeting. Additionally, the NSCC indicated that they are interested in ensuring that they have current,
complete and accurate wire instructions for all participants by Feb. ‘96 and asked all participants to
review this information to ensure its soundness.
Same Day Confirms
In an effort to improve the same day confirm rate, the NSCC undertook a survey of the mutual
fund side of the business to determine whether organizations support or intend to support same day
confirms, the frequency with which the funds pick up and transmit information, and the latest time
these funds can take data in and process it in order to turn it back around to the NSCC. The results of
this survey will be shared with the brokerage community in an effort to determine how processing
cycles might be rearranged to maximum advantage.
Though the survey is still ongoing, the results compiled thus far (sample size approximately 40)
reveals that a small smattering of funds are still processing in a single batch mode. The vast majority of
funds, however, process in multi-batch or interactive mode. Among these funds, the tendency is to pick
up information on an hourly basis, or, at a minimum, to pick up information three to five times daily.
On average, the funds transmit information to the NSCC twice daily, with some funds transmitting as
frequently as three to six times daily. Additionally, it appears that those funds getting their extensions
out by 6:00pm see a high proportion of those orders confirmed same day, whereas that proportion drops
significantly for extensions that go out in the 7:00pm file. Finally, on the firm side, those brokers who
practice early transmission of trades to the funds see same day confirms for approximately 90% of those
trades transmitted early.
Since the sample size of the fund respondent community is small, the NSCC is seeking a broader
cross section before approaching the broker community with its findings. Additionally, the NSCC will
monitor the flow of transmissions during the week of August 14 thru 18 to determine what real
transmission patterns are, since cycles do get delayed for various reasons. As a final note, the NSCC
indicated that a migration will take place with respect to interactive communications protocols.
Specifically, the move will be from Easybridge to MQ, since IBM has indicated it will no longer support
Easybridge.
Clarification on Backup Withholding Relative to
Absent or Uncertified TINS
In the last meeting of the BDAC, it was erroneously reported that there is a 30- day grace period
with respect to withholding on missing or uncertified TINs. This error resulted from a misreading of the
regulations. There is no such grace period, and the regulations appear to indicate that withholding
needs to begin immediately in the event of a missing or uncertified TIN.
4ICI Update
SIPC
The SEC has provided the following exemptions from its rule requiring confirm disclosure of a
Brokers Dealers non-SIPC status with respect to mutual fundshare sales:
a.) where the fund side prints the confirm, regardless of whether or not there is an affiliation between
the underwriter and the fund, the funds transfer agent, the funds custodian or the funds other
designated agents, no disclosure is required regarding the underwriters non-SIPC status provided that
the check is not made out to the underwriter and the underwriter does not handle the funds or
securities; b.) As regards 3rd party broker dealers, non-SIPC B/Ds must themselves inform customers at
the point of account inception, at the point of change of status, and on an annual basis of their non-SIPC
status; however, confirmation disclosure is still required in those cases where a non-SIPC B/D which is
affiliated with a SIPC member transacts shares in mutual funds.
Commission Reporting
As was previously reported, the SEC has proposed the following: a.) inclusion of 1 or more modular
legends concerning sales charges and/or distribution fees on confirms and b.) disclosure on periodic
statements of the dollar amount of any front end or deferred sales charges paid during the period
covered.
In its comment letter on this proposal, the ICI pointed to potential concerns and implementation costs of
such disclosure and recommended as an alternative a single legend disclosure statement for all front end
funds, deferred sales charge funds or funds w/ asset based distribution fees of greater than 25 basis
points as follows: "This transaction may involve an initial sales charge, a contingent deferred sales
charge and/or payment by the fund of asset based distribution fees. See the fee table in the prospectus
for additional information. Further details available upon written request."
Subsequently, the SEC asked the ICI to provide specifics on costs and the ICI polled parties to determine
relative costs. Results came back from funds and brokers, and the ICI is in the process of completing a
letter to the SEC documenting potential increased costs stemming from implementation of the proposal.
Questions, Comments, Suggestions
If you have questions or comments regarding ICI Broker/Dealer Advisory Committee issues, or
if you have suggestions for future ICI Broker/Dealer Advisory Committee Agenda items, please contact
the undersigned at 202/326-5848.
Kevin Farragher
Director of Operations
Distribution & Service