June 26, 1996
TO: BANK AND TRUST ADVISORY COMMITTEE No. 21-96
BROKER/DEALER ADVISORY COMMITTEE No. 12-96
OPERATIONS MEMBERS No. 29-96
TRANSFER AGENT ADVISORY COMMITTEE No. 35-96
RE: ICI BROKER/DEALER ADVISORY COMMITTEE UPDATE
______________________________________________________________________________
With apologies for not having provided a summary of the February meeting (I wasnt
there - small matter of a son being born.), the following is a brief summary of the Broker Dealer
Advisory Committee meeting which took place Thursday, May 23, 1996 in the ICIs offices in
Washington, DC:
Anti-Trust Compliance
Keith Lawson of the Institutes Office of the General Counsel addressed the group
regarding the importance of complying with the Institutes antitrust policy, and pointed out the
care that a trade association and its members must take to avoid even the appearance of
impropriety as regards antitrust matters. Committee members received the a written copy of
the Institutes Statement of Antitrust Policy and Compliance Guidelines as well as copies of
documents speaking to Department of Justice Antitrust Division Actions against trade
associates, and frequently asked questions about antitrust laws.
Enhancement Committee Update
Highlights of the update included:
Implementation of the Price/Rate module of the Mutual Fund profile on 4/30/96. Presently it
provides prices on 3,400 cusips and 1,400 daily rates. Oppenheimer, DST, SunGard, First Data
Inv. Svcs., A.G. Edwards, Smith Barney and Prudential are live on the service already.
Other brokers provided the following expected implementation scenarios:
Testing: Dean Witter and Merrill
Later ‘96 - ADP-SIS
1st Qtr ‘97 - Piper, NFSC, Raymond James
2nd Qtr ‘97 - Paine Webber
No Plans - Edward D. Jones, ADP
Among funds:
Colonial - Testing
Franklin - A matter of weeks
Putnam - July/August ‘96
Additionally, the NSCC projected delivery for a business plan for the remaining
modules of the service for mid July, ‘96, with detailed specs by September ‘96 and delivery in
1st Qtr. ‘97.
Trust Company processing for Fund/SERV and NETWORKING is presently scheduled
for June 7, 1996.
For individual Branch Rep changes through Global Update, an important notice is due
out by end June, ‘96. Pending SEC approval, the expected implementation date for this
enhancement is in 3rd Qtr. ‘96.
For record type 20, the committee has recommended its elimination, and an end June ‘96
important notice is expected to portend its elimination in September ‘96.
Regarding the added broker cycle at 8:00pm, the NSCC is not sufficiently satisfied that
the 7:30 cycle would be completed given current systems performance. The NSCC is looking at
a hardware upgrade and will continue to monitor stats. A report will be given at the next
meeting on systems performance and the group will revisit the possibility of a late cycle.
Implementation of Settlement Cycle Override has been delayed to July 15, 1996 in order
to be consistent with 90 day from important notice rule.
NSCC Update
Stats:
April Fund/SERV:
Daily Transaction Average: 82,000
Funds Participating: 290 (Includes 60 no-loads)
Cusips: 7,800
NETWORKING:
16.2 Million Sub-Accounts
260 Participating Fund Families
140 Participating Broker Dealers
Commission Settlement:
260 Participating Fund Families
140 Participating Broker Dealers
ACATS/Fund/SERV:
78 Participating Fund Families
111 Participating Broker Dealers
Following the stats, the NSCC reminded participants that the reduced mutual fund fees
that took effect May 1, ‘96, would be reflected in participants June ‘96 bills. Fund/SERV
charges have been reduced to $.35 per order. As for NETWORKING, the account base fee for
funds paying dividends monthly has been reduced to two and a half cents per NETWORKED
account. For those funds paying dividends less frequently than monthly, the charge has been
reduced to one and a half cents per NETWORKED account.
Closeout Processing
Jonathan Boehm provided tables which depicted the various ways exchange and
transfer closeout dividends could be processed. He asked the group to provide comments to
him in 30 days towards the development of a uniform business practice for closeout processing
in the NSCC System Services world.
Sub Committee Update
Technology: This sub-committee has chosen to focus on Internet Access specifically with
respect to access to ICI memos and NSCC important notices. To that end, the NSCC reported
briefly on the availability of their memos via Street/SERV, a 3rd party internet access service.
The NSCC also reported on the development of an Intranet within NSCC, to which the NSCC
could authorize and limit access for members by means of a specialized security package.
Committee members expressed interest in this option, citing certain difficulties with
throughput and ease of use as per the Street/SERV piece. On the ICI front, the committee will
approach the ICI about putting its memos on ICINET.
Education: Discussed numerous possibilities for direction including education of the
burgeoning new NSCC member communities (no-loads, trusts), as well as the development of a
glossary of terms, and education regarding the advantages/potential new directions for
technology.
Standards: Discussed possibility of recommendations regarding processing guidelines and
transaction flow guidelines. Specific possibilities were identified because of processing options
within Fund/SERV and NETWORKING.
Retirement Issues Update
Russ Galer of the Institutes Tax and Pension Department discussed some of the
proposals that have been advanced regarding retirement/pension. Galer discussed the various
back loaded IRA proposals as well as certain of the models proposed for Social Security reform
including full and partial privatization.
Mail Fraud
The group viewed a "60 Minutes" excerpt which explored how certain mail fraud gangs
were diverting mail by fraudulently filling out change of address forms and filing them with
the post office. Additionally, the group was informed of an instance in which a mail fraud
gang attempted to divert the mail being delivered to a members lockbox facility. Group
members were urged to contact their liaisons at the Postal Service to combat this problem.
ICI Update
Updates were provided on 1.) IRS proposals with respect to nonresident alien
withholding, 2.) wire transfer recordkeeping and related rules, 3.) the most recent SEC
interpretive release as regards use of electronic media for information delivery, and 4.) ICI
sponsored workshops on NSCC system services. Subsequently circulated to the group was a
relevant memo dated June 3, 1996 which speaks to final IRS regulations requiring an Individual
Tax Identification Number (ITIN) for those NRAs filing a US tax return. As the final
regulations read, the ITIN would be generally required for those NRAs filing a US tax return.
Typically an NRA would undertake such an action to recover overwithheld US tax.
Other Business
Customer Account Values Committee: - this group, under Ed Falveys charge, has been
documenting the circumstances where timing issues relative to dividend posting and payout
impact upon the accurate reporting of share amounts and account values.
Provision of Account Level Commission Detail on commission paid out on 401(k)
purchases - This was proposed by one of the group members on the broker side. The funds
countered that prevailing broker dealer preference was for a commission roll-up, with
commission reported per fund, by plan, and not at the specific account level. The group does
not anticipate further action on this topic.
Kevin Farragher
Director - Operations
Distribution & Service