April 21, 1997
TO: OPERATIONS COMMITTEE No. 13-97
TRANSFER AGENT ADVISORY COMMITTEE No. 19-97
RE: CHECK AGING STUDY
______________________________________________________________________________
Attached are the results of the Operations Committees Check Aging Study. This is a
study of checks presented for mutual fund share purchases during the month of November,
1996. It was performed in an effort to determine when monies from checks deposited into
mutual fund accounts are clearing through the Federal Reserve System. The results of the
study have aided mutual funds in establishing appropriate redemption policies where fund
shares are purchased by check.
Participants
Fifty firms participated in the survey representing 913 funds. A list of the participating
firms is attached. (Exhibit I.) Please note that survey results pertain only to the 913 funds
participating in this survey.
Check Clearance Through Banking System
The results show that for the month of November, 1996, a total of 1,590,379 shareholder
checks were deposited and cleared.
In order to determine the number of days in which checks clear through the banking
system, we asked participants to provide 1.) a breakdown of the number of checks which were
returned by the bank and 2.) the number of days elapsed from the date of deposit to the date of
return. Please note that this is a measurement of the elapsed time from date of deposit to date
of return and not an attempt to measure the time in which the check actually cleared through
the banking system. This methodology is consistent with prior Operations Committee Check
Aging Studies.
For the month of November, a total of 2,450 checks were dishonored or returned by the
bank. Of these, a total of 2,093 checks or 85% were returned within 10 days of deposit. Within
15 days of deposit, 2,277 checks or 93% of the checks were returned. (Exhibit II.)
Participants were asked to provide a reason for checks returned 11 days or later after
deposit. We received information on 282 of the 357 checks that were returned 11 days or later.
Of those 282 checks, 75% were returned due to insufficient funds, 12% were returned due to a
stop payment on the check, and 8% were returned because the account was not on file. A
breakdown of the reasons for checks returned after 11 days is attached. (Exhibit II.)
The Operations Committee conducted Check Aging Studies from the period of July 1980
through November 1996. (No studies were conducted from the period 1992-1995.) Studies
conducted in 1988, 1989, and 1991, after implementation of the Federal Reserve rules under the
Expedited Funds Availability Act, showed improvement in check clearance. However, in the
May, 1996 study it appeared that checks were not clearing as quickly as they were in 1991, with
only 92% of checks returned within 15 days. This observation was repeated in the November
1996 results. In the November, 1996 study, 93% of check cleared within 15 days in contrast to
98% in 1991 and 97.8% in 1989. A summary of the previous Check Aging Studies from 1987
through 1996 have been attached for your convenience. (Exhibit III)
Fund Hold Policy
Participating funds were asked to provide information regarding the number of
calendar (or business) days a fund may delay the mailing of redemption proceeds while
waiting for a purchase check to clear. The number ranges from 7 to 15 days. Of the firms
responding to the survey, 23 firms or 45% have a hold policy of 15 calendar days and 12 firms
or 24% have a hold policy of 10 calendar days. (Exhibit IV)
Participating funds were also asked to provide the number of redemption requests in
which proceeds were delayed because they were received during the funds hold period. For
the month of November 1996, participants indicated that 1,399 redemption requests were
delayed as they were received during the funds hold period.
We would like to thank all the participating firms for providing information for this
Check Aging Study. If you have any questions regarding the study, please contact the
undersigned at 202/326-5850.
Justine Phoenix
Director - Operations/
Transfer Agency
Attachments (in .pdf format)