1 September 15, 2008 WMS Update BDUG 2008 Wealth Management Services Robert McMonagle, Relationship Manager A service offering of National Securities Clearing

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September 15, 2008

WMS UpdateBDUG 2008

Wealth Management Services

Robert McMonagle, Relationship Manager

A service offering of National Securities Clearing Corporation, a subsidiary of

The Depository Trust & Clearing Corporation

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Agenda

New Product Offerings• Alternative Investment Products Service (AIP)• Managed Account Service (MAS)

Product Initiatives• Mutual Fund Profile Service• Standardized Data Reporting (SDR)• Transfer Automation• 403(b) Information Sharing

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Alternative

Investment

Products

Service

(AIP)

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Alternative Investment Products Service

What are Alternative Investments?

• The term ‘Alternative Investment’ refers to any non-traditional, non – 1940 Act collective asset • Hedge Funds• Fund of Hedge Funds• REITS• Private Equities• Others

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NSCC is developing a suite of services that will result in a seamless, automated exchange of standardized trade-related account information for alternative investment products

The service will:

•Streamline manual processes from subscription documentation through trade settlement

•Link broker dealers, fund managers, administrators and custodians through a central network

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Environmental Scan

• Alternative product usage exploding• Generally private, periodically traded and illiquid • Registered and unregistered portfolios• Periodic offerings, with processing nuances

(holdbacks, escrow funding, etc.)• Low volumes, high transaction values• Multiple inefficiencies in the way this asset class is

bought, sold and valued• Lack of standardization and automation in information

exchange, transaction processing, reporting, valuation and settlement activities

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Customer Challenges

• Multiple players across organizations need access to the same information

• Lack of regulation and standardization has resulted in multiple redundant processing strategies within and between organizations

• Interdependent organizations are not able to share information (e.g., brokers and funds) creating gaps and inefficiencies

• Back-office staff may not have sufficient experience to keep up with the increasing complexity of security types creating backlogs and delays

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NSCC’s Solution: AIP

Standard Terminology

Centralized Information

Transparency

Reduce Number of Connections

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Product Overview: AIP Features

• Subscription/Purchase Processing• Tender Offer/Redemption Processing• Exchange Processing• Commissions Processing• Activity & Distribution Processing• Reporting

• Position• Valuation• Activity and Distributions

• Account Maintenance (ability to edit, modify and audit changes)

• Workflow (compilation and distribution of sub-account documents)

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Product Benefits - Reduced Operational Costs

• Streamline multiple connections through a “one-to-many” service that links trading, recordkeeping and settlement partners through a single connection

• Reduce cycle-time and rework through the use of standard templates, processes and information descriptions (e.g., security profiles)

• Eliminate time-consuming, paper-based matching and confirmation of trades

• Increase speed of settlement through information capture and workflow capabilities

• Aggregate settlement to one or two wire transfers per settlement date

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Product Benefits - Enhanced Risk Management

• Improve customer privacy using our secure network, enabling information to be protected

• Enhance investor confidence with detailed and accurate position and valuation reports

• Increase transparency via end-to-end audit trail of all trade-related activities

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Current Status

• Business specifications and development of the first phase is complete, second phase planning has begun

• Major development of core services completed

• Partner testing in PSE began July 14, 2007

• NSCC Rule Filing SR-NSCC-2007-12 was approved on May 2008

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Managed

Accounts

Service

(MAS)

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Managed Accounts Service

What are Managed Accounts?

• Individual investments accounts offered by financial consultants who provide personalized advisory services

• Brokers hire asset managers to actively manage the account using an asset-based fee structure

• Managed accounts combine several services that are designed to meet the investor’s specific needs and goals

• Services include investment planning, policy development, manager search and selection, portfolio management, performance measurement and trade execution – all wrapped into one comprehensive investment program

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Obstacles to growth

• Rigid market structure• Multiple connections and manual processes• High risk and operational costs• Fee compression and shrinking margins• No economy of scale for Investment Managers• Disincentive for smaller firms to enter business

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Why Focus on Managed Accounts?

• Fastest-growing retail product in the financial services industry (18% growth rate)

• Total AUM = $1.4Trillion• 3.0 Million accounts• Expected to be a leading beneficiary of the $12

Trillion wealth transfer over next 20 years

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Current State: Redundant Many to Many

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What Is It?

• A central gateway for seamless communication of information required to establish and maintain managed accounts

• Links all trading parties to one standardized platform through a single connection

• The service - the first of its kind - automates the flow of data for a wide variety of managed accounts products while reducing errors and operational risks

• Eliminates paperwork, fax, email

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Disparate Processes One Standard Message

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Direct connectivity

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Benefits – Value Proposition Centralized service creates shared cost at industry level Reduces FTEs and processing risk – no human

intervention Streamlines connectivity between sponsors and

Investment Managers – eliminates barriers to Sponsor platforms

Leverages existing infrastructure known for reliability, security and unparalleled client data integrity

Sets standard for business continuity New accounts funded in hours vs. weeks Increases operating margins – scalability Creates audit trail

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Current

Initiatives

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Mutual Fund Profile Service

• Automates the flow of non-transactional information between fund companies and intermediary firms in a centralized system using standardized formats

• System re-designed in November 2007 to improve data availability and access

• Three databases -- Security, Participant and Distribution -- comprise the repository, which allows participants to exchange accurate and timely information on individual securities, firm and fund member profiles, and projected and actual distribution declarations

• Participants are able to update their data in a pre-programmed format supported by DTCC WebDirect

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Database Redesign Objectives

• Data Dictionary- Standardize data elements• Additional fields• Required fields (data points)• Added edits to assist in ensuring data integrity• Eliminate redundant data entry for funds• Enhanced reporting and download tools via DTCC

WebDirect

~Objectives identified based on consultation with our members~

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Relational Database

• Four main levels• Management

Company• Share Class• Fund Portfolio• Security Issue ID

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Security Issue Database via DTCC WebDirect

• Hierarchy Management Transaction Screen• Share Class Set Up• Fund Portfolio Set Up

• Data Management Transaction Screen• Create• Update• View• Delete

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Current Initiatives

Implement Data Assurance Program

Support Fund Disclosure Reform Proposal (Summary Prospectus Data)

Support industry electronic document delivery/warehousing efforts

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Standardized Data Reporting (SDR)

What is SDR?

• An enhancement to Networking that helps fund companies and insurance carriers better monitor trading frequency by investors whose transactions are housed in omnibus and super omnibus accounts

• Enhances ability to ensure that a fund's market-timing policies are being applied

• The enhancement supports the operational needs of fund companies and intermediary firms to comply with SEC Rule 22c-2

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NSCC FirmFund

Data RequestInitiated

NetworkingProcessing andTransmission

Summary/DetailData File Created


Summary/DetailData Received

1 2

345

AcknowledgmentReceived

Fund RequestAcknowledged

3a5a


4a

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Benefits

• Centralized Platform• Standardized Data Formats• Supports XML Messages• Information Available at the Detailed or Summary

Levels• Accompanying Best Practices Guide and User Guide• Regular Networking fees apply

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Transfer Automation

Automating Transfers with Mutual Fund Companies Transfers from fund companies to firms Transfers from firms to fund companies

Current State Transfers between fund companies and banks and brokers are

often processed manually Lengthy process time Dissatisfied customers Transfer of accounts is the #4 compliant received by the SEC Proposed legislation may require cost basis to be passed on all

transfers

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Transfer Automation

Solution:

• Create a Translation Service by leveraging NSCC’s ACATS and Mutual Fund Services to streamline the account transfer process between brokers, banks and mutual fund companies

• Looks like a ToRA and/or ACATS Fund/SERV transaction to the Fund

• Looks like an ACATS transaction to Broker/Dealers and Banks

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Transfer Automation

Benefits

• Single "pipeline" for all transfers • Leverages existing systems/files resulting in low

development costs• Increased level of client satisfaction• Increased turnaround time• Immobilizes paperwork • Reduces costs

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Transfer Automation

Next Steps

• Receive commitments from broker/dealers, banks and mutual funds

• Define rules and required agreements• Regulatory meetings• DTCC development • Industry testing/system implementation

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403(b) Information Sharing

New Regulations applicable to the 403(b) marketplace take effect January 1, 2009 and require information sharing amongst vendors (mutual fund companies and insurance carriers) and employers/plans, their aggregators and TPA’s. The information sharing is intended to facilitate supervision by the employer of employee plan activities such as contributions, withdrawals, loans, etc.

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403(b) Information Sharing

Highlights and Missions SPARK Institute approached DTCC to assist them in

providing a standardized process to transmit data DTCC process will support IRS requirements for 403(b)

information sharing by January 1, 2009 by providing centralized data routing, editing for compliance to industry standard layouts and data security

DTCC is working with the SPARK 403(b) task force to define DTCC business rules to the SPARK record formats

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Questions…

More Information:

• Relationship Management: 212.855.8877 • www.dtcc.com/products/wealthmgmt/• Membership: 212.855.8877(option 4, sub-option

2, sub-option 2) • Customer Service: 888.382.2721(option5, sub-

option 5)

http://www.dtcc.com/products/wealthmgmt/

Documents

1 September 15, 2008 WMS Update BDUG 2008 Wealth Management Services Robert McMonagle, Relationship Manager A service offering of National Securities Clearing