Financial services industry quest for straight through processing
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Financial Services Industry quest for Straight Through Processing. XBRL – US Conference December 4 – 5 2006. Theme and Objectives. Revealing what is under the covers of the Financial Services Industry The Importance of Straight Through Processing to the Financial Services Industry

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Financial services industry quest for straight through processing

Financial Services Industry quest forStraight Through Processing

XBRL – US Conference

December 4 – 5 2006


Theme and objectives

Theme and Objectives

  • Revealing what is under the covers of the Financial Services Industry

  • The Importance of Straight Through Processing to the Financial Services Industry

  • How XBRL could help provide long sought after solutions


Wall street 101 very simplified view of the financial services industry

Wall Street 101: Very simplified view of the Financial Services Industry

“WALL STREET”

Sell Side

Buy Side

Brokers

Asset

Managers

Product

Act for

Traded

Traded

You & Me

Stock in Companies

you and I work at

Stock Exchange

So, where are the stocks I buy?

“BACK OFFICE”

  • Stock Eligibility

  • Asset Servicing

    • Dividends

    • Mergers / Tenders

    • Stock Splits

  • Settlement

  • Asset Servicing

    • Dividends

    • Mergers / Tenders

    • Stock Splits

DTCC


Depository trust clearing corporation dtcc

Depository Trust & Clearing Corporation (DTCC)

  • United States Central Securities Depository

    • Founded in 1976 in response to “Paper Crises”

  • Industry owned utility

  • Networked securities services, clearance and settlement hub for US financial markets

  • Processed over $1.4 quadrillion (10 ) of securities transactions in 2005.

15


Financial services industry quest for straight through processing

The Problem: No overall plan for the provision of electronic information from the Securities Issuers to Investors

Entity

Problem

Consequence

DTC

  • Underwriting Processing

  • New Issue (NIIDs)

  • Corporate Action Announcements

  • Corporate Action Processing

  • Manual Processing

  • Interpretation of Issuer Intentions

  • Receiving Timely Information

  • Increased FTE

  • Limited STP

  • Risk and Liability Exposure

Many Manual

Processes &

Lack of Standards

=

Reduced STP

Financial Services Industry

  • Broker / Dealers

  • Custodians

  • Agents

  • Manual Processing

  • Ineffective delivery of Timely, Complete and Accurate Information

  • Lack of Investor confidence

  • Increased FTE

  • Inefficient Processing

  • Risk and Liability Exposure

  • Reduced Revenue

Issuers

  • Lack of Standards

  • No single dissemination point

  • Possible negative Public Relations

  • Increased overhead

  • Potential Penalties / Fines

Regulators

  • SEC, MSRB, NASD

  • Distribution of Corporate Information in a ‘useful’ and ‘meaningful’ way

  • Lack of Investor Confidence

  • Investor Uncertainty


The weakest link in the stp chain occurs between the issuer and the marketplace

We know what the Investor Needs

We need to bring in the Issuers / Agents

The weakest link in the STP chain occurs between the Issuer and the Marketplace

Standards work has largely been within the domain of the Asset Servicing Community....Need to circle back to the Issuer Community

Investors

Issuers

Standards and STP Scale


Investigating leveraging xbrl to lead the industry and address the problem

Investigating leveraging XBRL to lead the Industry and address the problem

Leveraging “at Source” data DTCC would create value added products and services for Issuers and Participants, streamline asset servicing, and act as enabler for Issuer disclosure and transparency


Why should this be considered now

Why should this be considered now?

  • Companies are burdened by:

    • A current process that is fragmented, paper orientated and costly

    • Pressure under the Sarbanes-Oxley Act to improve Financial Reporting, Corporate Governance and Audit Practices

  • The SEC acknowledges the current inefficiencies by:

    • Recognizing that the current process is paper intensive and costly

    • Recognizing that the Internet has not been fully utilized

  • The SEC is looking to offering solutions by:

    • Supporting the adoption of XBRL (Interactive Data) as means to provided timely and accurate information at low cost

    • Passing the Access = Delivery on Securities Offering Reform

    • EDGAR disclosure pilot underway focused on tagging issuer disclosure data elements - perhaps expand this to asset servicing


Does xbrl provide an opportunity for an issuer based stp solution

Does XBRL provide an opportunity for an Issuer based STP solution?

  • Consumer Federation of America¹

    • “We need to make it as easy as possible for them (Investors) to get the information they really need and to understand the information they get.”

  • Morgan Stanley¹

    • “If we can actually take data and get it in that for (interactive), it will certainly improve the analysis from a transparency timeliness point of view and out ability to deal with complexity.”

  • United Technologies Corporation¹

    • “I think if we can have the investor and analyst community make a much stronger statement to companies that they want and need this data in XBRL format, then …. given that its’ coming from your shareholders or representatives of your shareholders, is going to get quite a bit of attention (within the company).”

  • SEC Chairman Christopher Cox²

    • “That’s why the advent of interactive data is so important at this point. It would help fill an informational gap that could be making markets less efficient. In one case it is making the data more reliable; in the other it is making analysis more widespread.”

  • ¹SEC Interactive Data Roundtable (June 12th 2006)

  • ²Speech to the American Enterprise Institute (May 30th 2006)


Why dtcc developing a case for transaction processing partnerships driven by corporate disclosure

Why DTCC? Developing a case for Transaction Processing Partnerships driven by Corporate Disclosure

  • DTCC “The Financial Industry’s Advocate”

    • Defined asset servicing and processing taxonomies could revolutionize the traditional paper based operating models in Issuer to Investor communication

    • Reengineering our Underwriting platform including New Issue Information Dissemination which is a logical entry point for Issuer disclosure into the US financial markets

    • Becomes the “Enabler” for Issuers to meet the regulatory disclosure demands of the SEC - Accelerates realizing SEC vision

    • ‘Standards Body” for asset servicing benefiting our Participants and securities Beneficial Owners

  • SEC “The Investor Advocate” Synergy with DTCC

    • Similar organizations, similar visions, similar objectives and different audiences

    • SEC: “p”artnership would link all parties (Issuer, Agents, Participants, Beneficial Owners..) SEC/DTC Alliance


Financial services industry quest for straight through processing

Xbrl: an open standard (taxonomy) that can support different Formats/Products supported by many Organizations - Globally

Data Elements obviously exist but have to be located, naming convention normalization and possible reference to other documents to be fully utilized to convey Issuers complete intentions


Dtcc acting as the taxonomy manager and user of issuer information direct from the source

DTCC acting as the Taxonomy Manager and User of Issuer information direct from the Source

Enable end users to gain information directly

DTCC to play a central role in defining & disseminating Corporate Information

DTCC utilize information for current products and processing needs

DTCC develop new Constituency and Products - Issuers and Infrastructures


Potential operational benefits to the us securities markets

Potential Operational Benefits to the US Securities Markets

  • Asset Servicing

    • Lead the definition of the Corporate Actions processing XBRL taxonomy to drive STP, minimizing the risk and expense of asset servicing with direct feeds of processing information originating from Issuers

  • Underwriting

    • Define the Underwriting XBRL Taxonomy into the reengineered Underwriting and NIID system, to streamline asset creation and create the infrastructure for Issuer disclosure

    • Define the Prospectus XBRL Taxonomy to facilitate Access = Delivery, and New Issue Information Dissemination

  • Corporate Actions

    • Issuer generated Corporate Action Announcements

  • Others….


The corporate action environment represents substantial cost and risk to the industry

DTCC commissioned 2 studies performed by a UK economic consultancy agency – Oxera Consulting Ltd

2004 Report: Corporate Action processing: what are the risks?

Missed or incorrect activity may result in individual losses in millions

Sub-optimal trading exposes the industry to as much as $8 billion annually

2006 Report: Share prices and trading activity over the corporate action processing cycle

New focus on corporate action information for trading desks

Means changes in importance provided to corporate actions information

Means changes in the way this information is provided and used by firms

Copies for the reports can be found at: www.dtcc.com/ThoughtLeadership/perspectives.htm

The Corporate Action environment represents substantial cost and risk to the industry


A fresh approach was necessary

A fresh approach was necessary

  • In 2005, we decided to pursue a “one-stop shop" strategy for client corporate action data needs

  • Basic tenets:

    • Pursue “at-source” initiatives wherever possible

    • Cover all event types, geographies, and asset classes

    • Enable customers to STP the data (across their firms) without need for manual intervention


What have we have done

What have we have Done?

  • Validation of Problem and Solution

    • Currently working with a Major B/D to develop a Business Case

    • Reached out to the SEC xbrl working group

    • Reached out to the SIA

    • Reached out to selected Vendors

    • Reached out to the xbrl US governing organization


What are the next steps

What are the Next Steps?

  • Next Steps

    • Complete Validation

    • Work with key Industry Organizations

    • Discuss with a few major issuers and their Bankers/Agents

    • Complete Business Case

    • Present to DTCC Senior Management

    • Learn from XBRL-US group how to best proceed


What are the open questions

What are the Open Questions?

  • Need to define DTCC’s role, from simply overseeing changes to the taxonomy to hosting and managing the data warehouse

  • Need to understand the effect of an ‘open portal’, as this would reduce the barriers to entry, enable potential competitors and strengthen existing players

  • Need to determine the level of interest/support of the SEC

  • Need to establish the Industry (Issuer and Investor) benefits

  • Need to clarify ‘who-pays … ?’


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