Corporate Action Processing Innovations

Corporate Action Processing Innovations Standardize Corporate Actions Liability Notices Improving Complex Security Income Agency Lending Disclosure Global Corporate Actions Validation Service

Corporate Action Processing Innovations Standardize Corporate Actions Liability Notices

SMART/Track: Corporate Actions Liability What is it? SMART/Track for Corporate Actions Liability Notification Service is a web-based application for the communication and tracking of voluntary corporate action liability notices Allows participants to create, send, process and track liability notices and links the various parties involved with corporate action processing Just what will the corporate action liability hub do? First, it will automate not only the liability notification process but the acknowledgment process as well. Second, as stated before, it will standardize the format and language for all notices transmitted through the hub. Third, it will support broker to CNS liability notifications as well as broker-to-broker or non-CNS corporate actions. Users will also be able to send notification to banks through the Hub And finally, the Hub will enable participants to track open liability notices to determine whether the notice is still open,that is, that the notice has been transmitted but the counterparty hasn’t accepted or rejected it Whether counterparty has accepted or rejected it, or Whether it has been closed by a participant.

Corporate Actions Liability Notification Service Announcement Collection Collect corporate action announcement information Consolidate data and prepare for comparison Announcement Validation Normalize, reconcile and enrich data Validate for accuracy and completeness Produce scrubbed announcement record DTCC Corporate Action Initiatives Identification and Notification Determine investors impacted by event and calculate entitlements Notify investors of announcement information 1. 2. Corporate Actions Liability Notification Service Election Processing (for Voluntaries) Reconcile elections Communicate elections from investors thru various financial intermediaries Submit instructions before deadline 3. Event Settlement Deliver securities, if necessary Receive securities and/or money payment Reconciliation Allocate entitlements to investors Notify investors of final transactions Close-out event 4. 5. 6.

SMART/Track: Corporate Actions Liability Bank B Broker B Bank A Broker C Broker A Bank C SMART/Track Tracking Database RIPS Here is a schematic of the corporate action liability hub. As you can see, the Hub sits in the center with connections to brokers and banks and to the tracking database that sits off to the side in orange. The Hub will have a link to CNS to facilitate CNS corporate actions once the new CNS System has been implemented in the later part of 2004 or early 2005. Other possible links are under review including a link to: the Inventory Management System, RIPS. PTOP and other DTC systems that provide corporate action information. John will discuss these potential links in more detail in his presentation

SMART/Track: Corporate Actions Liability Functions: Create and transmit liability for a voluntary corporate action to a single or multiple counterparties Accept/reject a liability notice Reduce liability quantity Cancel a notice Track status of notices sent/received Just what will the corporate action liability hub do? First, it will automate not only the liability notification process but the acknowledgment process as well. Second, as stated before, it will standardize the format and language for all notices transmitted through the hub. Third, it will support broker to CNS liability notifications as well as broker-to-broker or non-CNS corporate actions. Users will also be able to send notification to banks through the Hub And finally, the Hub will enable participants to track open liability notices to determine whether the notice is still open,that is, that the notice has been transmitted but the counterparty hasn’t accepted or rejected it Whether counterparty has accepted or rejected it, or Whether it has been closed by a participant.

SMART/Track: Corporate Actions Liability Features: Web-based Automated tracking including numbers of notices sent/received and status of each Link to DTC’s RIPs system for corporate offer information Automated Alerts for date changes in RIPs that affect a liability notice E-mail notices at start of day and intra-day for notices requiring action that day Automatic archiving and retrieval of archived notices with 7-year data retention Just what will the corporate action liability hub do? First, it will automate not only the liability notification process but the acknowledgment process as well. Second, as stated before, it will standardize the format and language for all notices transmitted through the hub. Third, it will support broker to CNS liability notifications as well as broker-to-broker or non-CNS corporate actions. Users will also be able to send notification to banks through the Hub And finally, the Hub will enable participants to track open liability notices to determine whether the notice is still open,that is, that the notice has been transmitted but the counterparty hasn’t accepted or rejected it Whether counterparty has accepted or rejected it, or Whether it has been closed by a participant.

SMART/Track: Corporate Actions Liability Benefits Eliminates the manual paper-based fax and phone notification process Standardizes market practice for communicating liability notifications Provides a single point of entry for all participants Manages message delivery risk through tracking thereby reducing the costs and risk associated with manual processing One central point of entry, reference 3. Replaces the "spaghetti" environment of multiple connections to multiple parties

SMART/Track: Corporate Actions Liability Pilot Program Pilot launched in November 2004 with 19 participants 64 pilot participants representing 123 users 822 notices transmitted Just what will the corporate action liability hub do? First, it will automate not only the liability notification process but the acknowledgment process as well. Second, as stated before, it will standardize the format and language for all notices transmitted through the hub. Third, it will support broker to CNS liability notifications as well as broker-to-broker or non-CNS corporate actions. Users will also be able to send notification to banks through the Hub And finally, the Hub will enable participants to track open liability notices to determine whether the notice is still open,that is, that the notice has been transmitted but the counterparty hasn’t accepted or rejected it Whether counterparty has accepted or rejected it, or Whether it has been closed by a participant.

SMART/Track: Corporate Action Liability What’s next? Expect that use of the automated Service will be the standard way of sending liability notices Working with the NYSE on changing NYSE Rule 180 to mandate use of SMART/Track for sending voluntary corporate actions liability notices

Corporate Action Processing Innovations Improving Complex Security Income

Improving Complex Security Income Elimination of contra-CUSIPs for Variable Rate Demand Obligation (VRDO) partial calls Implement a unified end-to-end platform for the asset servicing life cycle Establish best practices and performance metrics for the handling of complex securities

Improving Complex Security Income Elimination of Contra-CUSIPs VRDO partial calls Effective with the November 1, 2005 redemption date Called positions will be segregated into the Called Account under the regularly assigned CUSIP number Lotteries for late call notices or revisions to previously paid out items received after November 1, 2005, will also be processed without contra-CUSIPs

Improving Complex Security Income Implement a unified end-to-end platform from issuance through the entire asset servicing life cycle Underwriting Corporate Actions Masterfiles Replacement of the legacy sub-systems with a newly architected platform, approx. 63 For more info attend tomorrow’s presentation from Lori Trezza at 1:15PM on Corporate actions System Re-engineering

Improving Complex Security Income Establish best practices and performance metrics for the handling of complex securities Post-payable adjustments for complex securities decreased by 6% from Q1 to Q2 Work continues with the major paying agents to identify root causes of errors and implementing process improvements where feasible DTCC is also planning on broadening its working relationship with other industry associations and participants to collaboratively progress the streamlining of Asset Backed Securities processing DTCC continues to address the challenges of servicing structured securities by working to further improve industry performance in late payments and post-payable adjustments largely attributable to the work of an internal task force . The task force focused on identifying sources of errors, streamlining processing, and working directly with the major paying agents to review performance The planned update and expansion of the 2003 White Paper “Examining the Growth of the Collateralized Mortgage Obligation” will be delivered in Q1 2006

Corporate Action Processing Innovations SMART/Track for Agency Lending Disclosure

SMART/Track: Agency Lending Disclosure What is Agency Lending Disclosure? Industry initiative to provide greater transparency in securities lending transactions Agent lenders will be required to disclose principal lender information on open loans to borrowers on a daily basis for credit monitoring and capital requirement purposes in 2006

SMART/Track: Agency Lending Disclosure What is DTCC’s Role? Approached by the Task Force for Agency Lending Disclosure in 2003 to develop a communications facility for the transmission of periodic and daily loan files between agent lenders and borrowers

SMART/Track: Agency Lending Disclosure SMART/Track has two functions: Communications facility for transmitting data files Web application for viewing file transmission status and searching/requesting unique identifiers

SMART/Track: Agency Lending Disclosure Transmission of loan files Agent lender and borrowers can send loan files directly to SMART/Track or through a vendor (SunGard or EquiLend) using: FTP NDM – CONNECT:Direct, or FTP over the internet

SMART/Track: Agency Lending Disclosure Agent Lender Agent Lender Borrower Borrower Borrower Agent Lender Loanet Equilend SMART/Track For Agency Lending Disclosure

SMART/Track: Agency Lending Disclosure Web Application allows users to: Search for or create unique identifiers for those principal lenders that do not have U.S. tax identification numbers (required in the data files) View the transmission status of files sent directly through SMART/Track to a counterparty

SMART/Track: Agency Lending Disclosure To sign up: Contact your DTCC Account Executive, or Call DTCC Relationship Services at 800-422-0582

SMART/Track: Agency Lending Disclosure For more information about the Agency Lending Disclosure initiative, visit the Task Force’s website at: www.agencylending.capco.com

Corporate Action Processing Innovations Global Corporate Action Validation Service

Global Corporate Action Validation Service The Global Corporate Action (GCA) Validation Service provides a centralized source of scrubbed information about corporate actions for nearly 100 event types for instruments traded in Europe, Asia-Pacific and the Americas Before GCA… Participants contracted with market data vendors to receive corporate action information related to their global products databases. This information, delivered in batch feeds throughout the day and night, had to be consolidated and checked for accuracy and completeness by the firm

Global Corporate Action Validation Service Announcement Collection Collect corporate action announcement information Consolidate data and prepare for comparison Announcement Validation Normalize, reconcile and enrich data Validate for accuracy and completeness Produce scrubbed announcement record DTCC Corporate Action Initiatives Identification and Notification Determine investors impacted by event and calculate entitlements Notify investors of announcement information 1. 2. Election Processing (for Voluntaries) Reconcile elections Communicate elections from investors thru various financial intermediaries Submit instructions before deadline GCA VS 3. Event Settlement Deliver securities, if necessary Receive securities and/or money payment Reconciliation Allocate entitlements to investors Notify investors of final transactions Close-out event 4. 5. 6.

Global Corporate Action Validation Service The GCA Validation Service delivers standardized, comprehensive and timely information to financial institutions of all types and sizes. Broker/Dealers Banks Investment Managers Hedge Funds Any firm that tracks corporate action information and its impact on securities positions Other examples: Mutual Funds, Stock exchanges

Global Corporate Action Validation Service How does it Work? The service validates data through an intricate process of mapping, normalizing and consolidating announcement information Skilled professionals enrich the data through follow- up research relying on a wide array of sources Customers submit a “securities of interest” file and have the GCA VS monitor and report on these specific securities throughout the day

Global Corporate Action Validation Service How does it Work? (continued) Customers receive a common composite record for each announcement A file of these records is available six times a day and includes event data for each composite record created or updated since the last publication Real-time, around-the-clock access to information through a secure, Web-based inquiry tool provides the most current version of the composite record A custodian verification feature compares and validates customer’s corporate action announcement information from other sources (e.g. Custodians, Prime Brokers)

Global Corporate Action Validation Service Benefits Reduce operational losses Optimizes front-office trading Simplifies operations globally Streamlines data sources Provides a smooth access to information Results from processing errors associated with conflicting or confusing data Provides critical and timely info to individuals making trading decisions Eliminates the manual, labor-intensive and redundant processing and provides flexibility to handle volume fluctuations Provides a single source for all corporate action info

Global Corporate Action Validation Service London Service Center Service Delivery Help Desk Support Hours of Operation Monday through Friday 8am - 6pm (local time) Shanghai Service Center Service Delivery Help Desk Support Hours of Operation Monday through Friday 8am - 6pm (local time) New York Service Center Service Delivery Help Desk Support IT Infrastructure Vendor Management Client and Service Management Governance Hours of Operation Monday through Friday 8am - 6pm (local time) Language Coverage English Spanish Portuguese German Italian French Chinese Japanese Arabic Turkish Bengali Help Desk Support Phone Logistics Domestic: 866-DTCC-GCA International: +1 212-855-2366 E-mail Support Logistics gcabusiness.support@dtcc.com gcatechnical.support@dtcc.com Online Inquiry URL Logistics https://gca.dtcc.com GCA Web Page www.dtcc.com/GCA

Global Corporate Action Validation Service

Global Corporate Action Validation Service

Global Corporate Action Validation Service Find out how we can help you drive efficiency for corporate actions Contact us at: 1-866-382-2422 or gcainfo@dtcc.com