POST-TRADE EFFICIENCY

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1 ENHANCING POST-TRADE EFFICIENCY FOR CUSTODIANS

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3 CONTENTS Overview 4 Our Solutions 5 Taking the Pain Out of Post-Trade Processing 6 1. Timely Receipt of Settlement Notifications 6 3. Standardized Communications (Collateral & Settlement) 7 2. Accurate Settlement Notifications 7 4. Manual Processing for Corporate Actions Notifications 8 5. Risk and Costs Associated With Holding Physical Securities 8 6. Manual Processing and Tracking Of Tax Events 9 7. Increasing Efficiency in Current Settlement Processes 10 Adding Value to Your Post-Trade Processing The Depository Trust & Clearing Corporation. All rights reserved. The services described below are provided under the DTCC brand name by certain affiliates of The Depository Trust & Clearing Corporation ( DTCC ). DTCC itself does not provide such services. Each of these affiliates is a separate legal entity, subject to the laws and regulations of the particular country or countries in which such entity operates. See for a detailed description of DTCC, its affiliates and the services they offer. Certain DTCC ITP LLC services are subject to regulation by the U.S. Securities and Exchange Commission ( SEC ) and are offered by DTCC ITP Matching (US) LLC ( DTCC Matching ), which is set out in SEC Release No ; File No ; 66 FR (April 17, 2001). TradeSuite ID and CTM are services of DTCC Matching and are subject to SEC regulation when used for trades in which either the broker-dealer or its institutional customer is a U.S. entity and the securities in the trade are issued by a U.S. issuer. No other services offered by DTCC ITP LLC are regulated. Additionally, certain services described herein are offered by the Depository Trust Company ( DTC ), a wholly owned subsidiary of DTCC and are regulated by the SEC. The services offered by DTC are independent of those offered by any other DTCC affiliate including DTCC ITP LLC and DTCC ITP Matching (US) LLC. 3

4 OVERVIEW At DTCC, we understand the critical role that custodian banks play in helping to ensure the safety of assets in the global financial markets. We also appreciate the challenges that custodians currently face, including the effects of flat asset growth, increased competition and the impact on earnings as well as evolving regulatory requirements. As custodians assess strategies to cope with these challenges, a key area of focus remains on achieving costs savings and operational efficiencies while still providing enhanced services to clients. DTCC works with custodian banks to support the key role that they play in the global financial marketplace. From optimizing trade and collateral settlements to delivering efficiencies in the management of corporate actions and tax events, our market-leading suite of products helps to reduce risk and enhance post-trade efficiency for custodians. A KEY AREA OF FOCUS REMAINS ON ACHIEVING COSTS SAVINGS AND OPERATIONAL EFFICIENCIES WHILE STILL PROVIDING ENHANCED SERVICES TO CLIENTS. 4 Enhancing Post Trade Efficiency for Custodians

5 OUR SOLUTIONS CUSTODIAN PAIN POINTS 01 TIME SENSITIVITY Timely receipt of settlement notifications THE CTM TM SERVICE OASYS TM 02 ACCURACY Accuracy of data in settlement notifications 03 COMMUNICATION Standardization of communications in settlement and collateral management 04 MANUAL PROCESSING Manual processing to ensure accuracy of data for corporate actions notifications 05 RISK AND COSTS Risks and costs associated with holding physical securities 06 TRACKING TAX EVENTS Manual processing and tracking to meet withholding tax obligations 07 INCREASE SETTLEMENT EFFICIENCY Improve efficiency in current settlement processes that affect liquidity for buy-side clients ALERT GLOBAL CUSTODIAN DIRECT MARGIN TRANSIT UTILITY (MTU) THE DEPOSITORY TRUST COMPANY'S (DTC) SETTLEMENT SERVICE DTCC CORPORATE ACTIONS SERVICE FOR VOLUNTARY REORGANIZATIONS DTC S CUSTODY SERVICE DTCC S 305(c) ANNOUNCEMENTS SERVICE DTCC S SETTLEMENT OPTIMIZATION INITIATIVE 5

6 TAKING THE PAIN OUT OF POST-TRADE PROCESSING DTCC WORKS, AT A GLOBAL AND REGIONAL LEVEL, TO OFFER A RANGE OF POST-TRADE SERVICES ALIGNED TOWARDS RESOLVING KEY PAIN POINTS FOR CUSTODIANS ACROSS THEIR POST-TRADE INFRASTRUCTURE. 1. TIMELY RECEIPT OF SETTLEMENT NOTIFICATIONS Custodians are required to wait for confirmation of trade settlement from their clients. Delays can increase the likelihood of trade settlement failures and increase operational risks during the posttrade process. DTCC s Institutional Trade Processing (ITP) services help to improve the timely receipt of settlement notifications by custodians. Trade data that has been matched via the CTM or OASYS platforms and enriched with standing settlement instructions (SSI), through the ALERT service, is communicated to custodians as a settlement notification via SWIFT format. This enables custodians to quickly process and settle trades on behalf of their clients. In addition, the DTCC Exception Manager (DXM) platform provides additional value to custodians by allowing them to publish, manage and communicate on exceptions throughout the trade lifecycle process. Post-trade exception processing creates operational risk and drives a significant amount of inefficiency for all parties to a trade. In the event of trade exceptions, custodians can populate DXM with details of the settlement failure, which investment managers and brokers can utilize to address in real-time. 6 Enhancing Post Trade Efficiency for Custodians

7 2. ACCURATE SETTLEMENT NOTIFICATIONS Custodians often receive settlement notifications that contain inaccurate data. The most common cause of this is inaccurate SSI data. Custodians must work with the broker and investment manager to identify and correct inaccurate data, further delaying the trade settlement process. DTCC s ALERT service, the industry s largest and most compliant web-based global database for the maintenance and communication of account and SSI, offers a Global Custodian Direct (GC Direct) workflow that enables custodian banks to electronically manage settlement instructions on behalf of their buy-side clients via dedicated ISO compliant messages. This enhanced access enables the global custodian/prime broker to become the owner and maintainer of the SSI data, effectively creating the golden copy within the ALERT platform. Additionally, market rules and validations are enforced through ALERT, which reduces the risk of custodians passing inaccurate or incomplete instructions to clients. To learn more about DTCC s Institutional Trade Processing services, including the CTM, OASYS and ALERT platforms, visit 3. STANDARDIZED COMMUNICATIONS (COLLATERAL & SETTLEMENT) Custodians are faced with inefficiencies, often driven by manual processing, across their collateral settlement processes which can result in collateral settlement failures. DTCC-Euroclear GlobalCollateral Ltd s Margin Transit Utility (MTU) offers straight-through processing of margin and collateral settlement for dealers and buy-side firms. This allows custodians to process and confirm collateral settlements quickly and securely. This helps custodians to enhance their own efficiencies so that they can better serve their clients. MTU utilizes standardized, SWIFT-formatted messaging, eliminating the need for custodians to receive settlement instructions via fax or . MTU also integrates the communication of margin calls with collateral settlement messaging and status updates, reducing the need for client-specific instruction communications. To learn more, visit Custodians utilizing DTCC s ITP suite of services can standardize communications around the settlement process through its straight-through-processing workflow (STP). Once a trade has been effectively matched, a settlement notification (SN) is sent from CTM via SWIFT format to the custodian. The SN is enriched with accurate SSI data from the ALERT platform. This helps to ensure that accurate trade data can then be settled via DTC and can reduce costs and delays associated with failures during post-trade settlement. 7

8 4. MANUAL PROCESSING FOR CORPORATE ACTIONS NOTIFICATIONS The accuracy of the information contained in voluntary reorganizations announcements (e.g. rights offers, tender offers, etc.) is critical as buy-side firms rely upon it to make investment decisions that can result in significant financial gains and losses. As a result, custodians must dedicate time and resources to checking and verifying corporate actions notifications for data accuracy before they are communicated to the buy-side (and in turn to beneficial owners). This stage often involves significant manual processing. DTCC s Corporate Actions teams have worked closely with global custodians to create a harmonized ISO20022 messaging format that enhances automation and straight through processing. This helps to eliminate inaccuracies and errors within announcements data that is sent to the buy-side and beneficial owners. DTCC has also worked to ensure that it provides ISO-registered supplementary data, or extensions, which provide custodians with automated transmissions of data elements that are critical for the processing lifecycle. DTCC also has taken a leadership position to help drive market practice within the Securities Market Practice Group where it helps to shape the rules and best practices for corporate actions announcements. To learn more, visit our corporate actions processing webpage on dtcc.com. 5. RISK AND COSTS ASSOCIATED WITH HOLDING PHYSICAL SECURITIES In addition to the risk inherent in holding physical securities on behalf of clients, custodians also incur high fixed costs associated with the safekeeping and handling of securities, including vault space, equipment and maintenance expenses. They also incur insurance costs associated with the safekeeping and shipping of securities. US-based custodians can use DTCC s Custody Service to outsource the handling and servicing of physical securities on behalf of their buy-side clients. The Custody Service enables custodians to retain control of these securities without having to handle and secure them themselves. Custodians can deposit securities using DTC s PBS (Participant Browser Services) function CUST, via a CCF (Computer-to-Computer Facilities) deposit file transmission, or via the MDH (Mainframe Dual Host) system. This function provides also update capabilities for the various services offered through the Custody Service including the ability to retrieve certificate and document images, track custody activities and make updates to customer numbers. To learn more, visit our custody service webpage on dtcc.com. 8 Enhancing Post Trade Efficiency for Custodians

9 6. MANUAL PROCESSING AND TRACKING OF TAX EVENTS US custodians make dividend payments to non-us parties for convertible stock that they may hold on behalf of clients. Under section 305(c) of the Internal Revenue Code, custodians are responsible for withholding tax due on these dividend payments, remitting payment of the tax and reporting to the Inland Revenue Service at the end of the year. In order to fulfill this obligation, custodians would need to source, review and interpret Form 8937s or the 305(c) deemed dividend directly from issuers in order to track withholding tax events for liable assets that they hold. DTCC s 305(c) Announcements Service provides custodians with timely notifications around withholding tax obligations as they occur. Custodians can receive these information-only announcements via ISO messaging, and can also view and download the announcements in DTCC s CA Web (Corporate Actions Web) Data service. The announcement provides relevant data (i.e. date of deemed dividend and amount of dividend) in fielded format. The announcements also include comments to explain exceptions to 305(c) deemed dividends. This service helps custodians to avoid manual processing and investment around tracking tax events and ensures that they effectively meet their IRS withholding tax obligations. To learn more, visit our global tax services webpage on dtcc.com/globaltax. 7. INCREASING EFFICIENCY IN CURRENT SETTLEMENT PROCESSES Current rigid processing rules can inhibit the efficient movement of transactions through the system. With money settlement not occurring until the end of the day (after the night cycle process), capital can become trapped in the very same system designed to manage securities processing and cash movements. Custodians must wait for the transfer of securities and associated payments to take place in a timely manner before liquidity can be freed up for their buy-side clients. DTC takes responsibility of settling payments in the US on behalf of custodians. DTCC s settlement optimization initiative will introduce new process algorithms that will improve settlement rates and timing. This, in turn, will make fungible securities available to custodian clients earlier in the day, thereby helping to free up liquidity. DTCC s settlement optimization initiative can help custodians to achieve clearing and settlement processing efficiency, promote settlement finality, reduce equity clearing margin requirements, and provide liquidity enhancements, helping custodians custodians to offer a more efficient service to their clients. We work across the post-trade process to deliver benefits to custodians and to enable them to offer improved services to clients. 9

10 ADDING VALUE TO YOUR POST-TRADE PROCESSING COMMUNITY DTCC is industry-owned and governed and our focus remains on offering cost-efficient solutions that help secure and shape the future growth and development of the global financial marketplace. Clients are connected to a global community of investment managers, broker/ dealers and custodian banks in over fifty countries. IT RISK, CYBER SECURITY & DATA PRIVACY DTCC offers comprehensive information security controls, including role-based access. Our solutions have been designed to ensure the protection of your information and systems and offer an efficient defense against cyber risks and threats. RELIABILITY DTCC offers clients the highest service availability and back-up. We implement 24/7 monitoring and automated alarming to help maintain service availability of 99.99% and higher. RISK MANAGEMENT We continue to significantly invest in our risk management and legal/regulatory compliance infrastructure to ensure we continue to provide the highest levels of service availability and information security and that we conduct our business in accordance with all applicable laws and regulations. LEGAL & REGULATORY COMPLIANCE DTCC s subsidiaries are subject to supervision and oversight by a number of regulatory bodies including the U.S. Securities and Exchange Commission (SEC), United Kingdom Financial Conduct Authority (FCA), European Securities and Markets Authority (ESMA), Ontario Securities Commission (OSC) and Autorité des Marchés Financiers (AMF). INDUSTRY PARTNERSHIP DTCC is an active member of leading industry associations where we help to create and implement industry standards, innovation and best practices. OUR FOCUS REMAINS ON OFFERING COST-EFFICIENT SOLUTIONS THAT HELP SECURE AND SHAPE THE FUTURE GROWTH AND DEVELOPMENT OF THE GLOBAL FINANCIAL MARKETPLACE. 10 Enhancing Post Trade Efficiency for Custodians

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12 FOR MORE INFORMATION, PLEASE CONTACT: To learn more about how DTCC supports custodians, please contact your relationship manager or us at Visit us at