DTCC SERVICES CTM RESEARCH COMMISSIONS: BEST PRACTICES. Best Practices. Commission Fields and Functionality. May 14, 2018

Transcription

1 DTCC SERVICES RESEARCH COMMISSIONS: BEST PRACTICES May 14, 2018 Clients can choose to either include research amounts on individual trades, or exclude research amounts from the trades and operate a reconciliation process. This document describes the process of applying research amounts on all, some, or none of investment manager's allocations and broker/dealer's confirmations for the following DTCC services: CTM OASYS and TradeSuite ID CTM This section outlines the best practices and requirements for the CTM service. Best Practices Best practice for all clients is to do the following: Apply block commission amount proportionally across underlying allocations. Unless both parties have prior knowledge of research amounts, only populate execution commission on block records. Populate research (if part of the transaction) on the allocation only. Commission Fields and Functionality The CTM service trade records include fields and values to specify the following: commission types commission amounts The CTM service calculates the block and allocation total commission (TCOM) as a numerical amount from the commission types and amounts. The individual values and the total values form part of the trade confirmation details that are submitted by both buy side and sell side counterparties.

2 Buy-side firms control the matching criteria, and can include both block and allocation total commission as matching fields using their matching profiles. If specified on the matching profile, the CTM service matches on the total of each commission type supplied. There is no facility to match discrete commission types. such as research amounts. Commission Type for Research The CTM service provides a CommissionType of Research (RSCH) for the population of segregated research amount on allocations. Populating a Research Amount on s Only The agreed post-trade implementation for buy sides that want to provide research amounts should only populate such amounts on allocation records, not block records. All users can continue to submit execution commissions on both block (TradeLevel) records and allocations (TradeDetails). Note Buy side firms that require inclusion of research amounts on their block records should choose to not match on total commission at the block level. This would allow the blocks to match on all other trade financials and the total allocation commission to be matched at the allocation level. If the CTM service receives a commission type of RSCH on a block record, it will not be included in the TCOM calculation and generates an asynchronous error. Workflow Scenarios There are three principal scenarios depending on client approach and implementation. No research amount(s) applies to the trade transaction and cash settlement (execution only). Research amount(s) apply to all of the funds (allocations) within a block and are included as part of the trade transaction and cash settlement. Research amount(s) apply to some of the funds (allocations) within a block and are included as part of the trade transaction and cash settlement. Scenario 1: Workflow with No Research on the Trade Table 1 outlines the workflow execution-only commission no research amounts. Table 1 No Research Workflow Steps Component Field Type IM Broker Match 1 Investment manager submits one block (TradeLevel) and two allocations (TradeDetails). The block execution commission is 100, which the CTM service prorates between the two allocations. The CTM service calculates the TCOM amounts. Block Trade Commissions EXEC 100 NA NA Trade Commissions (Total) TCOM 100 NA No Commissions EXEC 50 NA NA Commissions (Total) TCOM 50 NA No Commissions EXEC 50 NA NA Commissions (Total) TCOM 50 NA No 2

3 Table 1 No Research (continued) Workflow Steps Component Field Type IM Broker Match 2 Broker submits a block (TradeLevel). The CTM service pairs and matches with the investment manager's block. 3 Broker retrieves the investment manager's allocations to create and submit its confirmations. Broker's confirmations pair and match with the investment manager allocations. Block Trade Commissions EXEC NA Trade Commissions (Total) TCOM Yes Commissions EXEC NA Commissions (Total) TCOM Yes Commissions EXEC NA Commissions (Total) TCOM Yes Scenario 2: Research on All s in the Trade Table 2 outlines the workflow that reflects execution amounts and research amounts for all of the investment manager's allocations. Table 2 Research on All s on the Trade Workflow Steps Component Field Type IM Broker Match 1 Investment manager submits one block (TradeLevel) and two allocations (TradeDetails). The block execution commission is 100 and does not include the research amount. The allocations include execution commission amounts of 50. The allocations include reasearch amounts of 20. The CTM service calculates the allocation TCOM amounts of Broker submits a block (TradeLevel), which pairs and matches with the investment manager's block. 3 Broker retrieves the investment manager's allocations to create and submit its confirmations. Broker identifies that the allocation includes research and populates the amounts on its allocation record. Block Block Trade Commissions EXEC 100 NA NA Trade Commissions (Total) TCOM 100 NA No Commissions EXEC 50 NA NA Commissions RSCH 20 NA NA Commissions (Total) TCOM 70 NA No Commissions EXEC 50 NA NA Commissions RSCH 20 NA NA Commissions (Total) TCOM 70 NA No Commissions EXEC NA Commissions (Total) TCOM Yes Commissions EXEC NA Commissions RSCH NA Commissions (Total) TCOM Yes Commissions EXEC NA Commissions RSCH NA Commissions (Total) TCOM Yes 3

4 Scenario 3: Research on Some s on the Trade Table 3 outlines the workflow that reflects execution amounts and research amount for only one allocation in the trade supplied by the investment manager. Table 3 Research on Some s on the Trade Workflow Steps Component Field Type IM Broker Match 1 Investment manager submits one block (TradeLevel) and two allocations (TradeDetails). The block execution commission is 100 and does not include the research amount. Both allocations include execution commission of 50. Only the first of the two allocations include the research amount of 20. The CTM service calculates the allocation TCOM amounts of Broker submits a block (TradeLevel), which pairs and matches with the investment manager's block. 3 Broker retrieves the investment manager's allocations to create and submit its confirmations. Broker identifies that one of the allocations includes research and populates the amount on its allocation record. Broker's allocations pair and match with the investment manager's allocations. Block Block Trade Commissions EXEC 100 NA NA Trade Commissions (Total) TCOM 100 NA No Commissions EXEC 50 NA NA Commissions RSCH 20 NA NA Commissions (Total) TCOM 70 NA No Commissions EXEC 50 NA NA Commissions (Total) TCOM 50 NA No Trade Commissions EXEC NA Trade Commissions (Total) TCOM Yes Commissions EXEC NA Commissions RSCH NA Commissions (Total) TCOM Yes Commissions EXEC NA Commissions (Total) TCOM Yes Workflow Logic Investment managers initiate the process to indicate research on the confirmation by populating the research amount under the commission type of RSCH. Brokers will receive this type and amount when they retrieve the buy side allocation record. The broker can then populate the unbundled research amount on its allocation (confirmation) record. 4

5 The figure below shows an expanded analysis of Scenario 3. Technical Requirements The RSCH value for the CommissionType field is the principal technical requirement for applying research amounts. Investment managers who are unable to follow best practice and submit bundled commission amounts should use the CommissionType of BNDL on both blocks and allocations. Broker/dealers should only use the EXEC and RSCH commission types not BNDL. Only EXEC CommissionType is currently supported by SWIFT messages and it is the broker's commission breakdown that is mapped to the SWIFT message. The use of commission fields are detailed in the message specification documents. Several items of note include: The CurrencyCode for commissions needs to be same currency code as on all amount fields except the SettlementAmount and TotalSettlementAmount fields. The BeneficiaryofCommissions fields supports CSA or RPA information as part of the allocation message: <BeneficiaryofCommissions> <BrokerOfCredit> <PartyRole>BRCR</PartyRole> <PartyType>OTBC</PartyType> <Party>CSA or RPA values</party> </BrokerOfCredit> </BeneficiaryofCommissions> 5

6 Where PartyType is OTBC, the best practice is to populate the Party with a short text code identifying the firm with the account. Party supports up to 34 alphanumeric characters. Buy-side clients, subscribed to Settlement Notification, that want to include RSCH commissions in their SWIFT messages, must populate the AdditionalText fields. Populate any of the lines between 7-10 with RSCH/currency code + amount. The field value is mapped to :70E::SPRO//RSCH/currency code + amount on the MT541/3 message. For more information about commission types, see the Common Reference Data. Hiding Money Fields (Investment Managers) The default and best practice is for money amount fields to be shown to both trade parties; however, investment managers can elect to hide their money amount fields. Hiding money amount fields prevents broker/dealer counterparties from receiving the research amount for one or more allocations in a trade. IMPORTANT For optimal efficiency, best practice is for investment managers show their amount fields. For more information about showing money fields, see Showing and Hiding Money Amount Fields in the XML Message Specification: Debt/Equity and Common Messages. OASYS and TradeSuite ID In support of MIFID II, no new fields are being added to the OASYS service and TradeSuite ID service. Instead, the Local Tax field will be repurposed as Research Amount in the Q4 timeframe. OASYS The requirements for the OASYS service clients are described in this section. Fields The OASYS service clients that need to unbundle the research payment amount from the commission are recommended to use the fields below: Commission Hard/Soft Indicator Commission Type Local Tax (will be relabeled as Research Amount) Populating Research Amount Buy-side firms that need to separate the research payment amount from the execution commission should populate this at the allocation level and continue to use the Commission field to communicate the execution commission rate. To separate the research payment amount from the commission, buy side firms will need to utilize the soft indicator to enable the commission type field and set this to INRE (Independent Research). The research payment amount should be populated in the Local Tax field as a fixed amount and not as a rate. If there is a need to indicate the Commission Sharing Agreement (CSA) or Research Payment Account (RPA) information on the allocation, use the broker_credit/broker of Credit Name field to populate the information. 6

7 Note Buy-side firms that submit block commission and choose to unbundle execution commission from research payment amount should populate the block commission with execution commission only. TradeSuite ID Requirements for the TradeSuite ID service clients are described in this section. Fields TradeSuite ID service clients that need to unbundle the research payment amount from the commission are recommended to use the fields below: Commission Local Tax (will be relabeled as Research Amount) Submitting TradeSuite ID Confirmations Sell-side firms that need to separate commissions from research payments on their trade confirmation should continue to submit the execution commission amount within the Commission field. The research payment amount should be populated in the Local Tax field. Note For investment managers subscribed to the OASYS-TradeMatch service and who opt to match on Commission, the commission will be calculated by adding any value submitted on the Commission and Research Amount fields. OASYS-TradeMatch matches on total commission. OASYS and TradeSuite ID: Workflow Scenarios There are three principal scenarios depending on client approach and implementation: No research on the trade Research on all allocations on the trade (all unbundled) Research on some allocations (all unbundled) and some allocations with execution only 7

8 Scenario 1: Workflow with No Research on the Trade The following table outlines the workflow execution-only commission no research amounts. OASYS Service Block security KO size 1000 price 43 commission (exec) 0.02 alloc_count 2 OASYS Service TradeSuiteID Service Confirm alloc_num 1 Confirm 1 accountid 23 Shares/Face 750 alertid 23 Price size 750 Commission commission (exec) 0.02 Local Tax 0 Principal 32, Net Amount 32, Examples alloc_num 2 Confirm 2 accountid 19 Shares/Face 250 alertid 19 Price size 250 Commission 5.00 commission (exec) 0.02 Local Tax 0 Below are examples of the XML fields for the two allocations. 1 Principal 10, Net Amount 10,

9 2 Scenario 2: Workflow with Research on All s on the Trade The following table outlines the workflow that reflects execution amounts and research amounts for all of the investment manager's allocations (unbundled). OASYS Service Block security KO size 1000 price 43 commission (exec) 0.02 alloc_count 2 OASYS Service TradeSuiteID Service Confirm alloc_num 1 Confirm 1 accountid 23 Shares/Face 750 alertid 23 Price size 750 Commission commission (exec) 0.02 Local Tax is_soft 1 Principal commission_type INRE Net Amount local_tax alloc_num 2 Confirm 2 accountid 19 Shares/Face 250 alertid 19 Price size 250 Commission 5.00 commission (exec) 0.02 Local Tax 3.75 is_soft 1 Principal commission_type INRE Net Amount local_tax

10 Examples Below are examples of the XML fields for the two allocations. 1 <omgbs:directedcommissions> <omgbs:commissionsharingtypeindicator>soft </omgbs:commissionsharingtypeindicator> <omgbs:softcommissiontype>inre</omgbs:softcommissiontype> </omgbs:directedcommissions> <omgbs:chargesortaxes> <omgbs:chargetaxtype>locl</omgbs:chargetaxtype> <omgbs:chargeamount> <omgbs:amount>11.25</omgbs:amount> </omgbs:chargeamount> </omgbs:chargesortaxes> 2 <omgbs:directedcommissions> <omgbs:commissionsharingtypeindicator>soft </omgbs:commissionsharingtypeindicator> <omgbs:softcommissiontype>inre</omgbs:softcommissiontype> </omgbs:directedcommissions> <omgbs:chargesortaxes> <omgbs:chargetaxtype>locl</omgbs:chargetaxtype> <omgbs:chargeamount> <omgbs:amount>3.75</omgbs:amount> </omgbs:chargeamount> </omgbs:chargesortaxes> 10

11 Scenario 3: Workflow with Research on Some s on the Trade The following table outlines the workflow that reflects research on some allocations (all unbundled) and allocations with execution only. OASYS Service Block security KO size 1000 price 43 commission (exec) 0.02 alloc_count 4 OASYS Service TradeSuiteID Service Confirm alloc_num 1 Confirm 1 accountid 23 Shares/Face 400 alertid 23 Price size 400 Commission 8.00 commission (exec) 0.02 Local Tax 0 is_soft 0 Principal commission_type Net Amount local_tax alloc_num 2 Confirm 2 accountid 19 Shares/Face 200 alertid 19 Price size 200 Commission 4.00 commission (exec) 0.02 Local Tax 3.00 is_soft 1 Principal commission_type INRE Net Amount local_tax 3.00 alloc_num 3 Confirm 3 accountid 21 Shares/Face 150 alertid 21 Price size 150 Commission 3.00 commission (exec) 0.02 Local Tax 2.25 is_soft 1 Principal commission_type INRE Net Amount local_tax 2.25 alloc_num 4 Confirm 4 accountid 11 Shares/Face 250 alertid 11 Price size 250 Commission 5.00 commission (exec) 0.02 Local Tax 0 is_soft 0 Principal commission_type Net Amount local_tax 11

12 Examples Below are examples of the XML fields for the four allocations. 1 2 <omgbs:directedcommissions> <omgbs:commissionsharingtypeindicator>soft </omgbs:commissionsharingtypeindicator> <omgbs:softcommissiontype>inre</omgbs:softcommissiontype> </omgbs:directedcommissions> <omgbs:chargesortaxes> <omgbs:chargetaxtype>locl</omgbs:chargetaxtype> <omgbs:chargeamount> <omgbs:amount>3.00</omgbs:amount> </omgbs:chargeamount> </omgbs:chargesortaxes> 3 <omgbs:directedcommissions> <omgbs:commissionsharingtypeindicator>soft </omgbs:commissionsharingtypeindicator> <omgbs:softcommissiontype>inre</omgbs:softcommissiontype> </omgbs:directedcommissions> 12

13 <omgbs:chargesortaxes> <omgbs:chargetaxtype>locl</omgbs:chargetaxtype> <omgbs:chargeamount> <omgbs:amount>2.25</omgbs:amount> </omgbs:chargeamount> </omgbs:chargesortaxes> 4 Changes in This Version of the Document This version includes branding updates only no content changes. Related Documents and Training For related documents and training in the DTCC Learning Center, go to the following based on the service you are using: CTM service for global trades: Institutional Trade Processing CTM DTCC Exception Manager for managing trade and settlement exceptions: Institutional Trade Processing DTCC Exception Manager OASYS service for US domestic trades: Institutional Trade Processing OASYS TradeSuite ID service for US domestic interface and USDI (US Depository Interface) trades: Institutional Trade Processing TradeSuite ID Questions? The DTCC Client Center provides general assistance and technical help. Visit to: Enter a service request or check the status of an existing service request Search the knowledge base Obtain contact information 13

14 Copyright 2018 The Depository Trust & Clearing Corporation ("DTCC"). All rights reserved. This work (including, without limitation, all text, images, logos, compilation and design) is proprietary and protected by copyright, and is for the exclusive use of users authorized by DTCC. If this work is received from DTCC in any electronic medium, authorized users of this work are granted a limited, non-exclusive, non-transferable, non-sublicensable and freely revocable license to make reproductions and transmissions necessary for downloading and storage of this work on the users' computers and to print one or more paper copies from the electronic version for their own use. Other than to this limited extent, no part of this work (including any paper copies thereof or print versions thereof) may be printed, copied, altered, modified, posted, reproduced, displayed, published, sold, licensed, used or distributed (including by transmission) in any form or by any means, or stored in any information storage and retrieval system, without DTCC's prior written permission. DTCC is the brand name under which certain affiliates of The Depository Trust & Clearing Corporation provide services in particular geographic areas. The Depository Trust & Clearing Corporation does not provide services to clients. Each of The Depository Trust & Clearing Corporation s affiliates is a legally separate and independent entity, and each is subject to the laws and regulations of the particular country in which it operates. Please see for more information on the legal structure of The Depository Trust & Clearing Corporation and its related entities. All product or service names are the property of their respective owners. Publication Date: May 14, 2018 Publication Code: CP101 Title: Research Commissions: Best Practices 14