Title: ACATs Shortened Settlement Cycle. Concept Paper. Date FINAL March 2016

Transcription

1 Concept Paper Date FINAL March 2016 Title: ACATs Shortened Settlement Cycle Proposal to shorten the ACATs Settlement Cycle, and create a more streamlined ACATs process. Contributors: SIFMA CAT Division ACATs Shortened Settlement Cycle Working Groups

2 1) EXECUTIVE OVERVIEW 1.1 Background It currently takes five business days for a standard (Full) ACAT transfer to settle. While the client's assets remain invested in the market during this time, they are unable to trade these assets at either of the counter parties, thus exposing the client to risk. The goal of this request is to reduce client risk in the ACATs transfer process by decreasing the amount of time that it takes for a transfer to settle. In addition, shortening the transfer time will address client expectations around the length of time it should take their assets to transfer. 1.2 ACATs Historical Perspective In 1981, 11 people began meeting on a monthly basis to discuss common problems related to transfers, resulting in the eventual formation of the Customer Account Transfer (CAT) Division. This was prior to the creation of the ACATs system, thus all transfers were processed via paper and it was common to exchange firm paperwork during lunch meetings. This group of individuals incorporated in 1982 as the 412 Committee. In late 1989, the 412 Committee applied for membership to the Securities Industry and Financial Markets Association (SIFMA). The Committee was granted full membership status in 1992 and the name was changed to the Customer Account Transfer Division During the 1980 s, the SEC began to field thousands of customer complaints related to the transfer process. The SEC exerted great pressure on the NYSE, AMEX and the NASD to address these complaints. In 1984, the 412 Committee began to partner closely with the NSCC to develop a system to accommodate account transfers, and in 1985, the regulatory agencies commissioned the NSCC to develop a system to expedite account transfers between brokerage firms. The Automated Customer Account Transfer Service (ACATS) was developed and implemented by six pilot firms in the spring of 1985; to automate and standardize the transfer of assets in a customer account between Broker/Dealers, Banks, Trust Companies, and Mutual Fund firms that actively participate in this service. The financial instruments handled by the system includes equities, corporate and municipal bonds, unit investment trusts, mutual funds, options, annuities, cash, and other investment products Enhancement (Cycle Reduced 10 to seven Days): In 1998, the industry pursued an enhancement to reduce the cycle time for ACATs transfers (at that time, only FULL transfers were possible) from 10 days to seven (six days if accelerated). In 2004 and 2005, a series of enhancements were introduced to improve the efficiency of ACATs. Several of these examples included allowing for Non Standard Transfer Types (RCR, PTR, PTD, RCL, FRV, MFC), or enabling more transfers to occur between different registrations. Even with these enhancements, the average cycle time of the FULL transfer request was strictly contingent upon the processing standards of the Delivering firm Enhancement (Cycle Reduced seven to five Days): The average timeframe for an ACAT transfer remained unchanged until 2007 when the SIFMA CAT Division received regulatory approval to pursue changes to the ACATs transfer cycle which further reduced the number of days required to transfer an account via ACATs. Prior to this enhancement, the ACATs transfer process timeline from initiation to settlement could take up to seven business days. Initially, the recommended changes included the removal of three business days for full transfers and one business day for a partial transfer. The days that were to be removed from the cycle were two Request days and the Settle Prep stage for Full transfers; Partial transfers would see one Request day eliminated. After thorough evaluation, the industry decided to defer the removal of the Settle Prep status. In addition, the following ACATs statuses were changed to have a maximum time frame of one business day (from the prior maximum three business days): Request Adjust, Request Adjust Past, Request Past, and Review Error. 1.3 Project Overview The goal of this project is to reduce time from the ACATs settlement cycle, while creating a better and more efficient transfers process overall. This would include additional enhancements, as needed, with the goal of not increasing the fail rate of individual securities or the reject rate; several of which are as follows: Rescinds Page 2 of 33

3 Cycles and cutoffs in Review Removal of Settle Prep 1.4 Benefits There are a number of benefits associated with shortening the amount of time it takes for an ACAT to settle. Please see below for some of the highlights: Shareholder o Reduction of risk o Reduction in opportunity cost (of shares that cannot be sold) o Better client experience o More efficient, and quicker transfers o More timely correction and reversal processing o Better alignment of expectation and reality regarding the timeline of asset movement Intermediary o Address client feedback around amount of time it takes for a transfer to complete o Improved client service o Ability to reverse the request more quickly if needed, as they can only be done following settlement o Create consistency in the amount of time it takes for all ACATs to settle standard versus nonstandard requests o In addition, creating consistency in the amount of time it takes assets to settle, as mutual funds and options were the only assets that needed an extra day to settle in nonstandard requests o Improve current processes Options Currently, don t move in line with the settlement of the ACAT; however, the proposed changes solve for that problem Foreign Assets Changes address a current business need to fix a process that does not work efficiently today Mutual Funds By eliminating Pend, firms will receive the ACATs Stat file sooner, which means they will know the status of their request earlier in the day and can begin resolving rejects earlier (at 6:00 AM Eastern) In addition, they will know right away whether a transfer was accepted or rejected; in current state, the Pend status requires that they continue to monitor the movement until it either completes or rejects Reduce, and potentially eliminate, the majority of purged items (which are caused by late or lack of response to a pended item), leading to firms receiving a true reject reason (funds will be forced to respond rather than allow to purge) Allow for a more timely fail cleanup with an earlier receipt of the ACAT Stat File Create efficiency by receiving ACAT Stat File and Networking file at the same time Other Parties Impacted and the Benefits o Mutual Fund Companies Evenly distributed 018 records Staffing efficiencies created by evenly distributed files Receipt of multiple 018 records spread over a longer time period, which will allow funds to review items earlier in the day Multiple files will align the ACAT process with how other FundSERV files arrive at the funds, creating consistency in how work is processed Ability to review and eliminate rejects on the same day the file is received Standardization of cycle time and improved perception of the mutual fund transfer process by shareholders Earlier cutoff funds could start to look at file earlier and, thus, eliminate rejects earlier Potential to lower rejects that may be addressed earlier in the day Consistency in the way mutual funds move through the ACAT process Funds getting files distributed evenly, having more cycles distributes risk in the event of a contingency situation, etc. Potential to automate other processes (e.g., reclaims and reversals) Stats show that FRs already go to DTCC throughout the day win without any changes Can work soft rejects, don t leave firms in ambiguity for three days when the transfer could potentially purge Page 3 of 33

4 2) BUSINESS REQUIREMENTS & BEST PRACTICES 2.1 Proposed Change: Rescinds 2.2 Proposed Change : Cycles and Cutoffs in Review Current and Proposed Cutoff Times Current and Proposed Cycle Times Acceleration new definition 2.3 Proposed Change: Removal of Set Prep Mutual Funds Options Foreign Assets CNS Other settling locations 2.1 Proposed Change: Rescinds Current state During the validation process, the carrying firm may take exception to a transfer instruction for stated reasons outlines in FINRA Rule (e.g. Customer Rescind is one of these allowable exceptions). In this case, the customer must submit to the carrying member firm a written request to cancel the transfer. Once the carrying member firm is in receipt of the client s written request to rescind a transfer, they would take the following appropriate action: 1) Stop the transfer (if the option is still available, in ACATS, based on specified cut off timeframes) 2) Once the transfer reflects in the Settle Close stage at the receiving member firm, the carrying member firm submits for a new transfer in ACATS 3) Once the transfer reflects in the Settle Close stage at the receiving member firm, the carrying member firm issues a reclaim (using the Rescind reason) the following business day requesting to have the account returned Proposed state Once the carrying member firm is in receipt of the client s written request, they would take the following appropriate action: 1) Stop the transfer (if the option is still available, in ACATS, based on specified cut off timeframes) 2) Once the transfer reflects in the Settle Close stage at the receiving member firm, the carrying member firm submits for a new transfer in ACATS DTCC Changes Remove Rescind as a Reclaim reason o This will remove reason three from the proposed state options, as firms will no longer be able to reclaim an ACAT due to a client rescind request. If the option to stop the transfer is no longer available, the industry best practice (and preferred method) will be for the firm to submit a new transfer request. Page 4 of 33

5 2.3 Proposed Change: Cycles and Cutoffs in the Review Stage *Please note, all times referenced below are Eastern time Current and Proposed Cutoff Times Current Cutoff Times Proposed Cutoff Times Once acceleration occurs by the Receiver, asset adjustment can no longer occur Other statuses not referenced above may exist due to specific complexities of certain transfers Page 5 of 33

6 2.2.2 Current and Proposed Cycle Times Current and Proposed Cycle Times Acceleration new definition Currently the function of accelerate, is used by the receiving firm to expedite a transfer through the Review phase. With the other changes that were being made, including the introduction of new cutoff times and the ability to send fund registration records to the DTCC throughout the day, a need arose to redefine acceleration. In future state, it is proposed that this function will be an acknowledgement that the receiving firm agrees with what is transferring and will not be making any more changes, essentially locking down the request. New Rules for Acceleration: The following rules for acceleration that will be changing are shown below: Accelerating a request will now become an approval that a receiving firm is done making changes The receiver will accelerate a transfer after they have completed all review and will no longer be making any changes Once the transfer has been aged to 230-Review Accelerate or 240-Receiver Adjust Receiver Accelerate, the deliverer can no longer make any updates, even if the deliver adjustment cutoff has not been reached Note: See the changes to the deliver cutoff times, which now become 11 AM on day two to add assets, Or if they have already added their assets, they have until this time to adjust the record (Please note, if the receiver accelerates, and the assets have already been added, the deliverer can no longer adjust the record if it has not yet reached 11 AM on day two) If acceleration is submitted on Day one of Review, it will remove the second day of Review for the following transfer types: Standard Transfers, RCLs, PTRs The following non-standard transfers can now be accelerated: PTF, PTR, PTD, RCR The status of the transfer when accelerating will move to 230-Review Accelerate Below is the functionality that is not changing: If acceleration is submitted on Day one of Review, it will remove the second day of Review for standard requests If a Deliver Adjust and a Receiver Accelerate occur in the same cycle, the Deliver Adjust takes precedence and it moves to Review Adjust Deliverer If the receiver deletes assets on a Full transfer, the transfer will automatically be accelerated by the DTCC and the receiver will no longer be able to adjust the request Page 6 of 33

7 Impact to the transfer of mutual fund assets: If a fund is receiver deleted for Standard transfer in Day one of Review, then DTCC will accelerate transfer There is no dependency between accelerating a transfer and sending the FR record; however, the 018 will be sent once the transfer is accelerated and the FR has been received for all transfers, with the exception of PTF transfers (see below) For PTF transfers, DTCC will automatically accelerate the request once the transfer reaches Review and FR has been received (and then 018 can be sent) FR record required to be sent when the firm is the receiver; however, FR not needed when the firm is deliverer (so not sent in these cases) The following non-standard transfers can now be accelerated: PTF, PTR, PTD, RCR This isn t done to eliminate a day (as it is not necessary to do so in a nonstandard), but to approve the request and allow the FR record to move to the fund company 2.3 Proposed Change: Removal of Settle Prep It has been determined that the removal of Settle Prep from the ACATs Settlement cycle will effectively reduce the cycle time by one day. Currently Settle Prep has been removed from all non-standard transfer requests, except for those that include mutual funds and options. This proposal aims to create consistency in how assets are processed and bring the standard transfer requests in line with timing for the non-standard requests. The proposal is that the removal of Settle Prep occurs in phases, first being removed from all Non-standard requests, and then later, from all Standard transfer requests. As each asset type may settle in a different manner, Business Requirements, Organization Level Changes (firm, fund, etc.), and Best Practices will be broken out by settling location of the asset, please see below: Settling Location Asset(s) 05 CNS 10 Fund/SERV 25 DTC 30 Undeliverable 35 OCC 40 Cash Balance 45 Memo 50 R&D (Restricted Security, Safekeeping, XSET = Outside CNS, DTC, Fund/SERV, Foreign Currency, Delayed Delivery) 55 Foreign Asset Extension 60 IPS 65 Insurance Memo Mutual Funds Type of Assets: Mutual funds transferring through FundSERV, Settling Location 10 *To be included in first round of changes to facilitate the removal of Settle Prep from Non-standard ACATs. **Please see Mutual Fund specific concept paper for finalized details. From the ACATs transfer process perspective, mutual funds and options are the only assets today that always include Settle Prep, including Non-Standard Transfer requests. In order to create consistency in the movement of assets through the ACAT process, this proposal would remove the dependency on Settle Prep for these files. This will also open the door for mutual fund enhancements that will continue to expand functionality, increase automation, and result in a more efficient process. For example, a long term goal is to automate the mutual fund reclaim process, and that cannot be done until mutual funds no longer rely on Settle Prep, as a reclaim is a non-standard request where Settle Prep is not included in the process. The proposal to change the Mutual Fund process to accommodate the removal of Settle Prep is contained in a separate document. We have included an overview of the proposed changes within this paper; however, there is the potential for changes as collaboration is Page 7 of 33

8 needed with other industry organizations prior to implementation. Please see the Mutual Fund specific Concept Paper for additional details. An overview of the proposed changes is shown below: Add selection criteria for creating the hourly 018 Records. o In order to for the asset to be eligible for being submitted on the 018 Record, the FR record must be received and the transfer must be accelerated. This creates a dependency on the firm both accelerating and submitting the FR in order to have the 018 Record be sent to the fund earlier in the day o If the firm does not accelerate their request, it will go in the last batch of the day o If the firm does not submit an FR, the default registration will be used, as applicable, and the 018 will go in the last batch of the day. This is regardless of the transfer being accelerated o If firm opts out of using the default registration, record will not be included on the 018 record Change the time for the delivery of the 018 records from ACATs to FundSERV: o ACATs will send 018 records to FundSERV at 11:00 AM, 12:00 PM, 1:00 PM, 2:00 PM, 3:00 PM, 4:00 PM, 5 PM Eastern Change the time for the delivery of 018 records through FundSERV to fund companies: o FundSERV will send 018 records to be the fund companies at 12:00 PM, 1:00 PM, 2:00 PM, 3:00 PM, 4:00 PM, 5:00 PM, and 6:00 PM Eastern Remove FundSERV Pend Status and eliminate the second day that funds have to respond to a request Fund response to FundSERV of the 019 record, cutoff moved to 4:00 AM Eastern on the day following receipt of the 018. o This gives funds a longer window for items received earlier in the day, while a shorter window for those received later FundSERV passes 019 record to ACATs moved to approximately 5:00 AM Eastern Delivery of ACAT FundSERV Statistic File to firms moved to 6:00 AM Eastern on the day the fund responds (*Enhancement Request already submitted) PTF Changes: o DTCC automatically accelerate PTF transfers once FR has been received This must be done prior to the selection process for the 018 Record o Require firms to send their FR with their AT and TI transfer initiation This will eliminate an unnecessary step for firms, and reduce time, when submitting a PTF o When transfer moves to Review Accelerate status, DTCC assigns settlement date of next business day o o Same-day DTCC status update to correlate with acknowledgement or reject on ACAT Stat File When PTF goes to FundSERV Reject or FundSERV Purge, DTCC to remove ACAT settlement date Corresponding FundSERV Stat File changes may be needed to the original and current ACAT settlement date field Eliminate the FundSERV reminder file (080) o No longer necessary with the removal of Pend Options Type of Assets: Listed options transferring through the Options Clearing Corporation (OCC), Settling Location 35 *To be included in first round of changes to facilitate the removal of Settle Prep from Non-standard ACATs. Currently, Options are one of two assets that; when transferring via ACATs, always have Settle Prep included in their settlement process. With the removal of settle prep, analysis has determined that the removal of Settle Prep will result in a more efficient process for this type of asset. Background Current State Process for the movement of Options: Two days prior to ACATs settlement date DTCC sends notification to the OCC of options transfer 5:00pm) DTCC includes options information on SID 712 for Delivering/Receiving Firm. Transfer ages to Set Prep at this time. Following the receipt of the Option Instruction File the OCC will transfer the position. Typically done on overnight prior to Settle Prep. Information is sent to participants from OCC using DDS on the TrdCaptRpt. This report includes ACATs and Non- ACAT movements on the day of Settle Prep. SID 712 sent from DTCC to participants notifying them of transfer on Settle Close. Page 8 of 33

9 On ACAT S/D firms reflect updated positions on sub-ledger. Future State Business Requirements: One day prior to ACAT settlement date DTCC sends notification to the OCC of options transfer 5:00pm) DTCC includes options information on SID 712 for Delivering/Receiving Firm Transfer ages to Set Close at this time Following the receipt of the Option Instruction File the OCC will transfer the position. Positions will move at the OCC the night prior to Settle Close Information is sent to participants from OCC using DDS on the TrdCaptRpt. This report includes ACATs and Non- ACAT movements on the day of Settle Close SID 712 sent from DTCC to participants notifying them of transfer on Settle Close On ACAT settlement date firms will reflect settled positions to books/records and will match what is at the OCC Process Changes: Removal of Settle Prep DTCC will submit file to OCC when the transfer ages to Settle Close New workflow for exercise/assignment adjustments will be established through best practice DTCC Changes: Generate the reports to the OCC at 5:00pm when the ACAT ages to Settle Close o File transmission will occur between day three and day four (Review and Settle Close) o This will allow the options to settle on the day that the ACAT transfer settles (which improves current process, by syncing settlement timeframe of ACAT settlement and OCC movement) OCC Changes: No incremental impact Meetings with the OCC have confirmed that they do not have a concern with when they receive their information Firm Changes: No changes for firms that book movements once file is received from the OCC Firms that make adjustments will need to establish new workflow to move exercise and assignment activity to receiving firm Firms that post based on ACATs file or who post early will now post in line with ACAT settlement date, no incremental change Best Practices: Delivering firms will withhold all options set to expire prior to ACAT settlement date along with associated collateral. Assignments will have to be passed to the receiving firm through the OCC. Early exercises should be limited to prevent activity on asset expected for transfer. With limited ability to adjust transfers in a shortened ACATs cycle this will be an important control to consider. * See Appendix for detailed Workflow charts Foreign Assets Type of Assets: Foreign assets transferring through a foreign exchange, Settling Location 55 *To be included in first round of changes. Due to the current state struggles with settling foreign assets through ACATs, a working group was created to focus on analyzing the current state and has proposed the following changes. To improve the settlement process, the Foreign Extension Record should be made Mandatory/Required for Foreign assets that cannot settle CNS (code 05): Page 9 of 33

10 DTCC will update the profiles of all ACATS member firms on the ACATS Participant Master File to be eligible for settling location value of 55 If an asset is submitted with an Asset Pricing Category code of FEQU or FDEB, the delivering firm should set the Settling Location to 00 (NSCC decides) If an asset is submitted with an Asset Pricing Category code of FEQU or FDEB and DTCC has determined the asset cannot settle 05 (CNS), the Foreign Extension Record is required. If the Foreign Extension Record is not submitted with the asset, ACATs will System Reject the transfer If an asset is submitted with an ISIN Country code not equal to US and DTCC has determined the asset cannot settle 05 (CNS), the Foreign Extension Record is required. If the Foreign Extension Record is not submitted with the asset, ACATs will System Reject the transfer Make Delivery Firm Settlement Instructions a required field (currently it is optional) Trade Date & Settlement Date: Currently the Trade Date & Settlement Date is derived from the ACAT Settlement Date. Note: This does not account for different assets with different settlement periods, or for Foreign Holidays. From the ACATs User Guide: Add the Trade Date & Settlement Date fields to the Foreign Extension Record: o Settlement Date field *NEW* Format: MMDDYY (Must be a valid business day according to the NSCC calendar) Required field defined by Deliverer Best Practice: ACAT Settlement Date should be used as the default Exceptions: o Depending on the market, Firms will need consider settlement period to determine S/D o Consider foreign holidays o Trade Date field *NEW* Format: MMDDYY (Must be a valid business day according to the NSCC calendar). Required field defined by Deliverer Best Practice: Settlement Date (-1) should be used as the default Exceptions: o Depending on the market, Firms will need consider settlement period to determine T/D o Consider foreign holidays Settling Market Location: Currently, there is not an option for a Settling Market Location on the AT/Foreign Extension Record, and therefore, is it difficult for the receiving firms to determine the appropriate instructions to use. Add a new Settling Market Location field to the Foreign Extension Record Page 10 of 33

11 o New Required/Conditional field in the Foreign Asset Data section to indicate the market that the position will be settling in: o Valid Values: 01 = CREST 02 = EUROCLEAR 03 = LOCAL Market 04 = Other Add a new Local Market Location field to the Foreign Extension Record o New Required/Conditional field (required when the Settling Market Location = 03 - Local Market) in the Foreign Asset Data section to indicate the local market that the position will be settling in: Populate the Local Market Location Field with the appropriate 2 digit ISO alpha-2 country code Continuous Net Settlement Location (CNS) and other Settling Locations Type of Assets: Listed options transferring through FundSERV, Settling Location 10 *To be included in second round of changes to facilitate the removal of Settle Prep from all remaining Standard transfers. Due to the complexity of the settlement of CNS items, it is suggested that the CAT Division partner with other industry working groups to determine the best way to remove Settle Prep from the ACATs cycle, without forcing firms to move from a night to day cycle for delivery of CNS assets, or incur additional charges. 3) Implementation Plan Due to the complexity of the changes, a phased approach will be utilized to implement the proposal: Remove Rescind as an ACAT Reject Code Intermediate Term (2017) Remove Settle Prep for Standard Transfers Short Term Changes (Late 2016) Change Foreign Asset Extension Record Change Cut-off and Cycle Times Remove Settle Prep for all Non- Standard Transfers Change Mutual Fund and Option processing Long Term Changes (Phase 2) *Please note, implementation time may vary based upon DTCC guidance, and other outside factors. Page 11 of 33

12 4) Appendix 5.1 ACAT Current State Descriptions and Diagrams Current State ACAT Lifecycle Charts and Stage Descriptions 5.2 Workflows of current and future state Cycles and Cutoffs in the Review Stage o Proposed Cycle Scenarios Removal of Settle Prep o Options Current and future state workflows o Mutual Funds Proposed File Flow between DTCC, Firms and Funds Cycle times and actions that can be taken o Current State o Future State 5.3 Statistics ACATs Transfers Statistics 5.4 Glossary Glossary of Terms 5.5 Individuals Involved CAT Division Board Members Client Experience Working Group Members Transfer s Working Group Members Settlements Working Group Members Page 12 of 33

13 5.1 ACAT Current State Descriptions and Diagrams Current State Standard (Full) ACAT Transfer Stage 1 Request (1 day) Submit Transfer request on ACAT system NSCC generates an ACATs transfer transaction and assigns a unique control number. This confirms input receipt to receiving firm and notifies the delivering firm of the transfer request The delivering has 1 day to either submit asset input, causing NSCC to generate an asset transaction report, or reject the request Stage 2 Review (1 day) The receiving firm has the opportunity to review the asset transaction report and either accept or reject the request The following actions that may take place during this stage: Acceleration may occur Mutual Fund may be receiver deleted Submit instructions to reregister mutual funds Stage 3 Settle Prep (1 day) NSCC generates a settlement report that lists all securities scheduled to settle NSCC generates a file of mutual funds reregistration instructions for eligible Fund/Serv assets and Fund/Serv is sent re-registration instructions Stage 4 - Settle Close NSCC settles the transfer and generates all necessary reports, instructions, and files Stage 5 Close ACATS purges data from the file on the day after settlement; the ACAT is no longer listed in the system Current State Non-Standard (Partial) ACAT Transfer *Note that in current state, this is a request that does not include mutual funds. If the request includes mutual funds, it settles like the full request shown above. Stage 1 - Request If submitted prior to 11:20 AM EST, considered an intra-day request and will receive a NSCC ACATs Control Number and be sent to the delivering firm sameday If submitted after the cut-off, an NSCC ACATs Control Number will be received, and request transmitted to deliverer, the next day Stage 2 Request 01 The deliverer may submit the asset(s) and the transfer will move to an intra day review, or reject the account by 2pm ET. The same reject codes available for full transfers may be used. All rejects, by the deliverer, will be a hard reject. Stage 3 Request 02 The deliverer may submit the asset(s) and the transfer will move to an intra-day review, or reject the account by 2:00pm. No action by the deliverer will cause the account to go into a purge status at the end of the business day. Stage 4 Settle Close If asset submission in REQUEST 02. The reject code, which the receiver can use to reject a partial transfer during the intraday review process Stage 5 Close ACATS purges data from the file on the day after settlement; the ACAT is no longer listed in the system Page 13 of 33

14 5.2 Workflows of current and future state Cycles and Cutoffs in the Review Stage Proposed Cycle Scenarios Page 14 of 33

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24 5.2.2 Removal of Settle Prep Options Current State Workflow Options Current and Future State Workflows Page 24 of 33

25 Options Future State Workflow Page 25 of 33

26 Mutual Funds Proposed File Flow between DTCC, Firms and Funds Batch Number ACAT Cycle (Input from firm) ACATs sends file to FundSERV FundSERV delivers 018 to Fund Company (Output from ACATs - Input to Fund) 018 Sent In the Following Situations 019 Response from Fund to FundSERV FundSERV delivery of information to ACATs ACAT Stat File delivered to Firms 1 10:00 AM 11:00 AM 12:00 PM Settlement code 10, Review Accelerate, asset has not been deleted and FR has been received Settlement code 10, Review Adjust Receiver Accelerate, asset has not been deleted and FR has been received By 4:00 AM, following receipt of 018 5:00 AM 6:00 AM 2 11:00 AM 12:00 PM 1:00 PM Settlement code 10, Review Accelerate, asset has not been deleted, FR has been received and asset has not been sent in a previous 018 batch Settlement code 10, Review Adjust Receiver Accelerate, asset has not been deleted, FR has been received and asset has not been sent in a previous 018 batch By 4:00 AM, following receipt of 018 5:00 AM 6:00 AM 3 12:00 PM 1:00 PM 2:00 PM Settlement code 10, Review Accelerate, asset has not been deleted, FR has been received and asset has not been sent in a previous 018 batch Settlement code 10, Review Adjust Receiver Accelerate, asset has not been deleted, FR has been received and asset has not been sent in a previous 018 batch By 4:00 AM, following receipt of 018 5:00 AM 6:00 AM 4 1:00 PM 2:00 PM 3:00 PM Settlement code 10, Review Accelerate, asset has not been deleted, FR has been received and asset has not been sent in a previous 018 batch Settlement code 10, Review Adjust Receiver Accelerate, asset has not been deleted, FR has been received and asset has not been sent in a previous 018 batch By 4:00 AM, following receipt of 018 5:00 AM 6:00 AM 5 2:00 PM 3:00 PM 4:00 PM Settlement code 10, Review Accelerate, asset has not been deleted, FR has been received and asset has not been sent in a previous 018 batch Settlement code 10, Review Adjust Receiver Accelerate, asset has not been deleted, FR has been received and asset has not been sent in a previous 018 batch By 4:00 AM, following receipt of 018 5:00 AM 6:00 AM 6 3:00 PM 4:00 PM 5:00 PM Settlement code 10, Review Accelerate, asset has not been deleted, FR has been received and asset has not been sent in a previous 018 batch Settlement code 10, Review Adjust Receiver Accelerate, asset has not been deleted, FR has been received and asset has not been sent in a previous 018 batch By 4:00 AM, following receipt of 018 5:00 AM 6:00 AM Settlement code 10, Review Accelerate, asset has not been deleted, FR has been received and asset has not been sent in a previous 018 batch 7 4:00 PM 5:00 PM Settlement code 10, Review Adjust Receiver Accelerate, asset has not been deleted, FR has been received and asset has not been sent in a previous 018 batch 6:00 PM following receipt 5:00 AM 6:00 AM Settlement Code 10, Review Day 1 (for PTD, PTR, or RCR) or Review Day 2 (for Full), FR has been received, asset has not been deleted and of 018 asset has not been sent in a previous 018 batch (this includes non-accelerated transfers) Settlement Code 10, Review Day 1 (for PTD, PTR, PTF, or RCR) or Review Day 2 (for Full), FR has not been received, asset has not been deleted and asset has not been sent in a previous 018 batch (this includes non-accelerated transfers), and 018 will be sent with default registration (or potential system reject) By 4:00 AM, *All Eastern Time Page 26 of 33

27 5.2.3 Cycle times and actions that can be taken Current State Page 27 of 33

28 Page 28 of 33 Future State

29 5.3 Statistics Settling Location 50 Broken Down by Asset Type for the month of July 2015 Asset Type Count % of Total CNS EXITS/FAILS 1, DTC ELIGIBLE 28, FRV 3, MFC 7, OTHER 30, US GOVT 19, TOTAL 90, ACATs Asset Transfer Adds by Cycle for the last 25 business days (as of 8/31/2015): Transfer Cycle Count % Type # FRV 1 1,261 25% FRV % FRV 3 3,105 61% Total FRV 5, % FUL 1 1,028,967 31% FUL 2 870,885 26% FUL 3 769,156 23% FUL 4 675,600 20% Total FUL 3,344, % MFC 1 1,395 19% MFC 2 1,834 25% MFC 3 4,170 56% Total MFC 7, % PTD 1 39,490 56% PTD 2 2,244 3% PTD 3 28,486 41% Total PTD 70, % PTF 1 49,033 47% PTF 2 10,698 10% PTF 3 44,023 42% Total PTF 103, % PTR 1 51,605 37% PTR 2 20,369 15% PTR 3 66,670 48% Total PTR 138, % RCL 1 2,674 49% RCL % RCL 3 2,024 37% Total RCL 5, % RCR 1 308,392 67% RCR 2 28,296 6% Page 29 of 33

30 RCR 3 121,017 26% Total RCR 457, % Accelerated transfers (as of 9/2/2015): Last 25 Transfer Instructions 8/28/2015 8/31/2015 9/1/ days Average business days Total 25,710 39,503 32,643 32, ,946 FUL, RCL 11,752 10,991 10,888 11, , =Review Accelerate 6,282 5,940 5,893 6, , =Review Adjust Receiver Accelerate ,664 * Please note that FUL and RCL are the only transfer types that can be accelerated. Mutual Fund responses for the last 25 business days (as of 9/2/2015) excluding PTF transfers Count Acknowledged on the 1st day 792,186 Acknowledged on the 2nd/settlement day 25,355 Rejected on the 1st day 7,337 Rejected on the 2nd/settlement day 3,055 Total 827,933 Number of FR Records Submitted Each Cycle for the last 25 business days (as of 9/2/2015): Cycle # Count 1 6, , , , ,985 Number of Mutual Fund PTF/Non-PTF responses for the last 25 business days (as of 9/2/2015): PTF % of PTF Total non-ptf % of non- PTF Total Acknowledged 86,905 87% 817,541 99% Rejected 13,319 13% 10,392 1% Total 100, % 827, % Page 30 of 33

31 5.4 Glossary Glossary of Terms Term Settle (Set) Prep Standard ACAT Transfer Non-standard ACAT Transfer ACATs Control Number Initiating Firm ACAT Fail FR Record Receiver Delete (RD) Definition Day four of an ACAT transfer that is currently used to prepare for settlement of a request. A full request, that takes five days to settle. Any other type of ACAT request. Settles without Set Prep, so takes one day less to settle. If the non-standard request includes a mutual fund or option, settle prep is added back into the cycle. Control number of the original ACAT Transfer. This would apply to situations where the request was to resolve a failed prior ACAT transfer. The firm that is submitting the request could be the deliverer or receiver, depending upon the transaction type and agreement between the two parties in the request. A fail occurs when a portion of an ACAT transfer does not settle on the settlement as it should. This could be due to an asset not being delivered or, in the case of a mutual fund, the asset rejecting or purging at the fund company. Fund registration record, mutual fund registration input. Opportunity for firm to remove a fund from the record. Page 31 of 33

32 5.5 Individuals Involved CAT Division Board Members Working Group Members (Client Experience, Transfers, and Settlements Working Groups) BDAC Working Group Members (Supported the work of the Settlements Working Group specific to Mutual Fund transfers) CAT Division Board Members Firm SEI Investments Morgan Stanley Merrill Lynch National Financial Services Vanguard Pershing TD Ameritrade Edward Jones Charles Schwab E-Trade DTCC Fidelity Computershare DST Systems Inc. Pershing Morgan Stanley Name(s) Philip Grant Smith Dianne Tilley Brenda Robinson Evan Oliveaux Kelly Cornwell Helene Garcia John Goodrich Cindy Little Kathy Metcalf Richard Ludwicki Craig Gurien Ellen Bocina Kevin Burns Kelle Hennier Kevin McCosker Joseph Zaets Working Group Members The following individuals engaged in one or more of the following ACATs Shortened Settlement Cycle Working Groups: Client Experience, Transfers, and Settlements Working Groups. Firm Ameriprise Financial BNY Mellon Broadridge Charles Schwab DST Systems DTCC Edward Jones E*TRADE First Clearing Goldman Sachs Janney Montgomery JP Morgan LPL Merrill Lynch Participant(s) Engaged in Working Group(s) Adam Holly, Rebecca Strand Fred Mason, Sean Lynch Julie Hodum Brian Burwell, Kim Farraye-Shores, Kathy Metcalf, Kim Cancilla Kelle Hennier Craig Gurien, Irena Zelichenko Cindy Little, Diana Langley, Diane Young, Debbie Payne, Kimberly McClelland, Richard Smith Richard Ludwicki Jennifer Young, Joan Davenport, Lori Neidhardt, Mark Storey, Pattie Schuchman Bo Rachham John Meyer, Tom Cramer, Deanna Kea Jason Gralla Lisa Myers Brenda Robinson, Ed Leddy, Jarrett Frazier Page 32 of 33

33 Morgan Stanley National Financial Services Oppenheimer Pershing RBC SEI Stephens TD Ameritrade Thompson Reuters Vanguard Wells Fargo Advisors Dianne Tilley, Joseph Zaets, Ronald Fusillo Ahmet Hatipoglu, Evan Oliveaux, Ellen Bocina, Nadina Modeste, Walter Alvarez Liz Francis Helen Garcia, Lenny Wilson, Christy Chon, Joseph Brereton, Joan Knight, Veronica Shirmacher James Dufek Grant Smith Marilyn Hughes John Goodrich Julayne Ealy Kelly Cornwell, Brian Scott, Jason Keppy James Guenther, Todd Wichmann, Vicki Layne BDAC Working Group Members The following individuals joined with the Settlements Working Group to create a process specific to Mutual Fund transfers. Firm Participant(s) Engaged in Working Group(s) RBC Capital Markets LLC David Hilden, Kara Luoma Fidelity Investments Bob Griffin Charles Schwab Kim Farraye-Shores, Kathy Metcalf DTCC John Saxenian, Josephine Torelli SunGard Asset Arena Beth Walker Oppenheimer Funds Shannon Steward JPMorgan Wendy Barta SEI Paul Morlock, Grant Smith DST Systems Inc. Kelle Hennier Vanguard Kelly Cornwell DST Brokerage Jay Bang TD Ameritrade Amanda Howard Boston Financial Data Services Barbara Browne Thomson Reuters BETA Systems Julayne Ealy Broadridge Julie Hodum T. Rowe Price Kelly Zimmerman American Funds Brad Smith ICI Jeff Naylor Morgan Stanley Joe Zaets Page 33 of 33