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DTCC’s Childs and Thieke Discuss GCA VS Upgrade Milestones for 2010

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Along with the barrage of other corporate actions vendor updates this week, the Depository Trust & Clearing Corporation (DTCC) announced that it has added data on scheduled payments on around 2.4 million bonds held by the Fed to its Global Corporate Action Validation Service (GCA VS). The corporate actions data cleansing vendor is also currently in the throes of a major system overhaul, which vice presidents of DTCC Asset Services Chris Childs and Dan Thieke explain is currently in its second phase and will eventually result in the replacement of 60 legacy systems.

DTCC has been gradually upgrading its GCA VS solution over the course of the last few years, including the addition of a new web browser service in March last year, in order to see off increased competition in the corporate actions market. The addition of the new data, which includes structured securities issued and maintained by the Federal Reserve Bank, as well as scheduled payments on global fixed income securities and unit trusts, this month was prompted by client requests. The structured securities principally involve securities created by Fannie Mae and Freddie Mac.

Childs explains that the addition of the new data from requirements through development and testing to production took around three months. “We had been looking to provide these services, however, for a longer period before formally launching the projects,” he adds. Up until the addition of the data, GCA VS provided corporate action announcements on around two million securities and now the vendor has added the data on the 2.4 million Fed bonds and scheduled interest payment and maturity data on a large number of fixed income securities that are not currently DTC-eligible.

GCA VS will pass through vendor data on these securities without validation, much as GCA VS does now with scheduled payments on DTC-eligible securities. DTCC Solutions also added the ability to get scheduled payments data on Unit Trusts in mid-May. Firms receiving full data files will now have four options related to scheduled payments data in the enhancements: they can take no scheduled payments data, they can take only the DTC-eligible securities data; they can take only the non-DTC-eligible securities data, or they can take all scheduled payments data available.

The vendor’s modus operandi is to look for find new sources for data at less cost, so that it can help cut the fees firms pay for vendor information they get through GCA VS, says Childs. Last year, GCA VS put out almost 6 million announcements on DTC-eligible fixed income securities’ scheduled payments, in addition to the 990,000 corporate action announcements on global equities and other securities, or an average of more than 27,000 announcements every business day. It had a total of 43 customer firms globally who were taking data feeds. The vendor is keen to increase this number significantly this year, especially outside of its traditionally strong US market base

The vendor also has connections to around 165 custodian banks in order to provide customers with an optional “custodian check service” that allows them to take both sets of data in the same format. It also gives clients the ability to see how the interpretation of their custodian compares to the validated, composite data record that GCA VS provides, says Childs.

In terms of the next data sets to be added, Childs indicates that the vendor’s clients are looking to the derivatives space: “We’ve had interest and plan very soon to provide data on the impact of corporate actions on exchange traded derivatives.”

Childs continues: “In addition to continuing to focus on the sourcing of further data sets, we are working with Swift on defining standard ISO 20022 messages for corporate actions. Greater standardisation is probably going to be the most important trend for 2010 and the next few years. Use of standards will enable greater straight through processing leading to less cost and less risk. We have also seen a reduction in announcement volume, but an increase in the complexity of the events. Increased complexity heightens the value of the use of standards.”

In order to cope with these changes, the vendor is focused on continuing its reengineering initiative this year, adds Thieke. To this end, last week, the vendor published for public comment the first set of drafts of the corporate actions announcement messages. “Working closely with Swift, DTCC has created its new corporate actions messages based upon the recently released International Organisation for Standards (ISO) 20022 corporate actions message formats developed by Swift. The move to ISO standards as the primary format for corporate actions announcement messaging is a major step towards decommissioning the use of proprietary formats. However, DTCC will continue to support its legacy proprietary files (CCF) until 2015 or sooner,” explains Thieke.

In conjunction with the publication of the ISO 20022 Corporate Action Announcement Specification, DTCC has also released Legacy to New Mapping Model Spreadsheets. The legacy file mapping documentation provides mapping of data fields from legacy files to the corresponding data fields in the new event model, and to the new ISO 20022 message structure. This reengineering effort will, over time, upgrade and replace many of the 60 legacy systems that currently support corporate actions at DTCC.

According to Thieke, the goals of the multi-year reengineering project remain based on the principles of enforcing ISO standards, providing high quality data, improving the identification and representation of events and providing both a new user interface and service options. The vendor will eventually move to ISO 20022 but will not switch off proprietary file support until 2015. The plan is therefore to get as close to issuer data as possible through XBRL tagging of source documents and thus provide intraday delivery of this data to customers.

“All events will be presented under a single record (event-based as opposed to function or activity-based) regardless of the number of options, payouts, or DTCC services that may apply,” explains Thieke. “Events such as mergers with elections and optional dividends will no longer require multiple announcements to support processing. Additionally, a unique corporate action identifier will be introduced to provide a clear and consistent way of identifying events.”

He notes that due to its size and complexity, the reengineering project is being deployed in phases, with announcements first, followed by elections and payments for distribution events, redemption events, and finally reorganisation events. Phase one was completed in October last year and involved adding additional DTC data elements to the Waves platform for GCA Validation Service customers.

The vendor is now in part one of phase two, which is due to be completed in April next year and involves the addition of new ISO 20022 corporate action announcement messages. These will all feature a DTC unique event ID1 available to all DTC participants for DTC-eligible data and to all GCA VS clients, says Thieke. It also includes the addition of an inbound XBRL interface that will allow tagged documents that have been saved to an XBRL instance to be automatically loaded into Waves

The second part of phase two is due to be carried out between April and June next year and will result in full connectivity to issuer-based XBRL tools with the generation of the issuer driven unique ID at the point of dissemination, and issuer authentication, he continues. Phase three, scheduled to be finished in March 2012, involves the addition of a new customer user interface and ISO 20022 corporate action messaging for the entire lifecycle for distribution events, from announcements through elections and payments. This same process will be carried out in phase four, which is due to be completed in September 2012, but for redemption events. Ditto for phase five for reorganisation events and reorganisation processors, which will be upgraded. This phase will be the only one to involve mandatory changes to DTCC’s legacy reorganisation CCF files.

Phase six represents the end of the project and is scheduled for 2015 or sooner (if possible), when all DTC legacy CCF files are retired, as well as the GCA VS proprietary file and ISO 15022 messages.

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