What's this all about?
DTCC is undertaking a comprehensive reengineering of the systems its depository uses to process international tax relief entitlements. This overhaul of legacy operating systems is a multi-year project that will cut costs, lower risks and streamline processing for the securities industry.

Why is DTCC doing this?
New classes of securities, more complex asset servicing requirements, evolving technology, changing business needs and regulatory concerns are all factors prompting DTCC to reappraise and redesign how it services the $30 trillion worth of assets it holds in custody for investors worldwide. The depository's current platform for processing international tax relief entitlements serves the industry well, but it consists of several distinct customized sub-systems. Many of these were implemented a decade or more ago and are now difficult and expensive to maintain, update, and adapt for different tax regimes, new kinds of securities or securities that will be issued internationally and paid in multiple currencies.

Why is it important?
DTC's International Tax Services facilitates tax relief entitlement elections on foreign-sourced income eligible for tax relief, as well as U.S. tax withholding on payments to non-U.S. residents through its U.S. Tax Withholding Service. Through its Elective Dividend Service (EDS), the depository has secured over $1.6 billion of foreign withholding tax relief for participants in 2006. Recovered tax dollars have increased on average over 30% a year since 2000 - and almost seven-fold since 1997. DTC's U.S. Tax Withholding Service now also handles more than $1.8 billion of income payments annually to non-U.S. residents. Standardization and automation are essential to the future safety and efficiency of international securities markets and services.

What does it do for customers?
The goal is to cut costs, reduce risk and streamline current processing procedures, as well to design systems flexible and scaleable enough to accommodate new types of instruments, tax regimes and tax entitlements, and serve an increasingly global customer base. That means building in international messaging standards, multi-currency payment capabilities and "dashboard" technology to give customers tailored access to the information that is important to them.

Will customers have to do anything?
Yes. Over time, customers will need to modify their systems in order to make sure they mesh with DTCC's new systems. DTCC will let customers know any new specifications well in advance of when they will have to be implemented. The new system, once built, will also undergo extensive testing, including customer testing.

What are the specific benefits?
The improvements to the international tax relief processes DTCC expects to achieve as a result of reengineering its systems are:

• To employ a unified approach for debiting tax to participants - payment allocations will be posted gross and appropriate rate of tax subsequently charged.
• To facilitate the handling of time critical payment events by using a "real-time" system to announce, capture and pay out late-announcement events on the same day, eliminating the current next-day waiting requirement between the announcement of an event and the opening of related instruction windows.
• To support reporting tax characterization of payment events as part of event details.
• To provide Participants with daily systemic e-mails informing them of:
  • Canceled payment events impacting instructions
  • Failure to process instructions on instructions cut-off date
  • Changes in tax rates as it applies to a certain payment event
• To offer Participants the option of setting up an internal authorization process for instruction processing.
• To enable stock loan income tracking for countries that have multiple favorable tax rates.
• To enable Participants to control stock loan/repo income tracking and fail income tracking tax rates.
• To support the ISO 15022 messaging standard (in addition to CCF feeds) for announcements, instructions, entitlements and payments.
• To handle multiple entitlements within one option of an event.
• To enable foreign currency payments.
• To provide Web browser access with better reporting and export functionality; to allow customers to export data to Word or Excel and manipulate it to meet their individual firm's needs.
• To offer "dashboard" technology that pushes critical information to the forefront for viewers. E.g., to permit highlighting of exception conditions for immediate resolution.
• To allow calculation of entitlements in cash, stock, or a combination of both, eliminating the current need for exception processing.
• To support international security numbering systems.