DTCC Plans to Pilot a New Service for Alternative Investment Products in Early 2007

By Karen Gregory

DTCC, through its subsidiary National Securities Clearing Corporation (NSCC), is moving forward with plans to deliver a standard platform for processing and settling alternative investments in an automated, centralized and streamlined environment. The platform will leverage and customize existing systems to create a service that meets the unique needs of the industry, supports future growth and increases scalability.

In early 2007, 10 funds, fund administrators and broker/dealer firms are scheduled to pilot-test the proposed service, which is subject to approval by the Securities and Exchange Commission.

Automating a new market segment

The service is designed to address some major operational issues faced by the alternative investment product market. These include new account openings and subscriptions (purchases), tender offers (redemptions), commission payments, fund security profiles, position reporting, account activity, distributions, valuations and account maintenance.

For an industry that today largely relies on manual processing, the service will offer several key benefits:

• Increased efficiencies and reduced costs through automation and standardization of transactions, the use of one standard file-transmission format and a centralized location that eliminates the need for multiple individual connections.
• Lower risk of errors through data repositories that store, back up and streamline information management.
• Settlement through electronic transfer of data and a centralized settlement process.
• Improved client service and communication through the timely dissemination of valuation reporting, commissions, account profile updates and acknowledgements and confirmations of transactions.

Documentation flow

In recent months, DTCC and its pilot committee have been discussing another critical operations issue: managing the flow of documentation.

"It’s become clear that the documentation requirements associated with these transactions are increasingly burdensome. Processing 40 to 50 pages for each transaction is not unusual," said Ann Bergin, DTCC managing director and general manager, Mutual Fund Services. "We believe there’s an opportunity for us to create a solution that could redefine the process."

DTCC is currently working with the committee to evaluate various ways to automate the transfer of these documents. @