Industry Adoption of SEC Rule 22c-2 Compliance Tool Increasing

The mutual fund industry is increasingly using NSCC’s Networking for Standardized Data Reporting (SDR) to track and monitor frequent trading and comply with Rule 22c-2 of the Securities and Exchange Commission. The rule states that funds and intermediary firms had to have measures in place by October 16, 2007, to request and transmit shareholder data held in omnibus accounts.

Close to 300 funds and firms had signed on to use the service at the end of November, with firm responses increasing dramatically during the September/October/November timeframe from 112 to 11,000 to nearly one million.

The SDR feature of Networking, which is used by the industry to exchange and reconcile customer account-level information, leverages a single connection and uniform data formats to streamline the process and provide two levels of reports, depending on a fund’s information requirements: summary reports for information in super omnibus accounts; and detailed reports for more comprehensive information.

Matrix Settlement & Clearance Services, one of the nation’s largest providers of mutual fund clearing and settlement services to banks, broker/dealers, trust companies, registered investment advisors and third-party administrators, is a new user. “Testing and implementation went very well,” said Cliff D’Amato, Matrix’s chief executive officer. The layouts were consistent with Networking, and the service is much better than any other alternative solutions available.”

Matrix expected that there would be some inconsistency between the expectations of fund companies and the ability of their clients’ systems to respond with the correct data. “What NSCC put together with the industry is a true compliance solution. With any new system, and this one is very detailed, it will take a while for the industry to use it properly. But everyone seems to have an immediate sense of that and understand that they need to work through any issues,” Damato said.

Sue Ng, relationship manager, Wealth Management Services, is advising customers to build in adequate time to test with their business partners so that when they go “live” with the service, the process will be fluid. “For some, it’s a learning process of getting used to how it works. Adequate testing and referencing our Best Practices and User Guides will go a long way toward a smooth connection,” she explained.