The Continuous Net Settlement (CNS) System is an automated book-entry accounting system that centralizes the settlement of compared security transactions and maintains an orderly flow of security and money balances.

Overview

The Continuous Net Settlement (CNS) System is an automated book-entry accounting system that centralizes the settlement of compared security transactions and maintains an orderly flow of security and money balances.

Throughout the CNS processing cycles, the system generates reports that provide participants with a complete record of security and money movements and related information (see key reports).

CNS provides clearance for equities, corporate bonds, Unit Investment Trusts and municipal bonds that are eligible at The Depository Trust Company (DTC).

Who can use the service

All NSCC settling members are eligible to use the service.

Benefits

CNS offers users the following efficiencies and risk protections:

• Regardless of volume, CNS nets on a daily basis participants' security obligations to one net long or short position in each issue, minimizing security movements and associated costs
• Through CNS, NSCC becomes the contra-party to each compared trade and guarantees settlement for eligible transactions as of midnight of the day the trade is reported to the member as compared
• Closing fail positions are marked-to-market daily, which reduces risk and ensures the integrity of the system
• While deliveries between CNS and users' depository positions are made automatically, participants can exempt certain short positions (or portions thereof) to avoid segregation violations and effectively meet other delivery needs
• Fully automated, CNS minimizes manual operations on the part of participants
• Cash and stock dividends and bond interest are automatically debited or credited to participants' CNS accounts with respect to open fail positions

How the service works

On T+3, all transactions are netted by issue to net long (buy) and net short (sell) positions, and then are further netted with positions that remained open after T+3; this includes positions due to settle that day as well as fail positions. Members' receive and deliver obligations are to and from NSCC.

The CNS automatic delivery process occurs in two cycles: the "night cycle" during the early morning (approximately 1:30 a.m.) of settlement date and the continuous "day cycle" later that day.

CNS short positions, which represent securities owed by participants to NSCC, are compared against their DTC accounts to determine issue availability. If shares are available, they are transferred from the member's account at DTC to NSCC's account at DTC to cover participants' short obligations to CNS. To control the automatic delivery of securities from their DTC accounts, participants can use CNS exemption procedures (partial settlements are permissible).

CNS long positions, which represent securities owed by NSCC to participants, are processed in an order determined by an algorithm built into the system. Securities are automatically allocated to users' long positions as the securities are received by NSCC. Participants can request that they receive priority for some or all issues on a standing or override basis. Submission of buy-in notices also will affect the priority of a member's long position.

Daily money settlement is based on the value of all settled trades plus or minus mark-to-the-market figures for all open CNS positions.

Through the CNS System, NSCC offers three ancillary services:

1. The Stock Borrow Program enables participants to lend excess securities in their DTC accounts to CNS so that NSCC can satisfy CNS delivery obligations not filled via normal deliveries.
2. The Fully-Paid-For Account provides an SEC-approved "good control location" for participants' fully-paid-for customer securities in the event of a deficit that results from deliveries made outside CNS in anticipation of CNS receives.
3. Reorganization Sub-Accounts allow participants to take part in voluntary tender and exchange offers in an automated environment.

For more information:

Please call Relationship Management at 1 888.328.2721.