by Edward C. Kelleher
As part of DTCC’s ongoing campaign to minimize certificate movement and reduce risk in the securities industry, retail certificates of deposit (CDs) are now eligible for the FAST (Fast Automated Securities Transfer) program.
FAST minimizes certificates movements and streamlines the transfer processing by placing a customer’s assets in the custody of a FAST transfer agent.
“This is an important development in our effort to dematerialize and minimize certificate movements,” said Susan Cosgrove, DTCC managing director and general manager, Settlement and Asset Services. “New retail CDs can be registered in book-entry form with the issuer’s transfer agent, reducing the risk associated with lost securities, as well as the cost of insuring, handling and shipping physical certificates.” She said DTCC “will also look to move existing retail CDs now held in DTCC’s custody and has begun working with transfer agents to facilitate the change in custody.”
DTCC holds in custody approximately 35,500 retail CD CUSIPs with a market value of $191.1 billion.
FAST enables transfer agents to provide their clients with a full range of services in addition to custody, including automated transfer and deposit and withdrawal services. Before retail CDs became eligible for the FAST program, they essentially were processed manually. The underwriter sent a certificate to the issuer, which in turn delivered it to The Depository Trust Company (DTC), where it was held in custody.
“We needed to ascertain whether the Federal Deposit Insurance Corporation [FDIC] insurance would transfer to the FAST balance certificate before we could make retail CDs eligible for FAST,” said Ann Marie Bria, DTCC director, Asset Services. “This took some time to resolve.”
Once the FDIC confirmed the insurance transfer earlier this year, DTC began working with HSBC Bank, a participant that had spearheaded the move to make the CDs eligible for FAST.
With FAST, the CD is held in custody by the transfer agent with a balance certificate registered in DTC’s nominee name – one for each issue; balances are automatically adjusted each day, reflecting the current balance on the agent’s books.
“At HSBC, we worked out a structured note program with DTCC that allowed for daily reconciliation, and we wanted to do the same with retail CDs,” said Edward O’Toole, senior vice president and manager syndicate, HSBC Securities (USA) Inc. “That meant making CDs eligible for FAST.”
Once the FDIC gave the go-ahead, DTCC and HSBC began a pilot program issuing FAST retail CDs in April, and the bank started sending new book-entry retail CDs directly to its transfer agent, HSBC Bank USA N.A. The FAST program went live for all DTC customers in mid-May. “By making these securities eligible for the FAST program, we added value and control to the processing of retail CDs and reduced risk at the same time,” O’Toole said.
“All new retail CDs are eligible for FAST and customers will have the option to make them book-entry, going directly from the issuer to the transfer agent,” said Denise Russo, DTCC director, Asset Services. She said DTCC was in the early stages of contacting FAST agents to see if they want to transfer CDs to their custody. “This will further help our dematerialization efforts and give our participants and their investors greater flexibility in processing retail CDs.”@