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by Rich Marulanda

With the mutual funds industry migrating toward an omnibus accounting environment, DTCC, in collaboration with industry leaders, continues to work on system enhancements aimed at streamlining the existing manual process for omnibus invoicing and settlement.

In a multi-phased initiative that will leverage the functionality of its Commission Settlement Service, DTCC is developing capabilities that will allow fund companies to transmit omnibus invoice information and data between funds, broker/dealers and other distributors via a centralized platform. Currently, the mutual fund invoicing process for accounts held in an omnibus account that occurs between broker/dealers and funds is not standardized. It typically involves the exchange of reports and spreadsheets via fax, email and regular mail, while settlement occurs by check or via wire transfer.

“For some time now, the increasing practice of omnibus accounting has been transforming the mutual funds industry. Along with others in the industry, we’ve recognized this shift and have been actively engaged in developing the right solution to meet the changing needs of the marketplace,” said Josephine Torelli, DTCC Vice President, Wealth Management Services. “Our central vantage point has been key in allowing us to identify new ways to reduce risk and create efficiencies for omnibus processing.”

Name change: DTCC Payment aXis

DTCC’s Mutual Fund Commission Settlement Service, which is offered through National Securities Clearing Corporation (NSCC), a DTCC subsidiary, is undergoing significant changes to accommodate the processing of omnibus invoices. As a result, to better capture the essence of the service, DTCC will be renaming “Mutual Fund Commission Settlement” to “DTCC Payment aXis,” pending a rule change filing with the Securities and Exchange Commission.

Originally developed to handle the transmission of commission and fee data exchanged between fund companies, broker/dealers and other distributors, DTCC Payment aXis will also enable fund companies to receive invoices from broker/dealers for 12b-1 fees, contingent deferred sales charges, redemption fees and other types of fees for omnibus accounts.

With this enhanced centralized platform, fund companies will be able to review and approve invoices and send payments directly to intermediaries through the automated service, eliminating the manual process and reducing the associated risks involved.

“Automating this payment process is a milestone for the industry, especially as it relates to the settlement of 12b-1 fees. Market participants will realize immediate benefits brought on by the value and efficiencies associated with daily net settlement,” commented Torelli. “In addition to reduced risk, there are tremendous cost savings associated with automation as it eliminates bank charges for wire transfers and check processing. We expect this much anticipated enhancement to be well received by market participants.”

In two phases

The initial phase of enhancements, which focuses on 12b-1 and additional fee types, is on track for completion by year end.

Phase two, targeted for 2013, will also leverage DTCC Payment aXis and will provide for the ability to invoice and settle third-party fees, such as omnibus account fees, retirement plan account fees and networking account fees. Currently these functions are handled manually using multiple spreadsheets, wire transfers and checks. Phase two enhancements will add standardization, efficiency and reduced risks for the processing and settlement of these fee types. @