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Improving Standardization for Cost Basis Reporting

By Bill Kapogiannis, DTCC Executive Director, Equities Clearing Services | November 15, 2018

Improving Standardization for Cost Basis Reporting

For many of our Equities Clearing Services clients, the Cost Basis Reporting Service (CBRS) is a vital tool for transferring cost basis information between financial intermediaries. CBRS provides the industry with a secure and automated standard for passing cost basis information between firms’ financial intermediaries when transferring assets or customer accounts. It also assists financial organizations with cost basis legislation compliance.

A centralized communications hub, CBRS mitigates potential endless paper trails, additional costs and operational risk associated with firms manually transferring their cost basis information. Cost basis is the original value of an asset for tax purposes, usually the purchase price, adjusted for stock splits, dividends and return of capital distributions.

Though not mandatory for clients to use, CBRS originally only allowed financial firms to pass customer cost basis information on assets transferred through National Securities Clearing Corporation’s (NSCC) Automated Customer Account Transfer Service (ACATS). Since 2014, the enhanced service extended its efficiencies and capabilities to transfer agents, issuers, mutual funds, custodian banks and broker/dealers to move cost basis information from one financial firm to another on all assets.

Despite being able to cast a wide net for cost basis information, there are still some firms who do not use CBRS. What we’ve found is that interpreting the manual reporting statements is quite arduous due to the lack of standardization from these instances. Firms then have to devote additional resources to record the different data elements, costing valuable time and money.

Essential Client Collaboration

DTCC product managers collaborated with clients in working group meetings and at industry conferences throughout 2018 to ensure the new statements, spreadsheets and other CBRS resources would be both helpful and clear.

“Our outreach and listening tour with clients informed the best practice guide, as well as helped design the example statement,” said Korosh Major, DTCC Product Manager, Equities Clearing Services. “Clients have been instrumental in driving these discussions and efficiencies, and we look forward to continuing this partnership with the industry.”

To help improve efficiency and reduce cost for our clients, and the industry overall, we’ve developed a standardized Manual Cost Basis Transfer Statement for industry participants. A best practice guide, as well as an example statement, was also created to help clients get acclimated to the standardized language and layout. We believe that a spreadsheet in the same format that CBRS clients’ use will allow firms to interpret and input the relevant cost basis information in a smoother, streamlined fashion. The spreadsheet also helps prepare firms to eventually use the CBRS service as their business grows.

Improved Visibility Into Data

DTCC has also developed Statistical Report to provide clients with greater visibility into their cost basis data. This report provides clients with a breakdown of transactions submitted and received. The reports will also provide the same information for the entire CBRS community to provide clients with visibility into how their submission and receive volume compares to the industry. This additional information will help firms uncover possible gaps in their processing that may have gone unnoticed previously.