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Fund/SERV Enhancements Create Efficiencies for Interval Funds

By Antonia Feliz-Redman | April 29, 2022

DTCC continues to provide broad support for the changing needs of the mutual fund industry, with the announcement of recent service enhancements to its Fund/SERV® product to now process future-dated interval fund repurchase orders.

Related: Driving Innovation with Purpose at the 2022 DTCC Forum

Interval funds are different from traditional closed-end funds because their shares typically do not trade on the secondary market. Shares are periodically offered to shareholders during specified periods, known as repurchase periods. Repurchase orders must be received during the repurchase period, which commences prior to the trade date.

“Because of the unique operating characteristics of interval funds, intermediaries were unable to submit repurchase orders through Fund/SERV prior to the trade date, and in many cases would warehouse and track repurchase requests manually on their books until the end of the repurchase period,” said John Saxenian, DTCC Director, Mutual Fund Services. “This limitation carried the significant operational risk with holding these orders rather than delivering them when received, including the risk that the intermediary holding the order could fail to submit it during the repurchase period. Likewise, Funds need to be informed of repurchase orders as soon as possible, to help them understand liquidity demands and anticipate if they may need to prorate repurchase activity.”

These challenges were further compounded with the continued growth of interval fund offerings, placing stress on current industry capabilities to support interval fund processing efficiently and effectively.

To address this challenge, the Broker Dealer Advisory Committee of the Investment Company Institute (ICI) and DTCC formed a Task Force to define Fund/SERV enhancements to support interval fund repurchase orders with a future trade date. The enhancements to Fund/SERV were implemented by DTCC in March, and provided:

  • Intermediaries the ability to submit a repurchase order with a future trade date.
  • Funds the ability to acknowledge future dated repurchase orders, which provides intermediaries with the confidence their transaction has been received by the Fund.
  • A “de-minimis repurchase waiver code” field to allow intermediaries to indicate the repurchase order is eligible for de-minimis treatment in the event of proration, in accordance with the Fund’s prospectus.
  • A new Security Type to identify an interval fund.

In coordination with the Fund/SERV enhancements, the Mutual Fund Profile Security service was also enhanced to add a new Product Type Code to identify an interval fund.

“It’s a great benefit to Funds, shareholders, and intermediaries to improve the straight-through processing capabilities for interval fund repurchases through Fund/SERV,” said Josephine Torelli, DTCC Executive Director, Mutual Fund Services. “It’s difficult to imagine our industry without Fund/SERV, which continues to set the gold standard for processing and settling increasingly complex investment product transactions.”

Details of the enhancements were documented in NSCC’s Important Notice a9044. The ICI-DTCC Task Force also published a User Guide/Best Practices document covering the enhancements and use of the MF Info Xchange service for Funds to communicate interval fund repurchase events.

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