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by Edward C. Kelleher

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  • Principal and Income Payments (P&I) Refinement

  • Fact Sheet: P&I Cash Processing

  • With The Depository Trust Company (DTC) set to change the way principal and income (P&I) payments are processed in early 2011, the company has launched a new page on the DTCC website that gives the industry a central source of up-to-date information on the changes, along with a range of other P&I information.

    "Our goal in changing P&I processing is to reduce risk in the allocation of several trillion dollars annually," said Kurt Holweger, DTCC managing director, Operations and Customer Service. "We created this new web page to offer an easily accessible resource for agents, issuers and DTC customers that do business in this industry segment."

    DTC collects and allocates cash entitlements due on the more than 3.5 million securities it holds in custody on a daily basis. In 2009, DTC processed almost five million payments valued at just under $3 trillion. This year, DTC has processed nearly $1.7 trillion through August. P&I payments include dividend, interest, periodic principal, redemption and maturity payments.

    Inherent risks

    Beginning in the first quarter of 2011 (an exact date will be announced in early fourth quarter) DTC will only allocate those payments that have been made on time and identified with the correct CUSIP.

    Under current practices, DTC allocates virtually all payments on their scheduled payment dates whether or not it has received payment from an agent or if it has received the payment without the information needed to pair it with a specific CUSIP number.

    But in a white paper issued in November 2009, DTC said there are "inherent risks associated with allocating late and unidentified payments. After internal review and examination and in-depth discussion with regulators, DTC has determined that, given today's market conditions, these risks must be substantially eliminated." The upcoming changes will address these risks.

    What's on the page?

    "The new web page will serve as an online resource and complete repository for P&I information," said John Faith, DTCC vice president, Operations. "In addition to providing P&I news and updates, it will have links to frequently asked questions, our user guide, best practices, P&I metrics and the 2009 white paper, P&I Payment Refinement: A Move to Further Reduce Payment Risk.

    The page will also provide links to a special section for agents and issuers that will give each a webcast describing the change and need for compliance, as well as guidelines to follow when sending P&I funds to DTC. A participant section will publish details on tracking P&I allocations. @

    [For questions on P&I processing, contact Ed Collins at or 813.470.1020.]