DTCC Connection

Clients of The Depository Trust & Clearing Corporation’s (DTCC) Mutual Fund Services (MF) team reaped tremendous efficiency gains in 2012 when MF automated the data sourcing for its Mutual Fund Profile II - Security Issue Database, which holds vast amounts of information on fund securities.

Five years later, data sourcing and management capabilities have advanced even further, thanks to an array of enhancements DTCC implemented on June 12, 2017. These enhancements are powered by artificial intelligence (AI) and designed to streamline clients’ collection and sharing of important mutual fund security data.

“Over the years DTCC has helped drive the mutual fund industry forward with technology solutions that increase efficiencies and lower costs for our clients,” said Josephine Torelli, DTCC Executive Director and head of Mutual Fund Services. “Our latest innovation leverages cutting-edge technology to enable our Security Issue Database to capture, analyze and distribute critical data in a smarter and faster way.”
 

DTCC created the Security Issue Database in 1998 to give fund companies and fund distributors a central repository of prospectus and operational processing rules for mutual fund securities. Today, the database covers over 4 million data points for approximately 27,000 securities.

The Security Issue Database plays a key role in the investment process, by providing firms with the information required to adhere to suitability and operational rules of a mutual fund, said Sharon Wilner, DTCC Director, Product Management.

“Our database contains relevant operational data for a security that firms can load to their internal systems,” said Wilner, who oversaw the recent enhancement project.

The Security Issue Database has also been instrumental in delivering information the industry requires to monitor proper disclosure and enforcement of breakpoints — investment levels at which funds discount or waive their upfront sales charges.

In the wake of the breakpoint scandal in 2003, the U.S. Securities and Exchange Commission (SEC) together with the National Association of Securities Dealers (NASD) recommended that Security Issue Database be enlisted to communicate breakpoints to broker-dealers—prompting DTCC to add database functionality to assist firms in properly applying breakpoints when they sell a fund, Torelli noted.
 

The Security Issue Database has continued to evolve since its creation, as MF works with clients to streamline their workflow and improve their data content. In its first incarnation, the database required manual data input — “but funds lacked the time and the resources to keep their information up-to-date,” said John Saxenian, DTCC Director, Product Management.

Advances in cognitive technology and data mining dramatically changed the landscape and triggered the 2012 system upgrades that automated the mining of data from prospectuses and other documents filed with the SEC’s EDGAR system.

“This enhancement marked a huge leap forward for our clients,” Saxenian said.
 

As the speed, accuracy and capacity of data technology continued to improve, MF began exploring additional efficiency gains for the next stage of Security Issue Database enhancements.

After extensive prototype testing in 2016, a Profile User Group comprised of key fund companies assisted with final testing in the months leading up to the June 12 go-live date. The MF team also engaged the Profile Steering Committee, a standing committee that provides ongoing guidance on the Security Issue Database, to elicit member feedback.

“Conversion to the enhanced platform was seamless, with minimal client impact,” Wilner said. “Our clients also supported our objective and were instrumental in delivering a unified solution.”
 

The end result is a modernized data sourcing engine with a new user interface. The new data sourcing engine has increased the frequency in which data is extracted and populated in the database. The enhanced system also improves data entry and streamlines the work required to add new data points.

“We aimed to capture higher-quality information and push it out to the industry faster,” Wilner said. “We are delivering today what clients hoped to have some time in the future: a system that is continuously learning,” said Torelli. “Security Issue Database is powered by a cognitive engine equipped to learn from user feedback.”

The AI capability allows the database to respond to users in real time. When discrepancies arise as a fund updates its data points — such as minimum/maximum sales charges, underwriting fees and social codes — the application automatically generates a notification prompting a data review, preventing the system from being updated with incomplete information

“We are proud to be working with our partner, Kingland, in harnessing advanced technology to strengthen the mutual fund industry,” said Ann Bergin, DTCC Managing Director and head of Wealth Management Services. “Through our efforts we are reducing the burdens of data management and elevating the quality of data for our clients.”