DTCC Will Automate and Streamline Buy-in Notification For Securities.

NEW YORK -- The Depository Trust & Clearing Corporation (DTCC) has developed a new Web-based system that will standardize and automate the creation, delivery and tracking of buy-in notices for the securities industry and provide a single point of entry for brokers sending or receiving buy-in notices.

The new service, offered through The Depository Trust Company (DTC), a subsidiary of DTCC, is called SMART/Track for Buy-ins and improves upon an earlier DTC system, the Participant Exchange (PEX) service, which was a messaging facility only for buy-ins. The new service is subject to regulatory approval.

"The new service represents another important straight-through processing initiative for the industry that will streamline and speed up the communication process between senders and receivers of buy-ins," said Thomas Costa, DTCC managing director and general manager for Clearance and Settlement. "By standardizing the process, SMART/Track for Buy-ins brings major benefits to the industry by boosting efficiencies, reducing cost and risk and eliminating the time involved in manually sending and tracking buy-in notices."

Buy-in notifications are sent when a broker fails to deliver securities on time. The broker expecting the securities sends a buy-in notice to the broker that is failing to deliver, informing them that the broker failing to receive the securities will go into the market to buy them and hold the delivering broker liable for any price variation. In other words, if a trade was executed at $10 a share, and the securities now sell for $12 a share, the receiving broker will hold the delivering broker accountable for the $2 a share difference.

The service will be implemented in two phases: Continuous Net Settlement (CNS) buy-in intents, orders, re-transmittals and executions will be implemented in the fourth quarter of 2005, and non-CNS buy-in functionality will be implemented next year.

"DTCC began working with the Ad Hoc Buy-in Committee of the Securities Industry Association (SIA) last year, obtaining input from the industry and discussing what would be required to automate the buy-in process," said Costa. "We've since finalized the business requirements and completed a prototype of the system."

The system, which is browser-based, will provide a central point for inputting information, sending notifications and tracking the life of a buy-in notice. It will retain data for seven years for broker-to-broker buy-in notices, which includes CNS buy-in notices, as well as non-CNS buy-ins.

"The online notification of CNS executions helps eliminates the delays found in today's buy-in process. This enhancement brings us a step closer to straight-through processing for buy-ins," said Robert Santangelo, co-chair of the SIA's Buy-in Committee. "Participants getting bought in will receive information much sooner with the automated service, which will minimize the risks associated with getting prices either late in the day or early the next morning, as it sends buy-in information to allocated brokers in real time."

Santangelo also said that "the new service is much more user-friendly" than the PEX service "and that it has the potential to do a lot more for the buy-in industry in the future," as additional enhancements eliminate manual steps such as phone calls or faxes.

"The new system will enable participants to manage their exposure to open buy-ins since, in addition to messaging, it will provide tracking functionality with online reporting and status information of open buy-ins," said Margaret Koontz, vice president, Product Development for DTCC.

Participants will be able to view the status of an open buy-in and accept or reject a buy-in notice. They will also be able to transmit an extension for a non-CNS buy-in and re-transmit a buy-in execution notice to CNS.

"A large number of buy-in notices of intent are routinely sent out by firms in the course of a month," Koontz said. "During an eight-day period in February, almost 2,300 CNS buy-in notices were transmitted each day via PEX. During the same period, more than 2,000 non-CNS buy-ins were transmitted per day through PEX as well. And buy-ins are also delivered between counterparties outside of PEX," she added.

About DTCC

Through its subsidiaries, DTCC provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities and over-the-counter derivatives. DTCC's depository also provides custody and asset servicing for almost two and half million securities issues from the United States and 100 other countries and territories. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks. DTCC has operating facilities in multiple locations in the United States and overseas. For more information on DTCC, visit www.dtcc.com.