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Settlement Service Guide

1. Copyright 1999 2015 by The Depository Trust Company DTC All rights reserved This work including without limitation all text images logos compilation and design is copyrighted is proprietary and is intended for the exclusive use of DTC s Participants and other authorized users of DTC s services If this work is received in any electronic medium authorized users of this work are permitted the limited right to make reproductions and transmissions necessary for downloading and storage of this work on the users computers Such users are also permitted to print one or more paper copies from the electronic version for their own use Other than to this limited extent no part of this work including any paper copies thereof or print versions thereof may be altered reproduced or distributed including by transmission in any form or by any means or stored in any information storage and retrieval system without DTC s prior written permission REDISTRIBUTION BY PARTICIPANTS OF CERTAIN DATA FILES AND THE INFORMATION PROVIDED BY DTC IS STRICTLY PROHIBITED FOR PURPOSES OF THIS PROCEDURE DATA FILES SHALL MEAN THE BULK CORPORATE ACTIONS DATA FILES PROVIDED BY DTC TO PARTICIPANTS EACH DATA FILE PROVIDED BY DTC TO A PARTICIPANT IS AND SHALL CONTINUE TO BE THE PROPERTY OF DTC AND NOT OF ANY PARTICIPANT IN RECEIPT THEREOF THIS PROCEDURE DOES NOT CONSTITUTE THE GRANT OF ANY LICENSE IN TO OR FOR THE USE OF ANY DATA FILE OR INFORMATION DIST
2. LPNC will not apply to any MMI Acronym for which the value of issuances exceeds the value of maturity presentments for that business day as further provided in Rule 9 C Section 1 of the DTC Rules Note LPNC procedures remain in effect only until the later of 3 05 p m eastern time or any time to which the period for MMI reversals may be extended by DTC in accordance with the Rules and Procedures including this Settlement Service Guide To view the LPNC for an account use the Risk Management Controls Inquiry function LPNC Procedures Applied to Net Debit Caps To accommodate LPNC procedures DTC established a simulated net balance which is calculated by computing your actual net settlement balance and reducing it by your LPNC if any If the simulated balance results in a net debit DTC will not allow the simulated net debit to exceed your net debit cap This helps protect you and DTC so that even if DTC reverses transactions in the MMI Acronyms as to which the credits have been withheld your net debit after the reversals will not exceed your net debit cap If you incur only net debits in the MMI programs in which you have activity your LPNC value will be zero To determine your LPNC intraday use the Risk Management Controls Inquiry function in the Settlement User Interface Note Intraday until approximately 3 05 p m eastern time your simulated net debit not your actual net debit is used for calculating net debit cap controls LPN
3. Service Topics Activation Account Coding DTC s Activation Account Coding product describes the various account options available to your Participant account Requirements To use DTC services you must e Become a DTC Participant Make your mandatory deposit to DTC s Participants Fund Engage the services of a Settling Bank to settle daily on your behalf and submit a formal Settling Bank agreement to DTC Account Options When you open your account and any time thereafter you can 1 Instruct DTC to group multiple accounts into different collateral families and allocate specific percentages of your start of day collateral and net debit cap to each family If we do not receive this instruction all your accounts will be grouped into one collateral family See Grouping Accounts Into Collateral Families for more information 2 Instruct DTC to classify all of your start of day positions as collateral At the opening of business each day all security positions in the minimum amount MA account that are not memo segregated will be moved into your net additions NA account giving you collateral value credit for those securities Absent your instructions DTC will code the MA account for start of day positions 3 Instruct DTC to classify all unvalued additions as non collateral Such as deposits free deliver orders DOs release of segregated securities Absent your instructions DTC will code the NA account Warning You are advise
4. e Opening start of day securities positions as collateral You can give DTC standing instructions to designate as collateral all securities in your account at the opening of each day All start of day positions are then designated NA and your CM is credited the collateral value of the start of day positions Contact your Relationship Manager to change your standing instructions e Unvalued additional securities You can give DTC standing instructions to designate all unvalued additions of securities to your account such as deposits and free DOs received 67 as either NA or MA Contact your Relationship Manager to change your standing instructions Warning Consider the implications of classifying your securities as collateral Collateral can be used to support your debt and therefore can be liquidated by DTC if you are unable to pay your settlement obligation e Intraday reclassification of securities You can submit instructions to DTC using the DYMA Collateral Moves MA NA function to reclassify an issue as collateral or non collateral Note A Collateral Moves instruction will not execute if the removal of the collateral from your account would cause your CM or simulated CM to become negative e Settlement Progress Payments SPPs You can increase your CM by wiring Settlement Progress Payments SPPs to DTC s account at the Federal Reserve Bank of New York FRBNY Your CM and your settlement account will be credited for the amou
5. 42 Investment Identification About the Product At your request DTC will segregate securities for the account of a firm partner officer stockholder or for an omnibus account Securities are segregated by the serial number appearing on the Investment dentification Instruction form The serial number appears on the Participant Daily Activity Statement on the date of activity and is reported on the end of month statement until you no longer have a position in the issue or you have instructed DTC to release the securities from segregation Dividends and interest due are allocated as follows 1 Cash dividends and interest due are allocated to the Investment Identification positions and other positions Allocations appear on your Dividend Reorganization Cash Settlement List 2 Stock dividends are calculated on the Investment Identification positions and other positions and are credited to your general free account on the payable date 3 Stock splits are calculated on the general free and pledged positions as well as the Investment Identification account The dividend is added to each respective account on settlement date 4 DTC allocates cash merger and mandatory put payments as well as municipal and corporate redemption payments for positions segregated on DTC s books Investment Identification activity is recorded on your Participant Daily Activity Statement Check your statement to be sure your transactions were properly processed
6. Participant to the Participant s shared control account at DTC since the pledge has the ability to redeliver the securities without further consent by the Participant Until the pledgee redelivers the securities the Participant has the flexibility to redeliver or make substitutions for the securities without obtaining the pledgee s release of the securities Shared controls are separately identified in DTC s Reference Directory Participants interested in establishing a shared control account should contact their Relationship Manager Procedures for DTC Shared Control Accounts The following procedures are an addition to DTC s Procedures for Pledgees 1 Any Participant may establish a shared control account at DTC and may designate any DTC pledgee to be the pledgee for that shared control account A Participant may deliver securities or other financial assets by a free pledge from any of its DTC accounts the original account to its shared control account in order to grant a security interest or other interest in the securities to the pledgee The shared control account is an account of the Participant and is identified with a separate account number from any other account of the Participant A Participant may establish multiple shared control accounts but only one pledge can be designated for each shared control account 14 2 Except as modified by these procedures the operation of a shared control account is identical to t
7. The PPO is used to collect a net option contract premium for an opening writing or closing purchase transaction The SPO is used to collect a mark to market payment based on the difference between the current and previous market value of an open securities contract Either type of payment order authorizes DTC to credit the payee Participant s settlement account with the specified amount and to debit the payor Participant s settlement account for the same amount The following are typical situations in which you would use the Payment Order service e A bank s customer writes an opening call option Through DTC the bank deposits underlying securities with the Options Clearing Corporation OCC The bank the payee Participant submits to DTC a PPO crediting its settlement account for the amount of the net option contract premium and debiting the account of the broker the payor Participant for the same amount e A bank s customer purchases a closing call option OCC releases underlying securities previously deposited with it through DTC The broker the payee Participant submits to DTC a PPO crediting its settlement account for the amount of the net option premium and debiting the account of the bank the payor Participant for the same amount e A Participant delivers securities to another Participant through DTC in a stock loan transaction Thereafter the market value of the securities increases significantly The lender the payee Participant sub
8. then these items will be released by DTC Operations for normal processing Add Rate for MMIs The IPA must add the Immediately MPs that are Activity with Unknown Rates rate in PAMM or PORS Code 28 or intraday before pending MPs MPs of the same can be released acronym Refusal to Pay RTP All refusals to pay Immediately All MPs that are Maturity Presentments MPs Important Terms must be submitted by 3 00 p m eastern time via the Money Market Refusal to Pay function MMRP If the IPA takes no action by 3 00 p m eastern time then all pending items will be released by DTC Operations for normal processing MMI MP PEND Actions and Statuses Activity Code 28 or intraday MPs for the same acronym Note Includes RPs reorganization presentments MP Pend gives the IPA the ability to set up their Pend profiles in order to indicate which issuer MPs will be pended and at what level For example as long as an MP Pend profile is active all MPs that match that profile will be automatically pended An MP Pend profile may be created deactivated reactivated or deleted Create Creates the IPA s MP Pend profile in an Active status Any MPs that correspond to the profile are pended effective immediately 49 Deactivate Deactivates an MP Pend profile thereby disabling the profile without deleting it If you deactivate the profile it is in Inactive status Deactivating turns off the profile but you can
9. Bar and Dashboard The Navigation Bar allows Participants access to improved inquiry and update capabilities for their settlement transactions The Dashboard consists of individual windows each of which offers a view into different settlement related activity Transactional Information and Settlement Balance Information Files A Participant may elect to receive files containing a its DTC settlement transaction information on a daily basis known as the Transactional Information File and or b its settlement balance information via a feed that would be provided on an intraday basis with final settlement balance information provided at end of day known as the Settlement Balance Information File Applicable fees are set forth in the DTC Fee Schedule Collateral Loan Program About the Product The Collateral Loan Program allows you to pledge securities from your general free account as collateral for a loan or for other purposes such as Letters of Credit to a pledgee participating in the program You can also request the pledgee to release pledge securities back to your general free account These pledges and releases can be free when money proceeds are handled outside DTC or valued when money proceeds are applied as debits and credits to the pledgee s and pledgor s money settlement accounts A Pledgee may but need not be a Participant Only a Pledgee which is a Participant may receive valued pledges How the Product Work
10. IPAs in MMI MP Pend Set up an MP Pend profile for the designated issuer s MPs View all the transactions that are pended or that have been released Release all transactions for processing or submit a refusal to pay to DTC by 3 00 p m ET Leave the MP Pend profile active for subsequent days deactivate the profile for re use later or delete the profile AWNP Business Rules The following are cutoff times for MMI MP Pend and related functions All actions are processed real time and take effect immediately Action Cutoff Time Action is Effective Applies To Pend Maturity Night prior to the Immediately MPs that are Activity Presentments MPs maturity presentment Code 28 or intraday MP sweep or intraday Note the MP Pend MPs for the same for MPs with variable issuer acronym profile remains in rare effect until you deactivate or delete it Note Includes RPs If the IPA profile reorganization request is submitted presentments after the MPs are processed then they will not be pended but 48 will be processed as pending items the following business day Release Maturity All pended items must Immediately MPs that are Activity Presentment MP be released the same Code 28 or intraday Transactions day that the MP MPs for the same matures by 3 00 p m acronym eastern time Note Includes RPs If the IPA takes no reorganization action by 3 00 p m presentments eastern time
11. Participants will be permitted to hold pending deliverer orders and pledge transactions including reclaims of deliveries deliveries of Initial Public Offering IPO positions and pending deliveries to Continuous Net Settlement CNS short covers Only the initiator deliverer or pledgor of a transaction will be permitted to hold or release a pending transaction Moreover only transactions that pend for insufficient position may be held To give you additional flexibility DTC offers two hold options hold with blockage and hold without blockage 60 DTC maintains separate logical recycle queues for transactions pending for insufficient position and for transactions pending for insufficient IPO position Therefore placing a hold with blockage on a transaction pending for IPO position will block only that type of transaction Similarly a transaction pending for insufficient non IPO position will block only that type of transaction Newly introduced transactions including CNS exemption overrides for securities that have transactions held with blockage will be processed using DTC s current recycle logic That is a new transaction that you introduce using option 1 will be processed when the transaction is received A transaction can either complete or not complete A transaction that cannot complete because the initiating Participant has insufficient position will be moved to the position recycle queue There it will be mixed in order of transac
12. Service Guides and or Important Notices Participants or other authorized users may direct inquiries about the Service Guides as well as requests for additional copies to DTCC Learning The Depository Trust Company 55 Water Street 25th Floor New York NY 10041 0099 USA fax number 212 855 4737 e mail address training administrator dtcc com DTCC About Settlement Overview This chapter describes DTC s Settlement products Each section includes a description of the product and how it works as well as corresponding functions you can use to access the product Note Although DTC makes every effort to provide you with timely information you are primarily responsible for obtaining such information without reliance on DTC We recommend that you reconcile your records with DTC s records before any critical dates or cutoff times About DTC s Settlement Department DTC s Settlement Department is responsible for overseeing the process of the settlement of your transactions Specifically the Settlement Department Ensures the collection disbursement of your net settlement obligations and credits through the Fedwire system Ensures that major components of DTC s Settlement Service are updating processing in a timely manner Helps resolve problems affecting the settlement process Grants input extensions when processing problems arise Provides backup to the extent possible when your systems go down Answers your questions regarding a
13. Service was developed to address the specific concerns of closely held Rule 144A issues in practice it could be used for other types of securities for which the number or character of the beneficial owners requires some level of control by a third party administrator Trade Submission e Regardless of where executed trades will be submitted to the Tracking Service either via Omgeo s TradeSuite ID system Affirmed Confirms or a DTC Deliver Order DO Directly Submitted DOs As DTC is relying solely on the instructions of the administrator in order to effect settlement in tracked securities and has no knowledge of the number or character of the underlying beneficial owners use of the SH Tracking Service by any party will constitute an agreement that DTC shall not be liable for any loss or damages related to the use of the SH Tracking System Each user of the SH Tracking Service agrees to indemnify and hold harmless DTC and its affiliates from and against any and all losses damages liabilities costs judgments charges and expenses arising out of or relating to the use of the SH Tracking Service 73 e DTC developed a new DO option through which to submit both valued and free Security Holder Tracking deliveries These items can be submitted via the Settlement User Interface and machine readable media Security Holder Tracking Transaction Processing e Security Holder Tracking deliveries will use a new Account Transaction Processo
14. affected pledgees to DTC and e Notify the affected pledgees of your intent to use the Honest Broker procedure DTC will grant you access to the Honest Broker functions which consist of various options that allow you to execute and cancel deliver order DO transactions and to maintain the Pledgee CUSIP Assignment List and enter CNS deliver orders Pledgee CUSIP Assignment List Via the Honest Broker function you must specify which CUSIP numbers affect each pledgee participating in the Honest Broker procedure For each CUSIP number for which you have initiated a DO you must type the corresponding pledgee Participant number Note The pledgee CUSIP assignments specified using this option will remain in effect from one day to the next unless you cancel them DTC will provide you with output via the Settlement User Interface detailing complete and incomplete honest broker DOs as well as honest broker DOs that identify the pledgees whose shares were used to complete the DOs Collection of DO Liquidation Data Via the Honest Broker function you can enter DO instructions for trades that you want to complete using securities pledged to the pledgees Note DTC will not allow any repurchase repo transactions reason code 81 or due bill deliveries in the Honest Broker function You can also use the Honest Broker Function to 33 e Browse previously input DO transactions in the Honest Broker Control Account for transactions input on the s
15. and supply DTC with specific wire instructions for your DTC Settling Bank as outlined in Important Notice 4582 09 This information will be stored in DTC s wire instruction database and may be accessed when you submit SPP returns or P amp I withdrawal requests Each instruction must include Your Participant number The American Banking Association ABA routing number of the receiving bank which must be your Settling Bank Your Settling Bank s Telegraphic ID Your account number at the receiving bank Beneficiary Name Beneficiary Account Number Beneficiary Address including the Street City State Zip and Country Note You can add information to the wire instructions such as a department name if desired DTC will maintain up to five wire instruction formats in its wire instructions database Complete the Wire Instructions form for Settlement Progress Payment Returns and Principal and Income P amp l Payment Withdrawals attached to Important Notice 4582 09 and send it to DTCC s Membership Onboarding Account Administration group at least two weeks prior to the desired effective date The executed form s should be sent via e mail PDF to DTCAA dtcc com 65 The Settlement Progress Payment SPP Principal amp Interest P amp I Push Profile In order to simplify the SPP P amp l withdrawal process and to allow Participants to maximize the return of available liquidity DTC offers the SPP P amp Push Profile which al
16. available collateral in your account DTC operates on a fully collateralized basis You are required to have sufficient collateral in your account to support net settlement debits you incur Transactions that would cause your net debit to exceed the total value of collateral in your account are held in a recycle pend queue until sufficient collateral is available Your primary sources of collateral are Cash deposited to the Participants Fund Proprietary or firm positions such as dealer investment or margin positions that you designate as collateral e Securities received and not paid for versus payment e Securities added to your account and not received versus payment such as deposits free deliveries free pledge releases release of segregated securities that you designate as collateral 66 Collateral Valuation of Securities The value of securities designated as collateral is based on the prior business day s closing market price less a haircut Haircuts are used to protect DTC and its Participants from price fluctuations if DTC is required to liquidate collateral of an insolvent Participant Furthermore because DTC may have to finance a Participant s failure overnight DTC s haircut structure takes into consideration haircuts imposed by our line of credit banks The full market value of securities is not normally obtainable from a bank that accepts securities as collateral to support a loan banks generally consider the rela
17. insufficient ID Net collateral for that ID Net Firm the system will look to the ID Net Firm s excess collateral in its account Similar to collateral the system will create a new ID Net settlement balance When this balance is a net credit from deliveries on the ID Net Firm s behalf through the 919 account it will only be used to offset incoming ID Net receives to the 719 account If there is an insufficient ID Net credit to absorb the debit of the ID Net delivery to 719 for that ID Net Firm the system will create an ID Net debit that will effectively treat the ID Net debit as a reduction of the ID Net Firm s net debit cap and will be displayed via the Risk Management Control Inquiry function The ID Net debit will only be used for net debit cap calculation purposes and will not represent a Participant s actual settlement balance e If the ID Net Firm has insufficient collateral or net debit cap the transaction will pend until 11 30 a m eastern time on settlement date Risk Controls for the ID Netting Subscriber Deliver Account e Authorized bank deliveries will be checked for position and collateral as today The original clearing firm who is now identified in the third party field is responsible for collateralizing the ID Net securities being processed into the ID Netting Subscriber Deliver Account 719 e Receives into the ID Netting Subscriber Deliver Account 719 for the ID Net Firm will be available for immediate delivery to
18. net net credit balance will be treated as a net debit balance 4 A settling bank with a net net debit balance or a net debit balance if the settling bank settles only for itself will be deemed to have failed to settle if after acknowledging its settlement balance the settling bank does not pay its settlement balance to DTC within 30 minutes after the Acknowledgment Time DTC s flat fee for a Participant failure to settle will be charged to a settling bank for each instance in which the settling bank has a net net debit balance or a net debit balance and neither acknowledges nor pays its settlement balance by the Acknowledgment Time even though the settling bank pays its settlement balance within 30 minutes after the Acknowledgment Time Solely for purposes of calculating that flat fee the settling bank s net net debit balance will be treated as a net debit balance 5 If a settling bank is deemed to have failed to settle with DTC DTC will give notice of the failure to all of the Participants that settle through the settling bank Each of those Participants will be deemed to have failed to settle with DTC on that day Each of those Participants may need to 31 arrange for another settling bank to pay or receive funds for the Participant on that day or on the next business day 6 If a settling bank is deemed to have failed to settle with DTC DTC may retain collateral on that day from all of the Participants that settle through the se
19. or approved by Participants after this time will not recycle they will either complete or drop 3 15 p m Optional Push profile that allows Participants to establish a standing withdrawal request for SPP returns and P amp I withdrawals Cutoff for government deposits and withdrawals 3 20 pum Cutoff for Settlement payment withdrawals and principal and income withdrawals Note These are manual withdrawals as opposed to the Push profile described above 3 20 p m Forced RAD Delivery Period ends Cutoff for entering e Valued original DOs including unmatched reclaims e Original POs e Valued pledges e Valued pledge release requests Note If you have made prior arrangements with DTC and your Settling Bank you can continue to submit valued transactions to your Settling Bank 24 Cutoff Time ET 3 30 p im 3 45 p m 3 45 p m 4 15 p m 5 00 p m 5 15 p m 6 15 p m 6 30 p m 6 30 p m 6 35 p m 6 45 p m 7230 p m 8 00 p m This Occurs Cutoff for e Pledgees to approve valued pledge release requests and enter valued release returns e RAD approval or cancellation for valued transactions except MMI valued issuance DOs DTC calculates your DTC and NSCC cross endorsement balances and applies them to your account DTC finalizes settlement balances for you and your Settling Bank Cutoff for Settling Banks to acknowledge their net net settlement balance where applicable or refuse to
20. or in which the distribution is payable in a different security are also credited to the original account Any stock splits or other distributions of the same securities for which the ex distribution date is after the payable date are credited to the shared control account 4 The securities credited to a shared control account cannot be designated as or included in the collateral for any obligation of the Participant or the pledgee to DTC DTC has no lien or other interest in any securities credited to a shared control account Collateral Loan Program Contact Number For more information about Collateral Loan Programs call DTC s Customer Support Center at 888 382 2721 Continuous Net Settlement CNS About the Product Continuous Net Settlement CNS is the primary clearing mechanism for the New York Stock Exchange NYSE American Stock Exchange AMEX National Association of Securities Dealers NASD and other marketplaces The National Securities Clearing Corporation NSCC operates CNS which is the securities industry s largest trade clearance and settlement system How the Product Works For each security CNS nets down to one net buy and or sell on all trades expected to settle on the next settlement day including trades unable to settle on the previous settlement day After the trades are netted free book entry movements at DTC to or from Omnibus Account 888 allow NSCC participants to deliver short covers to NSCC and receive lo
21. or pledge them via the Collateral Loan Service Internal deliveries cannot be processed through the Federal Reserve Deliver Order option because this option is reserved for outgoing Fed deliveries in which the contra is DTC s Fed inventory account 6072 Internal deliveries of Fed eligible securities are subject to all existing DTC risk management controls reclaim rules cutoffs and RAD procedures Withdrawing U S Government Securities In order to process deliveries to a Fed member withdraw them from your DTC account Participants must use the Federal Reserve Deliver Order function This function will require Participants to enter additional information ABA number ABA sub account 3rd party information in addition to the standard deliver order fields quantity CUSIP reason code etc Federal Reserve Deliver Orders entered through this option with original or reclaim reason codes will be processed as original securities transfers Type code 2000 in the Fed s system Outgoing Federal Reserve Deliver Orders which pass DTC s edits will appear as deliver orders to DTC s Fed inventory account 6072 in the Activity Inquiry function Reclaims are not permitted through the Federal Reserve Deliver Order option Participants must use the Activity Inquiry function or the Deliver Order function reclaim option in order to process Federal Reserve Deliver Order reclaims Reclaims will be processed as reversals Type code 2002 in the Fed s s
22. payable date or in which the distribution is payable in a different security are also credited to the account of the Participant Any stock splits or other distributions of the same securities for which the ex distribution date is after the payable date are credited to the repo account of the Receiver 4 The instructions for a delivery of securities to a repo account at DTC use the same data fields as the instructions for a pledge to a pledgee account Those data fields include a mandatory hypothecation code field A Participant delivering securities to a repo account must enter the number 7 8 or 9 in the hypothecation code field The entry of the number 7 8 or 9 in the hypothecation code field of instructions for a delivery to a repo account does not constitute a notice or representation as to any matter by the delivering Participant The entry of the number 7 8 or 9 in the hypothecation code field of such instructions is merely an action needed to effect the delivery through DTC s facilities A Participant pledging securities to a pledgee account must continue to enter the number 1 2 or 3 whichever is applicable in the hypothecation code field Participants are responsible for entering the appropriate number in the hypothecation code field for all transactions 5 The DTC reports and statements to the Participant and the Receiver for a transaction involving a repo account are the same as the reports and statements for a transaction involvin
23. releases its risk management controls at approximately 5 00 p m eastern time 61 Note Initial Public Offering IPO transactions are not subject to PTA procedures A PTA indicator entered during an IPO transaction will be ignored by DTC s system PTA Transactions Subject to a Hold with Blockage PTA procedures allow delivering Participants to place holds and holds with blockage on a PTA transaction that is recycling for insufficient position only You cannot place holds and holds with blockage on PTA transactions that are recycling for insufficient other NA Delivering Participants are permitted to place holds and holds with blockage on non PTA transactions a transaction with the PTA indicator set to N that are recycling for insufficient position or insufficient other net additions NA Additionally free PTA transactions recycling for insufficient other NA that are subject to a hold with blockage because a non PTA transaction above the PTA transaction in the position recycle queue has a hold with blockage placed on it are automatically released from the hold status when DTC releases its risk management controls Cancellation of PTA Transactions Only receiving Participants can cancel a recycling PTA transaction Delivering Participants of PTA transactions that recycle for Risk Management Controls cannot cancel them The position associated with cancelled PTA transactions is automatically released from the PTA account and made available
24. required information and authorization e If acceptable the appropriate master file update will take place that evening at approximately 8 p m e Once the update has occurred affirmed trades from that evening between two eligible ID Net Subscribers will be routed into the ID Net process Thus the first eligible ID Net trade that could be processed is on the following night e When Participants subscribe to ID Net the transactions eligible for ID Netting will initially be limited to CUSI Ps that begin with a 5 to support a phased in implementation Note A Participant should contact its Relationship Manager about testing with DTC and NSCC prior to signing up for ID Net B ID Net Security Eligibility Most equity securities that are eligible for CNS are eligible for ID Net processing ID Net Processing Eligibility In addition to Participant and security eligibility requirements for a transaction to be eligible for ID Net 36 e The trade must be affirmed matched by i a Registered Clearing Agency as defined in the Securities Exchange Act of 1934 ii a clearing agency that has received exemption from registration by the SEC or iii a qualified vendor for trade confirmation affirmation services as defined by the rules of a self regulatory organization collectively defined herein as Affirming Agencies e The trade must be affirmed before 9 00 p m eastern time on T 1 e The trade must be regular way i e T 3
25. reuse it by activating it Note Deactivating a profile does not affect the transactions that are pended The PA still needs to release each MP that is pending The deactivation would take affect for any MPs that are submitted after the profile is deactivated Activate Reactivates an MP Pend profile that has previously been deactivated If you activate the profile it is in Active status and MPs that correspond to this profile are pended immediately Delete Deletes an MP Pend profile Delete a profile if you no longer intend to use it deactivate a profile that you wish to turn off now but may want to reuse Note Deleting a profile does not affect the transactions that are pending The IPA still needs to release each MP that is pending Maturity Presentment In MMI MP Pend maturity presentment is defined as the following e MPs and Reorganization Presentments RPs that are activity code 28 processed the night prior to the maturity date and or intraday for MPs of the same acronym e For MMIs that pay interest and principal the last interest and principal payment that is combined into a single maturity payment activity code 28 0 to the holder on maturity date e For MMIs that make periodic principal payments both fixed and variable rate the last periodic principal payment PPP made for these MMIs if made on maturity date Note For MMIs that make periodic principal payments on an accelerated basis prior to the scheduled mat
26. services provided by DTC However the FRB must approve securities pledged to FRBs under the subheading Pledging Purposes You should contact the appropriate FRB to determine whether the securities pledged are accepted and to inquire about particular instructions for indicating the purpose of the pledge Issues Not Acceptable to FRBs The FRB may not permit the pledging of certain securities that might be DTC eligible If a pledge is made in an issue not accepted by the FRB the FRB will initiate the release of the pledge after receiving pledge notification Inquiries Pledgors can monitor all pledges releases Participant and non participant and current collateral loan inquiries intraday using the Activity Inquiry functions Pledges to the Options Clearing Corporation A Participant writing an option on any options exchange may fully collateralize that option by pledging the underlying securities by book entry through DTC to the Options Clearing Corporation OCC If the option is called exercised the securities may be released and delivered to the holder of the call If the option contract is not exercised OCC validates a release of the pledged securities which are then returned to the Participant s general free account Rollover of Collateral After an option contract has expired the option writer may rollover or continue to use the original collateral for subsequent contracts By following an OCC procedure you may rollover the coll
27. settle for a specific Participant Note If the 3 45 p m deadline for final figures is extended banks have 30 minutes from that cutoff to either acknowledge or refuse to settle Cutoff for e Entering free Fed pledges to Federal Reserve Bank with extensions upon request to the Fed e Pledgors requests for release of positions pledged to Federal Reserve banks Federal Reserve banks to input pledge release returns Entering valued DOs and pledges to your Settling Bank Settling Banks to settle DTC payments for net net debits Settling Banks to authorize valued DO and pledge transactions MMI issuing agents to enter free original issuances new CUSIP DTC to lift Risk Management Controls Free non MMI DOs input after 5 00 p m to RAD if that option is activated by the receiving Participant DTC instructs the Fed to credit payments to Settling Banks with net net credit balances Cutoff for e Entering free additional MMI issuances existing CUSIP and free deliveries e Pledgors to enter free pledges and free release requests e MMI issuing and paying agents to withdraw MMI securities e PA deadline to set the MMI MP Pend or Issuer Priority Control 1 PC profile that will be effective for next processing day e OCC member s release of deposit request and authorization to release positions pledged to the OCC Cutoff for e Approving or cancelling free MMI issuances through RAD e Inputting day and night position transfer inst
28. settlement e The transaction must be between an ID Net Firm and an ID Net Bank on behalf of an institutional customer Affirmation Processing The service will be initially rolled out in conjunction with Omgeo Accordingly when an Omgeo TradeSuite institutional trade is affirmed matched Omgeo will e Ensure that both the ID Net Firm and ID Net Bank are participating in ID Netting and e Complete security and trade level eligibility checks and ensure affirmation is effected before the 9 p m cut off on T 1 Once Omgeo has determined that the trade and parties are eligible for ID Net e Omgeo will set the settlement option value field of the affirmed confirm position 615 equal to 6 Note that 6 is a new value for an existing field Today the values used in this field are 2 for regular ID processing and 4 for NSCC prime broker processing e For bank deliveries institutional sells Omgeo will put the ID Netting Subscriber Deliver Account 719 in the depository third party field of the ID affirmed confirm and leave the original clearing firm in the receiver field e For bank receives institutional buys Omgeo will put the ID Netting Subscriber Receive Account 919 in the depository third party field of the ID affirmed confirm and leave the original clearing firm in the deliverer field It should be noted that the depository third party field of the ID affirmed confirm is not populated today Theref
29. standard deliver order DO format for each delivery and will include quantity price and settlement amount e The DTC HB Account number to which each redelivery is to be made Note Pledgees will be able to view this information using the Honest Broker functionality 6 On settlement date DTC will provide to the pledgees e Pricing information on short positions in National Securities Clearing Corporation s NSCC s Continuous Net Settlement CNS system and e The aggregate delivery price for each issue assuming that all of the shares are delivered 28 7 The pledgee can decide whether to deliver pledged positions to the DTC HB Account using the Honest Broker function 8 The pledgor will advise the DTC Participants that their expected deliveries will be made from the HB account rather than from the pledgor s own account Provided that no bankruptcy ruling or court imposed stay has occurred shares will then be delivered from the DTC HB Account with deliveries made in descending price per share order other than deliveries to settle open NSCC CNS short positions which will be affected first Note DTC will not process free deliveries All settlement credits will be made to the DTC HB Accounts DTC will make special arrangements with NSCC for related money credits for CNS short positions 9 For each issue DTC will allocate on a pro rata basis to any pledgee that had delivered pledged securities to the DTC HB Account e Procee
30. the Settling Bank Statement function in the Settlement User Interface to ensure that funds have been credited to their account and that no balance exists The Settling Bank must be prepared to wire payment to DTC if funds are not available or if the NSS is unavailable or inoperable DTC requires that a bank representative authorized to wire funds be available at the Settling Bank until settlement is complete If a Settling Bank is experiencing extenuating circumstances and as a result needs to opt out of NSS for one business day and send its wire directly to DTC s FRBNY account for its debit balance that Settling Bank must notify the Settlement department prior to acknowledging its settlement balance If funds need to be wired to DTC s account at the FRBNY use the following guidelines for sending settlement wires Enter 026002066 DTC s ABA number in the Receiving Bank ABA Number field Enter DTC SDFS DTC s telegraphic name in the Receiving Bank Name field Enter 1600 in the Type Code field Note Type Code 1600 is the Fedwire code for settlement wires Wires sent with this code can be processed after the Interdistrict Fedwire cutoff whereas Type Code 1000 wires cannot In the event that system problems delay outgoing wires Type Code 1600 prevents your wires to DTC from being rejected by the Fed after the Interdistrict cutoff e Enter OBI SET indicating SET as the purpose of the wire in the Originator to Beneficiary Information O
31. the amount of the transaction 44 Note If the free position is greater than the Memo Segregation position and the transaction is for the entire free amount the Memo Segregation position is reduced to zero it does not become a negative value Optional Memo Segregation Indicators You can activate any of five Memo Segregation indicators by providing DTC with a standing Memo Segregation instruction When you activate a Memo Segregation indicator your free position and Memo Segregation position are automatically updated according to the indicators that you have elected Activate Indicator Automatically increase your Memo Segregation counter upon the receipt of Free and valued DOs with reason codes 40 99 330 amp 340 WT reversals Positions resulting from voluntary and mandatory reorganizations Automatically increase your Memo Segregation counter upon receipt of transactions with reason codes 41 48 331 338 341 348 Automatically increase your Memo Segregation counter upon the receipt of CNS receives from the Fully Paid For Securities or E account Turnaround securities positions regardless of Memo Segregation constraints for positions received from DOs with reason codes 10 30 and 600 except those with reason codes 10 20 260 270 280 or 290 Turnaround securities positions regardless of Memo Segregation constraints for positions received from All DOs except those with reason codes 20 29 40 4
32. the practice of sending Deliver Orders DO for these trades Otherwise the contra Participant may reclaim subject to DTC s risk management controls and applicable RAD limits the DOs since these trades are set up for 37 settlement in ID Net Authorization of individual ID deliveries versus sending DOs is more cost effective for banks e Ifan ID Net Bank cancels an ID trade today it can no longer be acted upon If a trade is in the ID Net process and is cancelled the trade can no longer be acted upon and the trade will be immediately exited from ID Net processing e Transactions exempted by an ID Net Bank will remain in ID Netting until 11 30 a m on settlement date At 11 30 a m if still exempted the delivery will be removed from the ID Net Service IMS will return the original clearing firm s Participant number back to the receiver field and populate the third party field of the delivery with the ID Netting Subscriber Deliver Account 719 This will be transparent to ID Net Banks If a transaction is subsequently authorized by the bank it will be delivered to the original clearing Participant on a trade for trade basis just as ID trades are processed today with all applicable comment information remaining intact The ID Net processing cut off time of 11 30 a m eastern time will allow ID Net to give the obligations back to the original parties with sufficient time to allow them to complete the delivery from their account or borrow t
33. the recycle processor maintains the order in which transactions are entered into the Account Transaction Processor ATP meaning FIFO ordering Except for CNS deliveries which are always given the highest priority transactions are not prioritized by transaction type or size Note If the first transaction in the recycling queue cannot complete DTC does not attempt to complete any other transactions in the recycling queue even if there is sufficient position available until it has completed the first transaction in the queue This feature is known as blockage To further allow you to control the order in which your transactions complete once a transaction for a specific security recycling exists DTC automatically recycles all subsequent transactions for that security This ensures that after sufficient position exists for the first transaction it will complete Note Segregations do not recycle so DTC uses the existing position to complete those transactions regardless of what transactions are recycling Pending Delivery Account DTC helps ensure the integrity of the FIFO queue by temporarily holding your position for transactions recycling due to risk management controls This account is called the Pending Delivery Account PDA After your position is moved to the PDA it is not available for other transactions that are recycling for insufficient position You can use the POSM function to move your PDA position back to your general
34. to the delivering or pledging Participant for other PTA or non PTA transactions Receiving Participants can cancel only PTA transactions that recycle for Risk Management Controls including PTA transactions that recycle for insufficient other NA Only delivering Participants can cancel non PTA recycling deliveries and PTA deliveries recycling for insufficient position Prioritization Schedule The following table shows the order in which DTC places transactions for Risk Management Controls and option 1 recycling Note These criteria do not apply to CNS deliveries which recycle for position only Transaction Criteria Market or Settlement VEIT MMI Interest Principal Presentments Settlement Value MMI Maturity and Reorganization Presentments Settlement Value Voluntary Reorganization Instructions RRG Market Value account Note Instructions processed with contra CUSIPs such as tender offers and put bonds are included with Free Deliver Order Free Pledge Releases below 4 Valued Pledges and Releases Settlement Value 5 Free Pledges Market Value 6 Valued Deliver Orders Settlement Value 7 Free Deliver Orders Free Pledge Releases Market Value 8 Payment Orders Settlement Value 62 Transaction Criteria Market or Settlement VEIT SPP Return P amp Withdrawal Requests Settlement Value Rush Withdrawals CODs Market Value TI Withdrawals By Transfer Market Value 12 Position Transfers Between MA and
35. transactions when an attempt to cancel message is generated by Omgeo the same as they do today Automated exemptions on a trade for trade basis via the Omgeo control number will still be accepted for ID Net trades from the ID Net Subscriber Receive Account 919 Cut off of 11 30 a m on Settlement Date Trades that are eligible for ID Net but are still in an exempt or unprocessed state or are pending for position or risk management controls at 11 30 a m on settlement date will automatically revert to trade for trade settlement versus the original clearing firm They will be exited from the ID Net process at NSCC through a new Miscellaneous adjustment to their CNS position Any exits from ID Net after the start of the night cycle that create a short or increases an existing short in CNS will be subjected to the one day settling trade exemption indicator the default for this indicator is level 1 i e the position will be exempted The exit processing for ID Net Banks and ID Net Firms will differ as follows ID Net Bank Deliveries ID Net Bank deliveries that remain exempt at 11 30 a m eastern time on settlement date will be exited from ID Net as follows e ID Net will move the original clearing firm back into the receiver field and the ID Net Subscriber Deliver Account 719 will be placed into the third party field by the ID Net Service Thus if a bank authorizes the delivery after the 11 30 a m eastern time ID Net cutoff the ID del
36. 0 a m eastern time ET DTC automatically sweeps maturing MMI positions from accounts of investors custodians with positions in the maturing issues and initiates maturity presentments MPs to the accounts of the designated PAs MPs are effectively provisional book entry deliveries versus payment submitted for inclusion in that day s settlement balance DTC debits the IPA s account in the amount of the maturity proceeds for settlement that day and credits the same amount of the maturity proceeds to the investor s custodian account for payment that day to the investor Because MPs are processed automatically and randomly against the I PAs DTC account IPAs are provided the ability to refuse to pay for a specific issuer s MP in the event that the issuer defaults on its obligation to the IPA These MPs are subject to reversal later in the day if an IPA refuses to pay RTP by 3 00 p m eastern time The objective of the MP Pend function is to reduce the need for late day reversals Legal Disclaimer In order to confirm that IPAs have the authority to pend MPs and understand the submission rules they are required to review and accept a legal disclaimer each time they create or change an MP Pend profile Before submitting an MP Pend profile the PAs click to acknowledge that they have read and accept the terms and conditions Legal Disclaimer that the IPA Agrees To 47 The Issuing Paying Agent for issuer hereby represents and w
37. 18 Note Although each Settling Bank settles with DTC on one net net amount the Settling Bank is responsible for collecting final net debits from and paying final net credits to the Participants it represents About the Netting Process As part of the net net process DTC employs a netting procedure with NSCC called cross endorsement Under cross endorsement each Participant s net debit at one organization is netted against the amount of its net credit if any at the other organization Looking back at the previous example if Participant 1 had a net credit of 1 million at NSCC it would be applied to its DTC net debit of 1 million making its DTC net balance zero This would make Settling Bank ABC s net net balance zero and eliminate the need to settle a debit with DTC Participant 1 s net balance would be zero after the cross endorsement process Participant 2 s net balance would still be a debit of 1 million but this debit would be offset by Participant 3 s net credit of 1 million While the cross endorsement process impacts the net net figures of Settling Banks by affecting the net balances of the Participants for which they settle the process is transparent to Settling Banks and is simply a component of each Participant s net balance Establishing Your Net Debit Cap A Settling Bank can limit the net debit cap assigned to each Participant it represents However the maximum amount set by a Settling Bank cannot exceed your system
38. 5 mm x 2 20 mm x 1 5 50 mm x 1 25 mm x 0 5 360 which equals 2 847 Flat Fees Net Balance of Settling Bank or Participant 0 to 100 000 Between 100 000 and 900 000 Between 900 00 and 1 700 000 Between 1 700 00 and 2 500 000 More than 2 500 000 Example First Occasion 100 300 600 900 1 000 Second Occasion 200 600 1 200 1 800 2 000 Third Occasion 500 1 500 3 000 4 500 5 000 Fourth Occasion 1 000 3 000 6 000 9 000 10 000 For a first occasion 100 million net debit total fees equal 2 847 fee interest 1 000 flat fee 3 847 Note a If you failed to settle you are charged a fee interest in addition to the interest charged for the cost of borrowing to complete settlement b The number of occasions will be determined over a moving three month period If you exceed four failure to settle occasions in a three month period you will be subject to further fees and or other actions at DTC s discretion after consultation with DTC c If DTC determines that it greatly affected your ability to settle because of a DTC system delay for example DTC will waive failure to settle fees for that occurrence Settlement Contact Number 23 For more information about Settlement processing call DTC s Settlement Hotline at 212 855 5800 Settlement Processing Schedule The following table describes the DTC Settlement p
39. 8 99 261 268 270 278 290 291 330 338 340 348 390 610 619 705 707 and CNS receives from the C and E accounts except if the turnaround is a reason code 10 20 260 270 280 or 290 A Participant may elect to increase automatically its Memo Segregation counter by the units of securities credited to the Participant s account in any ACATS transfer to that account jit Memo Segregation indicators 4 and 5 control the capability that allows certain positions to be used for turnarounds up to the amount of the received position regardless of Memo Segregation constraints Even if you have no pending deliveries at the time a position is received from a DO with reason code 10 or 30 DTC retains throughout that day s processing cycle a notation of the number of shares received from such deliveries DTC also processes any deliveries regardless of when they are submitted that day up to that number regardless of your Memo Segregation position 45 Memo Segregation Contact Number For more information about Memo Segregation call DTC s Customer Support Center at 888 382 2721 Money Market Instrument MMI Issuer Failure Process About the Product The Money Market Instrument MMI Issuer Failure process is designed to protect DTC and its Participants from incurring financial losses when an MMI issue defaults Using the MMRP function issuing paying agents IPAs can notify DTC that they refuse to pay maturity or peri
40. 800 Associated Functions The Short Position Inquiry function is used in association with the Settlement Processing Schedule and allows you to view the detail short position penalty charges Security Holder Tracking Service About the Product The Security Holder Tracking Service allows a third party administrator to track the number of beneficial holders of an issue Background The Security Holder Tracking Service or the SH Tracking Service will allow issuers either themselves or through an issuer designated administrator to track and limit the number of beneficial owners for an individual CUSIP In order to support the settlement and asset servicing of certain securities DTC was asked to build a mechanism which would allow issuers to track and limit the number of beneficial owners of its securities For more information contact DTCC Relationship Management at 800 422 0582 Process Overview To support the tracking of holders in a designated security DTC will provide access to its Inventory Management System IMS to those administrators assigned by the issuer Once the issue is established on the DTC master file as one that requires tracking all transactions will be held in IMS awaiting administrator approval to proceed to settlement In order to use the service DTC must be notified during the underwriting eligibility process that the issue requires third party tracking Upon receipt of all required documentation DTC will a
41. Amount and the settlement obligation of the clearing agency that owes the Credit Amount to such Common Settling Bank In that instance no payment shall be due to or from such Common Settling Bank to or from either DTC or NSCC 3 Notwithstanding the foregoing if any Common Settling Bank fails to pay its Consolidated Settlement Debit Amount by the time specified in DTC and NSCC s procedures then i if that bank has an NSCC Debit Amount NSCC shall implement its failure to settle procedures and ii if that bank has a DTC Debit Amount DTC shall implement its failure to settle procedures 4 Under FRB Operating Circular No 12 DTC as Settlement Agent has certain responsibilities in allocating an indemnity claim made by a FRB as a result of NSS In making such an allocation NSCC and DTC will first apportion any such liability between them and their respective Participants 30 in proportion to the amount of the net net debit due to each clearing agency by the Settling Bank to which the indemnity claim relates If that Settling Bank owed a debit to one and had a credit due from the other clearing agency then the entire indemnity amount will be allocated to the clearing agency to which the Settling Bank owed the debit amount and for which via NSS its FRB account was debited relating to the indemnity claim NSCC and DTC will then further allocate the FRB claim among their Participants for whom the Settling Bank was then acting If for any re
42. BI field Note The SET purpose must be indicated in the wire If another field is used to indicate SET as the purpose of the wire OBI and SET must be separated by a space For example BBI OBI SET where BBI is the field used instead of the Originator to Beneficiary Information OBI field e Enter values in other fields in Fedwire format according to your own standard procedures e Submit the instruction DTC posts the payment as a credit to your Settling Bank Account Statement when payment for your net net debit is received e Review your net net balance via the Settling Bank Statement function to ensure that DTC receives the funds Note The instruction format described above conforms to Fedwire standards for funds transfers Settling Banks should note that the Originator to Beneficiary Information OBI field is required for DTC processing and must be included in all SET wires processed through the Federal Reserve s Fedwire system Failure to Settle Fees Settling banks are charged failure to settle fees if their settlement obligation is not timely satisfied or their acknowledgement is not on time Fee Interest Rates Net Debit of Settling Bank or Participant Rate percent First 5 million 2 0 22 Next 20 million Next 50 million More than 75 million Example 1 5 1 0 0 5 Interest is calculated overnight on a 360 day year basis For a net debit of 100 million the fee interest calculation is
43. C Procedures Applied to Collateralization DTC established a simulated Collateral Monitor CM to show your excess collateral after LPNC procedures are applied to your account DTC calculates your simulated CM by subtracting your LPNC from your actual CM Until approximately 3 05 p m eastern time transactions that would make your simulated CM negative are not completed they are held in your recycle queue until you receive sufficient collateral in your account to complete them LPNC procedures help protect you and DTC so that a failing Participant s net debit balance remains collateralized even if DTC reverses transactions in the MMI Acronyms as to which credits have been withheld Issuer Participant Number Collateral Control Collateral in a Participant s account associated with the Participant such as the Participant s own commercial paper increases risk to DTC if that Participant failed to pay DTC and its obligation is supported partly or fully by the failing Participant s associated securities To eliminate this risk DTC s system monitors collateral received in a Participant s account related to that Participant IPN will link to a Participant s account securities related to it and withhold from the Participant any collateral value associated with the security In effect transactions processed to a Participant account will remain essentially the same except that no increase will be applied to the Participant s collateral monitor for the c
44. CCP sub function Participants and pledgees interested in participating in OCC s Collateralization service should request eligibility for their respective OCCD functions and sub functions with their Relationship Managers at least two days prior to the actual day they anticipate using the service Note All collateralization requests by Participants must be approved by OCC Therefore OCC must be contacted before a request is submitted through the OCCD function Cutoffs Eligible Participants are permitted to submit OCC collateralization requests until 11 00 a m eastern time Eligible pledgees are permitted to approve or reject OCC collateralization requests until 1 00 p m eastern time and OCC will be permitted to approve or reject pledgee approved OCC collateralization requests until 2 00 p m eastern time Participants and pledgees should refer to the OCCD function for detailed instructions on how to use this function Repo Accounts About the Product Repo accounts enable Participants to distinguish repurchase transactions or other types of financing transactions processed through the mechanism of the Collateral Loan Program from pledges of collateral A Participant engaging in a repurchase transaction or other type of financing transaction is able to transfer securities to a Repo account of the receiving party instead of a pledgee account of the receiving party Whenever a Participant instructs DTC to transfer securities to a Repo accou
45. CNS The original clearing firm s memo seg if any will not be applicable Risk Controls for ID Netting Subscriber Receive Account e Receives from CNS into the ID Netting Subscriber Receive Account 919 for the original clearing firm will be available for immediate delivery to ID Net Banks The original clearing ID Net Firm s memo seg if any will not be applicable e An ID Net Firm can also cancel a pending ID Net delivery referred to as a pend cancel from the ID Netting Subscriber Receive Account 919 account through the Settlement User Interface Deliveries from the CNS account to the ID Netting Subscriber Receive Account 919 will be ona higher priority basis except for buy in receives corporate actions and other delivery types as determined periodically by the clearing corporation By placing the ID Netting Subscriber Receive Account 919 on a higher priority for long allocations the number and value of ID Net fails will be reduced Processing of ID Net Firm Trades Exited from ID Net A previously eligible ID Net trade can be exited from the ID Net process for a number of reasons If an ID Net trade is exited from the ID Net Service it will revert back to an original ID trade from the ID Net Firm s account despite the fact that the ID Net Firm or IMS may have already performed the authorization or exemption process for ID trades from its account Trades that are exited from ID Net before settlement processing begins on the nig
46. Copyright IMPORTANT LEGAL INFORMATION The contents of all Service Guides constitute Procedures of The Depository Trust Company DTC as defined in the Rules of DTC If Participants or other authorized users of DTC s services fail to follow these Procedures precisely DTC shall bear no responsibility for any losses associated with such failures In connection with their use of the Corporation s services Participants and Pledgees must comply with all applicable laws including all applicable laws relating to securities taxation and money laundering as well as sanctions administered and enforced by the Office of Foreign Assets Control OFAC As part of their compliance with OFAC sanctions regulations all Participants and Pledgees must agree not to conduct any transaction or activity through DTC that violates sanctions administered and enforced by OFAC From time to time DTC receives from outside sources notices and other documents including corporate action information and communications concerning financial assets Although DTC may make certain of such documents and communications or extracts therefrom Information available to Participants and other authorized users it shall be under no obligation to do so nor having once or more done so shall DTC have a continuing obligation to make available Information of a certain type Information is not independently verified by DTC and is not intended to be a substitute for obtaining
47. ERVICES AND 2 ANY SPECIAL CONSEQUENTIAL EXEMPLARY INCIDENTAL OR PUNITIVE DAMAGES The services provided by DTC to its Participants and other authorized users are provided only pursuant to the terms and conditions of the Participants Agreement which references the Rules and Procedures of DTC and or other contractual documents collectively the Contractual Documents DTC s obligations to Participants and other authorized users are therefore contractual in nature and are limited solely to those obligations expressly set forth in the Contractual Documents Participants and other authorized users are obligated to among other things follow precisely the procedures outlined in the Contractual Documents and provide DTC with complete and accurate information In accepting financial assets from Participants and or providing services to other authorized users DTC relies among other things upon the duty of Participants and other authorized users to exercise diligence in all aspects of each transaction processed through DTC Participants and other authorized users expressly acknowledge that the services provided by DTC are ministerial in nature Moreover as further reflected by DTC s fee structure which typically bears no relationship to the dollar value of any given transaction DTC does not accept any risk of loss to Participants other authorized users and possible third party beneficiaries with respect to transactions being processed by DTC
48. NA Market Value Principal and Income Withdrawals About the Product Principal amp Income P amp I withdrawals allow you to withdraw intraday principal and income payments for non Money Market Instrument issues that DTC has received from paying agents and allocated to your settlement accounts down to a zero balance You may not make a P amp I withdrawal if it will put you into a debit balance These payments include dividends interest and other periodic payments as well as reorganization and redemption payments You can request that these payments be wired to your DTC Settlement Bank intraday before the settlement period How to Withdraw You can submit P amp I withdrawal requests via the Settlement User Interface only using the SPP Return P amp l Withdrawal Request option if you have activated this option The SPP Return P amp I Withdrawal Request screen shows the bank account eligible to receive wires of P amp l funds from DTC on your behalf To request a withdrawal enter the amount of funds to be sent to the chosen bank account destination You can enter P amp I withdrawal requests on business days until 3 20 p m eastern time Note The total amount you withdraw cannot put you into a debit balance You may withdraw your available P amp I funds that is the sum of all your P amp I payments allocated to this account less any previous P amp I withdrawals down to a zero balance The minimum amount you can withdraw is 100 000
49. NS NASDAQ and over the counter trades deliver order The term used to define a book entry movement of shares DO of a particular security between two DTC Participants drop A transaction that does not complete because of insufficient position Risk Management Controls and so forth haircut The percentage decrease of a security s market value in determining the collateral value of the security initial distribution The delivery of shares of a new issue from the lead manager and syndicate members to their customers Shares are considered initial distribution shares until they are sold on the secondary market Largest Provisional Net Credit LPNC long allocations A control that ensures that reversing a failed MMI issue transaction does not cause your Risk Management Controls to be overridden Deliveries from NSCC s Omnibus Account 888 to your DTC account as a result of Continuous Net Settlement processing market value The prior day s closing price of a security for security valuation purposes memo An inventory control mechanism that allows you to protect segregation fully paid for securities in your general free or IPO control account Message Queuing MQ A system for messaging across multiple platforms Developed as part of BM s WebSphere family it is also referred to as WebSphere MQ or MQ Series Minimum Amount DTC s classification for securities in your accoun
50. RIBUTED HEREUNDER OTHER THAN TO DISTRIBUTE TO ITS ACCOUNT HOLDERS INFORMATION CONTAINED IN ANY DATA FILE IT RECEIVES TO THE EXTENT SUCH INFORMATION IS RELEVANT TO THE SECURITY HOLDINGS OF SUCH ACCOUNT HOLDERS OR IS OTHERWISE REQUIRED BY APPLICABLE LAW Participants shall not use distribute transmit or otherwise make available any Data File or Information with or without any service charge or fee as the basis for or as part of a data product or service offered for commercial gain to any other person DTC s affiliate DTCC Solutions LLC DTCC Solutions has the right to license usage of the Data Files for purposes other than those permitted in the first paragraph of this Procedure and any Participant which wishes to use or distribute Data Files other than as contemplated hereby must contract directly with DTCC Solutions prior to any such distribution This restriction includes but is not limited to service bureaus and other third parties whether or not affiliated with a Participant regardless of whether such person as previously itself received and or used any Data Files in the past such entities may obtain the Data Files only upon execution of a license agreement with DTCC Solutions DTC shall have the right but not the obligation to audit the use and distribution of Information and Data Files by any Participant Unauthorized use or distribution by Participant any of its Affiliates or any of its account holders may result in a fine or o
51. Remaining Amount is allocated proportionately among the Affiliated Families whose aggregate Net Debit Caps exceed 2 15 billion up to a maximum Aggregate Affiliated Family 52 Net Debit Cap of 2 85 billion The calculation to determine a Participant s portion of the Remaining Amount is a two step process using algorithms described below to i calculate an Affiliated Family s portion of the Remaining Amount and ii determine each Participant s portion of their Affiliated Family s allocation Step One Algorithm used to calculate the Affiliated Family s portion of the 700 000 000 1 Only those Affiliated Families whose Aggregate Affiliated Family Net Debit Cap exceeds 2 150 000 000 will be allocated a portion of the Remaining Amount a The greater the Aggregate Affiliated Family Net Debit Cap the larger allocation the Affiliated Family will receive The first step of the calculation is to determine the amount by which the Aggregate Affiliated Family Net Debit Cap exceeds 2 150 000 000 This is called the Overage b To calculate the allocation percentage for an Affiliated Family of Participants the program will perform the following Overage of the Affiliated Family rrr rr rrr rrr aaa X Sum of ALL Affiliated Family Overages Cc X of 700 000 000 is the amount of the Affiliated Family allocation d The sum of the Affiliated Family allocations equals 700 000 000 Step Two An algorithm is used to dete
52. Reversals In the event that a valued pledge from an OCC control account recycles to the pledgee and does not complete drops by DTC s valued recycle cutoff at approximately 3 10 p m eastern time DTC will reverse the associated demand of collateral transaction The demand of collateral reversal will in effect repledge the Participant s securities back to OCC The demand of collateral reversal will appear as an adjustment in the Activity Inquiry function Pledge Returns Pledgees should be aware that pledge returns of valued pledges from OCC control accounts will not be permitted systemically Requests for pledge returns to OCC control accounts should be directed to DTC s Settlement Department However pledgees will be permitted to process pledge returns 11 using the normal pledge return process once the securities are swung from the OCC control account to the Participant after DTC releases its risk management controls at approximately 5 00 p m eastern time Eligibility Participants wishing to utilize the OCC Collateralization procedures must first contact a representative from OCC s Risk Management Department In addition to contacting OCC interested Participants must contact their DTC Relationship Manager and request access to the OCCD function and the OCCA sub function Pledgees planning to accept OCC collateralization requests must also contact their Relationship Managers and request access to the OCCD function and the O
53. SCC will have its net net credit or debit balances at each corporation aggregated and netted to one consolidated sum See attached Addendum A At the end of each day after receiving the applicable acknowledgements from the Settling Bank DTC will then instruct the FRB to debit the FRB account of each such Settling Bank which has a Consolidated Settlement Debit Amount A Settling Bank which is a member of both DTC and NSCC may not elect to opt out of acknowledging its balances unless it settles solely for its own accounts at both DTC and NSCC in which case that election will apply to both the DTC and NSCC settlement balance 21 by the amount determined in accordance with Addendum A If the Settling Bank settles only for NSCC participants then DTC will instruct the FRB to debit such bank s FRB account by the amount of its net net debit owed to NSCC If the Settling Bank s account at the FRB has sufficient funds it will be debited Upon confirmation from the FRB the Settling Bank s NSCC account will be credited to reflect payment of its NSCC net net debit amount If the Settling Bank s account has insufficient funds DTC will receive notification from the FRB that the account was not debited If this occurs DTC will notify Settling Banks of the deficiencies Any Settling Bank with a deficiency must then wire the funds to DTC according to the below guidelines Note Settling Banks must monitor their Settling Bank Account Statement through
54. The SPP Return P amp l Withdrawal Request option in the Settlement User Interface also allows you to view the status of your P amp I withdrawal requests You can view the following Total P amp I payments allocated to your account Total amount of funds requested Amount available for withdrawal total P amp I payments less previous withdrawals submitted Total amount of funds that have been wired to your bank Total amount of withdrawal requests cancelled by DTC if any P amp I withdrawals are subject to Risk Management Controls and will not be permitted if your account will be put into a debit balance Dropped items are recorded on your Drop report P amp I Withdrawals that have successfully completed are reflected on your settlement statements as funds transfer debit transactions Activity Code 95 3 DTC will provide you with a recap of your funds transfer activity 63 The Settlement Progress Payment SPP Principal amp Interest P amp I Push Profile In order to simplify the SPP P amp withdrawal process and to allow Participants to maximize the return of available liquidity DTC offers the SPP P amp l Push Profile which allows Participants to establish a standing withdrawal request Rather than requiring Participants to manually request the return of their SPP P amp l credits DTC will push available SPP P amp I credits to Participants that have established an SPP P amp l profile via the Settlement User Interface The pu
55. advice from an appropriate professional advisor Therefore Participants and other authorized users are advised to obtain and monitor Information independently In addition nothing contained in Information made available to Participants and other authorized users shall relieve them of their responsibility under DTC s Rules and Procedures or other applicable contractual obligations to check the accuracy where applicable of Participant Daily Activity Statements and all other statements and reports received from DTC and to notify DTC of any discrepancies DTC DOES NOT REPRESENT THE ACCURACY ADEQUACY TIMELINESS COMPLETENESS OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY INFORMATION AS DEFINED ABOVE PROVIDED TO PARTICIPANTS AND OTHER AUTHORIZED USERS WHICH IS PROVIDED AS IS DTC SHALL NOT BE LIABLE FOR ANY LOSS RELATED TO SUCH INFORMATION OR THE ACT OR PROCESS OF PROVI DI NG SUCH INFORMATION RESULTING DIRECTLY OR INDIRECTLY FROM MISTAKES ERRORS OR OMISSIONS OTHER THAN THOSE CAUSED DIRECTLY BY GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF DTC Further such Information is subject to change Participants and other authorized users should obtain monitor and review independently any available documentation relating to their activities and should verify independently information received from DTC DTC SHALL NOT BE LI ABLE FOR 1 ANY LOSS RESULTING DIRECTLY OR INDI RECTLY FROM INTERRUPTIONS DELAYS OR DEFECTS ARISING FROM OR RELATED TO ITS S
56. alance or refuse to settle any Participant account s other than its own 2 A Settling Bank cannot refuse to settle its own Participant account s 3 A Settling Bank that settles solely for its own accounts may elect to opt out of acknowledging its DTC balance Contact your relationship manager for the form required to activate this option 4 A refusal to settle for a Participant is a refusal to settle all accounts of that Participant meaning all accounts that constitute that Participant s legal entity A Settling Bank cannot refuse to settle only some of the accounts of a multiple account Participant 5 After refusing to settle for a Participant the net balance of that Participant is removed from the Settling Bank s net net balance and the Settling Bank must immediately acknowledge its new net net balance debit or credit 6 Ifa Settling Bank s net net balance changes after initial acknowledgment the Settling Bank can only refuse to settle for the Participant s whose balance changed 7 A Settling Bank that cannot send an acknowledgment or refusal to DTC because of a connectivity issue with DTC should contact the DTC Settlement Operations Group using the hotline at 212 855 5800 to notify them of the issue 8 DTC begins failure to settle procedures and imposes fines on Settling Banks that have not sent refusal or acknowledgment messages if required to DTC by 4 15 p m eastern time See Failure to Settle Fees 9 DTC begin
57. ame day e Cancel transactions in the queue Canceling a transaction requires a reason for the cancel and the item must be canceled on the same day that it was entered Responsibilities of the Pledgee Once the Honest Broker procedure has been made available to the pledgor as the pledgee you must e Receive notification from the pledgor that the Honest Broker procedure will be used e Confirm this understanding with DTC by calling DTC s Settlement Hotline at 212 855 5800 Notice of Participation If you elect to participate in the Honest Broker processing you must notify DTC of your intent to do so Participating pledgees must identify the corresponding pledgee Participant number for pledgees with multiple Participant account numbers that they will use to deliver positions to the DTC HB Account Note If you are not a Participant you must request that DTC establish a Participant account number to use in Honest Broker processing How a Pledgee is Activated for the Honest Broker Process DTC s Director of Compliance will notify you that the Honest Broker procedure will be made available DTC will provide access to the Honest Broker function using your designated Participant account Access to this function allows you to e Browse the Honest Broker DOs input by the pledgor and e Deliver previously demanded pledged securities to the HB Account for use in completing the Honest Broker DOs On settlement date you will be able to revi
58. and recorded Warning Under DTC s Rules and Procedures you are responsible for verifying the accuracy of your Participant Daily Activity Statement You must report discrepancies to DTC s Reconciliation division as soon as possible after you receive the statement Investment Identification Contact Number For more information on Investment Identification call DTC s Customer Support Center at 888 382 2721 Look Ahead Processing DTC s Look Ahead process runs on fifteen minute intervals and selects pairs of transactions that when processed simultaneously will not violate the involved Participants net debit cap collateral or other Risk Management system controls The Look Ahead process reduces transaction blockage for securities by identifying a receive transaction pending due to a net debit cap insufficiency and determines whether an offsetting delivery transaction pending because of a quantity deficiency in the same security would permit both transaction pending because of a quantity deficiency in the same security would permit both transactions to be completed in compliance with DTC s Risk Management system controls DTC s processing system Account Transaction Processor ATP calculates the net effect to the collateral and net debit cap controls for all three Participants involved and if the net effect will not result in a deficit in the collateral or net debit cap for any of the three Participants ATP processes the transactions simult
59. aneously DTC s Look Ahead process also allows Money Market Issuance Deliveries pending for a Custodian s or Dealer s net debit cap to complete against Maturity Presentments pending for an Issuing Paying 43 Agent s net debit cap The processing system calculates the net effect of the dollar amount of offsetting transactions in the accounts of the two Participants involved If the net of the transactions results in positive risk management controls in those two accounts the transactions will be completed OCC Market Loan Program In order to reduce the possibility of mis matched stock loans look ahead matches on number of shares and dollar amount in addition to CUSIP on stock loan transactions in the OCC account Memo Segregation About the Product Participants can protect fully paid for customer securities using the Memo Segregation function Memo Segregation is similar to the Segregation function which allows you to protect fully paid for customer securities by moving them from a free position to a protected segregated position However whereas Segregation allows you to move only existing positions Memo Segregation allows you to create memo segregated positions within your free positions thus allowing you to protect anticipated fully paid for customer securities How the Product Works You can have your Memo Segregation counter automatically increased upon receipt of certain transactions You can also allow positions resu
60. arket value Note This applies only to MMI transactions MMI securities received versus payment are not allowed to be freely moved free pledges free deliver orders DOs withdrawals segregations etc until the LPNC control is released at approximately 3 00 p m eastern time How Recycling Works The recycling system operates within a single processing day A transaction that remains incomplete at the end of the processing day is dropped from the recycle processor Dropped transactions must be reentered on a subsequent day Transactions will automatically recycle unless you expressly tell DTC not to recycle it when the transaction is input This option referred to as prevent pend is available for most types of deliveries When instructed DTC drops the transaction if it cannot complete immediately Note The recycle processor also allows you as a deliverer to cancel kill a recycling transaction using the Pending Transactions or Activity Inquiry functions To activate these functions contact your Settlement Access Coordinator How DTC prioritizes risk management recycles differs from how it prioritizes insufficient position recycles The following topics explain how these transactions are prioritized 58 Risk Management Recycles DTC automatically gives priority to transactions that are recycling as a result of risk management controls as follows e Specific types of transactions are given priority over others See the P
61. arrants that it has the authority to submit the request appearing on the next screen s and that it will either release the items held in oend prior to 3 00 pm eastern time ET on the date of maturity or by such time communicate to DTC that it will refuse to pay The Issuing Paying Agent for issuer acknowledges understands and agrees that all MPs will be released for normal processing if it does not communicate its intention to DTC that it wishes to refuse to pay by 3 00 pm ET How MMI MP Pend Works MP Pend allows IPAs to review and approve MPs prior to having them processed into their IPA settlement account IPAs will be able to pend an MMI maturity presentment and release transactions daily prior to the 3 00 p m ET settlement cutoff The four pend levels that MP Pend provides give the IPA greater control over which portion of an MP should pend and which portion should be processed Using MP Pend the IPA can pend one of four levels The highest or broadest level is the acronym level The lowest or most specific level is the base CUSIP The pend levels below are listed from the highest acronym to the lowest base number level If you set up a profile for a base CUSIP number you must first select the Acronym Product and Program that contain the base CUSIP you wish to pend MMI MP Pend Levels 1 Acronym highest level 2 Product 3 Program 4 Base Number Workflow in MMI MP Pend The following is a typical workflow for
62. ason such allocation is not sufficient to fully satisfy the FRB indemnity claim then the remaining loss will be allocated pro rata among all the applicable clearing agency s Participants in the same manner as provided in NSCC s and DTC s Rules with respect to a general i e non system related loss Settling Bank Failure To Setile Procedures The Depository Trust Company DTC will follow the procedures described below when a settling bank is deemed to have failed to settle with DTC Unless these procedures indicate otherwise each paragraph of these procedures applies whether a settling bank s settlement balance is a net net credit or a net net debit or a net credit or net debit if the settling bank settles only for itself A reference in these procedures to the Participants that settle through a settling bank is also a reference to the settling bank itself as a Participant As modified by these procedures all DTC agreements rules and procedures relating to settling banks and Participants remain in effect I Subject to Section 3 below a settling bank must acknowledge its settlement balance each day by the later of a 30 minutes after its settlement balance is first made available to it or b 4 30 P M eastern time The time when the settlement balance is first made available is indicated on the settling bank s settlement statement The time specified in this paragraph by which a settling bank must acknowledge its settlement balance i
63. ateral without preparing a Release of Collateral form and a new Options Depository Receipt form Contact OCC for information about this procedure Deposits With Options Clearing Corporation You can deposit securities at DTC between 8 30 a m and 1 00 p m eastern time for same day deposit credit You can then pledge your free position by book entry to the OCC as follows Segregate underlying securities supporting put and call options Pledge U S government securities to satisfy OCC put and call margin requirements Pledge U S government securities to meet clearing fund obligations Pledge U S government securities of sufficient value to cover the exercise price of put and call option contracts Release of Deposits with Options Clearing Corporation on Expired Options OCC automatically releases securities deposited with it to cover margin requirements on an option contract when the option contract expires The securities are then allocated to your general free account Notification of the released securities is received via the Collateral Loan Services functionality in the Settlement User Interface or automated output Note OCC will begin releasing expired options at the close of business on the Friday following the expiration weekend On the following Monday OCC will release the deposits on expired options to DTC Deposits to the Options Clearing Corporation Clearing Fund You can deposit U S government securities at DTC to be ple
64. bject to Risk Management Controls the following activities override collateralization and Net Debit Cap controls Mutual funds purchases through DTC s Fund SERV system DTC generated activity such as monthly billing charges Deposit or settlement adjustments Short position charges Principal and income charges Participants Fund charges To view your Net Debit Cap and net settlement balance use the Risk Management Controls Inquiry function As an added measure DTC has also established limits on the maximum settlement obligation that a financial family of affiliated DTC Participants can incur An Affiliated Family means each Participant that controls or is controlled by another Participant and each Participant that is under the common control of any Person For purposes of this definition control means the direct or indirect ownership of more than 50 of the voting securities or other voting interests of any Person The maximum Aggregate Affiliated Family Net Debit Cap for the Participants comprising an Affiliated Family is currently set at 2 85 billion So that DTC will be able to complete settlement each day in the event of a Participant s inability to settle DTC currently maintains liquidity resources of 3 05 billion including 1 15 billion cash in the Participants Fund and a committed line of credit in the amount of 1 9 billion with a consortium of banks Grouping Accounts into Collateral Families If you have multipl
65. calculated net debit cap established by DTC To establish or change the net debit cap for a Participant for which it settles the Settling Bank must submit a letter of instruction to DTC requesting the amount of the net debit cap for the Participant This letter should be sent via e mail to DTCProductRisk dtcc com using the Settling Bank s e mail domain or via mail or overnight delivery addressed to The Depository Trust Company Vice President Enterprise Risk Management 55 Water Street New York NY 10041 DTC will process an instruction received by 2 30 p m eastern time in time to be effective as of the opening of the next business day Settling Bank Processing Schedule The following table shows the processing schedule for Settling Banks All times are eastern time At this time This process takes place 3 45 p m approximately All settlement balances become final and the settlement period begins e DTC posts the final net debit or net credit for each Participant and the final net net debit or net net credit for each Settling Bank e Verification that final net cutoff has taken place the message Final Figures and the time they became final will appear in the Settlement User Interface Settling Banks can view their final net net balance via the Settling Bank Account Statement made available via the Settlement User Interface e Settling Banks if required should acknowledge their net net balances at this time the system w
66. ccount to the lead underwriter s sub account 74 Third Party Administrator Trade Approval and State Changes e DTC s Inventory Management System IMS is being made available to third party administrators for trade approval prior to settlement e A new interface is being created for administrators to view inquiry approve and disapprove transactions pending settlement at DTC e Alternatively administrators may approve disapprove transactions through ISO command messages Messaging layouts including status codes MT548 can be accessed via the User Documentation section on DTCC s website e Ifa delivery is reclaimed or dropped after it has been approved by the administrator the administrator can be notified through receipt of transaction state change messages from DTC and or by IMS inquiry Administrators should only update records for Made transactions Sub Accounting Service Segregation of Securities About the Product The Sub Accounting Service allows you to protect securities on deposit at DTC by moving them from your general free account to your segregated account The securities remain segregated and unavailable for any transactions until you authorize DTC to release them and return them to your general free account On payment day DTC will automatically allocate cash merger and mandatory put payments as well as municipal and corporate redemption payments for securities segregated on DTC s books In addition DTC
67. ccurred affirmed trades would no longer be routed to ID Net after the masterfile update If an ID Net Subscriber wanted to exit all the trades it had in ID Net it could do so e ID Net Firms and ID Net Banks can cancel or exempt their future ID Net transactions where they are the delivering party e ID Net Firms can cancel or exclude their future ID Net transactions where they are the receiving party e An ID Net Firm s or ID Net Bank s ID Net receives can also be exited by the Settlement department at DTC by notifying the Settlement Operations department This request will be processed on a best efforts basis Initial Public Offering IPO Tracking System About the Product The Initial Public Offering IPO Tracking System tracks the movement of IPO shares for a specific time period and reports activity to the PO s Lead Underwriter and Syndicate Members The goals of the system are to provide Automated tracking of IPOs with no disruption to the normal book entry process Accurate comprehensive and timely reports to the Lead Underwriter and Syndicate Members e The greatest possible economic efficiency by allowing IPOs to be distributed and tracked in a book entry environment Note For a more detailed explanation of the IPO Tracking System refer to the IPO Tracking System User s Manual IPO Tracking System Contact Number For more information about the IPO Tracking System call DTC s Customer Support Center at 888 382 2721
68. clude the following information For this Fedwire field Receiving Bank DTC s ABA Number 026002066 ABA recon bea Receiving Bank Bank DTC s DTC s telegraphic name DTC SDFS name DTC SDFS 64 For this Fedwire field Name Originator ORG Your Participant name or the Participant name on the account you want to credit Originator to The purpose of the wire followed by a slash and your Beneficiary OBI DTC Participant number For example SPP 2199 or DSP 2199 6000 Returning an SPP Using the SPP Returns P amp l Withdrawal Request you can request that DTC return all or a portion of an SPP you submitted earlier in the day down to a zero balance You can request that these payments be wired to your DTC Settlement Bank intraday before the settlement period Contact your Relationship Manager to obtain access to this update capability DTC must receive your request no later than 3 20 p m eastern time When DTC receives your reversal request it e Debits the amount from your settlement account providing you have sufficient collateral and a credit balance e Returns the funds via Fedwire to your Settling Bank as indicated on your standing wire instructions with DTC Note DTC will not return the funds if doing so would put your account into a debit balance Wire Instructions Before using the SPP Return P amp l Withdrawal Request function you must activate your account for this option
69. count to DTC s account at the FRBNY using the following instructions 76 In this field Enter Receiving ABA DTC s American Banking Association ABA number 026002066 Receiving Name DTC s telegraphic name DTC SDFS Receiving Account The account type CUST Receiving Bank Info FDO Your Participant number Cash Value The cash value 0 00 Par Amount The quantity of securities to be transferred When DTC receives a security transaction into its Fed account on behalf of a DTC Participant who has elected to receive its Fed eligible securities at DTC a deliver order will be processed from DTC s Fed inventory account 6072 to the DTC Participant designated as the receiving Participant in the account field on the Fed transaction Incoming FDOs will appear as deliver orders from the DTC s Fed inventory account 6072 in the ART function The cutoff to receive incoming Fed transactions is DTC s free DO input cutoff which is normally 6 15 p m ET However Participants will only receive incoming FDOs after 3 30 p m if the Fed extends its securities input cutoff Incoming FDOs are not subject to DTC s Receive Authorized Deliver RAD procedures Note All U S Government securities must be delivered FREE through the Fedwire system to DTC s account at FRBNY Delivery and Settlement Once your eligible U S government securities have been credited to your account you can deliver them to another Participant via the Deliver Order function
70. ctivate the tracking indicator on its security master file and provide IMS access to the assigned administrator but only to allow for inquiry and approval disapproval of transactions assigned to the respective administrator 12 During the Underwriting closing process the position will move from a DTC internal account to a designated sub account of the lead underwriter The move from the DTC internal account to the lead underwriter is subject to the approval of the administrator Once the shares are moved into the designated sub account all share movement from that point on will require the approval of the designated administrator through IMS Once transaction approval has been received and all other settlement risk controls have been met the shares will move from the delivering Participant s sub account to the receiving Participant s sub account either free or versus payment These Security Holder Tracking transactions will use a new Account Transaction Processor ATP activity code in DTC 42 Normally deliver orders move position from one Participant s general free account to another Participant s general free account either free or versus payment For risk management purposes these issues will be designated as having zero collateral within DTC s settlement system Eligibility The eligibility process for a tracked security to be made and remain DTC eligible will generally remain the same In addition to the traditional p
71. d to consider the implications of classifying your securities as collateral Collateral can be used to support your net debit and therefore can be liquidated by DTC in the event you are unable to pay your settlement obligation 4 Elect to have the ability to make late valued transactions to your Settling Bank s Participant account with the consent of the Settling Bank 5 Elect to have the ability to withdraw SPP Return P amp l Withdrawal allocations intraday See Principal and Income Withdrawals and Settlement Progress Payments for more information 6 Elect to have the ability to chill block your account from transactions involving securities eligible for Federal book entry Choose between two recycle options See Recycle Processing for more information Choose from various memo segregation options See Memo Segregation Elect to have Initial Public Offering IPO positions released automatically upon the input of a DO if you act as a prime broker See the IPO Broker Manual or call your Relationship Manager for more information 10 Elect to have all free DOs entered after 5 00 p m eastern time subjected to RAD approval before they are processed by DTC on Activation Account Coding Contact Number For more information about Activation Account Coding contact DTC s Customer Support Center at 888 382 2721 Settlement User Interface About the Product The Settlement User Interface is a user interface that features a Navigation
72. debit cap and CM that are used Management to provide protection to all DTC Participants against the Controls inability of one or more Participants to settle net settlement obligations Settlement An intraday funds transfer sent via Fedwire to your DTC progress Participant account payments SPP Settlement User Any system or combination of systems that allows for Interface input inquiry into the DTC Settlement System short covers Deliveries to NSCC s Omnibus Account 888 as a result of CNS syndicate A group of broker dealers that agree to purchase a new issue of securities from the issuer for resale to the investment public unvalued Unvalued additions to your security account that do not additions carry a related payment obligation with the receipt of securities They include Deposits Free release of pledged securities Receipt of a free DO Releases of segregated securities Preparing to Use the Products In order to use the products associated with this service you must have access to one of the following e DTC s Settlement User Interface e Computer to Computer Facility CCF or CCF I1 or Message Queuing MQ Contact your Relationship Manager for more information Settlement Contact Numbers For general questions about DTC s Settlement Service call one of the following numbers e For general inquiries the Customer Support Center at 888 382 2721 e For input extensions the Settlement Hotline at 212 855 5800
73. delivered to the Receiver or to a DTC Participant designated by it and ii DTC s compliance with such instruction will not violate any notice of levy seizure or similar notice or order or judgment issued or directed by a government agency or court or officer thereof and b indemnify hold harmless and agree on demand to reimburse DTC its stockholders officers directors and employees from and against and for any and all claims liabilities obligations damages actions penalties losses costs expenses and disbursements including without limitation attorneys fees and disbursements Claims which they may sustain by reason of DTC s compliance with such instruction except for any Claims which result from the gross negligence or willful misconduct of the person asserting a right to indemnification Shared Control Accounts About the Product Shared control accounts are available as an alternative to agreement to pledge arrangements Background When a Participant pledges securities to the pledgee account of a pledge at DTC sometimes called a hard pledge the securities are under the sole control of the pledgee Only the pledgee can redeliver or release the securities Pledgee accounts continue to be available at DTC Shared control accounts are available at DTC as an alternative to agreement to pledge sometimes called agreement to deliver arrangements A pledgee has control over securities delivered by a
74. dged by book entry to OCC to meet clearing fund requirements The term U S government securities refers to securities issued or guaranteed by the United States government and having a maturity of 5 years or less from the date of issuance e Short term government securities Securities maturing less than one year from the date of deposit e Long term government securities Securities maturing one to five years from the date of deposit U S government securities are valued for clearing fund purposes as follows e Short term government securities Securities valued at the lesser of par value or 100 percent of their current market value e Long term government securities Securities valued at the lesser of par value or 95 percent of their current market value OCC determines the current market value of U S government securities at any given time on the basis of the quoted ask price supplied by the Federal Reserve Bank of New York FRBNY on the last day of the preceding month or such later date as its Margin Committee designates Option Exercise amp Assignment Loan Program About the Product 10 Under this program a Participant may use securities pledged at The Depository Trust Company DTC to meet the Options Clearing Corporation OCC margin requirement on these positions as collateral for a loan from an approved lender The cash proceeds of this loan will then be credited to the Participant s settlement account at the Nat
75. ds received from the redeliveries and e Securities remaining in the account including deliveries that were reclaimed or otherwise not completed DTC NSCC Settling Bank Netting Arrangements Any Settling Bank that settles for both Participants of DTC and NSCC will have its net net credit or debit balances at DTC and NSCC aggregated and netted to one consolidated debit amount or credit amount as applicable DTC shall provide NSCC with services with respect to NSCC s money settlement operations as described in and in accordance with the following procedures 1 For purposes of this procedure the following terms have the meanings specified a Common Settling Bank means any entity that has qualified and acts as a Settling Bank for both DTC and NSCC in accordance with their respective rules and procedures b DTC Credit Amount or NSCC Credit Amount means as applicable any net net credit settlement payment due from the relevant clearing agency to a Common Settling Bank as determined in accordance with the Rules and Procedures of the relevant clearing agency c DTC Debit Amount or NSCC Debit Amount means as applicable any net net debit settlement payment due to the relevant clearing agency from a Common Settling Bank as determined in accordance with the respective Rules and Procedures of the relevant clearing agency 1 DTC will act as Settlement Agent as that term is used in the Federal Re
76. e DTC accounts you can group them into families and instruct DTC to allocate a specified portion of your collateral and Net Debit Cap to each family You must submit instructions in writing to DTC to group your accounts into separate families Otherwise all of your accounts will be grouped into one family The accounts you designate as a family share a single CM and Net Debit Cap Securities and cash credited to one of these accounts increase the shared CM and the family s settlement balance and could therefore serve to benefit transactions of other accounts in the family Sharing collateral and Net Debit Caps has advantages and disadvantages Sharing can be an efficient account structure because it allows accounts to use the available collateral and settlement credits of other accounts in the family However you will not be able to designate which account should benefit from specific credits incurred by a member of the family For example Suppose you maintain two accounts A and B which are grouped into one collateral family Assume that both accounts have recycling transactions because of insufficient Net Debit Cap If account A sends an SPP to DTC its settlement account is credited However because the accounts are set up so that either account can use the available credits if account B s transactions have a higher priority on the recycle queue they will complete as a result of the funds that account A sent to DTC Conversely assigning a
77. e Participant failure to settle fees Honest Broker About the Product 32 Honest Broker is a procedure to facilitate the liquidation of security positions that have been pledged by book entry in DTC It is exercised only in extraordinary circumstances for example when a pledgee is unwilling to release securities to a pledgor typically a broker under financial stress Requesting that DTC Perform the Role of Honest Broker A pledgor may request that DTC perform as an honest broker for the pledgor s pledged securities DTC s Honest Broker procedure will be activated when requested by a pledgor when pledgees are unwilling to return pledged securities directly to a pledgor but only at DTC s option after consultations with concerned parties indicate that such action is appropriate If the Honest Broker procedure is activated DTC will notify pledgees and Participants of its activation and will advise them of the possibility that deliveries in settlement of their transactions with the pledgor may be received from the DTC HB Account rather than from the pledgor s DTC Participant account In performing the role of honest broker DTC will act as agent for the pledgee and will undertake no risk other than that arising from its own gross negligence Responsibilities of the Pledgor As the pledgor DTC s Director of Compliance will notify you that the Honest Broker procedure will be made available After you are notified you must e Identify the
78. ecords the highest net debit This measure of liquidity is referred to as the Participant s intraday net debit peak Required Participants Fund Deposit Calculation The aggregate amount of all Participants Required Participants Fund Deposits is 1 15 billion Each Participant s Required Participants Fund Deposit for the first 450 000 000 of the aggregate Participants Fund for all Participants is calculated taking account of the following 1 The minimum deposit is 7 500 per Participant which across all Participants the number of which may vary from time to time adds up to an aggregate threshold amount of cash in the Participants Fund The difference if any between that aggregate threshold amount and 450 000 000 the PF Differential is then allocated ratably among all Participants based on each Participant s average the PF Average of its six largest intraday net debit peaks over a rolling 60 business day period 2 Based on the PF Average for each Participant the calculation incrementally allocates the PF Differential to calculate the required cash deposit of each Participant Participants with the highest PF Averages will accordingly be required to make the largest required deposits and Participants with the lowest PF Averages will be required to make smaller deposits or even potentially no amount above the 7 500 minimum The remaining 700 000 000 aggregate amount of Required Participants Fund Deposits the
79. ems all further issuances and maturities by that Issuer for the rest of the business day Note You can use Temporary Refusal to Pay Income Presentments only if the issuer s only obligations that day are Ps Notifying DTC of Issuer Failure Because Refusal to Pay and Temporary Refusal to Pay notifications are critical paying agents should call DTC s Settlement Hotline at 212 855 5800 to confirm that DTC received the notification 46 MMI Issuer Failure Contact Number For more information about MMI Issuer Failure call DTC s Settlement Operations Hotline at 212 855 5800 MMI IPA MP Pend Overview The MMI IPA MP Pend function or MP Pend will allow an issuing paying agent IPA bank the ability to control its exposure to high risk issuers that have known or anticipated funding or credit issues By enhancing money market instrument MMI processing the MP Pend function will assist in mitigating the collective risk for DTCC and its Participants Benefits e Gives IPAs the ability to anticipate and react to potential funding and credit issues associated with maturity presentments e Expected to reduce the number of late day reversals Background Maturity payment procedures were designed to limit credit liquidity and operational risk for DTC and Participants in the MMI program Maximizing efficiency at the lowest level of risk is the primary goal To expedite the process early on the day the MMI matures approximately 2 0
80. ew the details of the Honest Broker DOs via the Honest Broker function Securing Pledged Positions or Surrendering Positions to the DTC Honest Broker Account You can remove securities from the pledgor s account by using the Demand of Collateral function DCL Via DCL you can move the pledged securities from the pledged account of the pledgor to your unpledged free account or any other Participant account you designate including the DTC HB Account Honest Broker Pledgee Free Deliveries If you have previously demanded securities you are able to move via the Honest Broker function the demanded securities to the DTC HB Account for redelivery You will be required to enter the CUSIP number and quantity of shares for each previously pledged security you want to surrender to the Honest Broker facility for redelivery 34 Settlement of Completed Honest Broker Deliveries At the end of the processing day if you have delivered pledged securities which DTC will operate acting exclusively as agent for the pledgee delivery securities to the account to the DTC HB Account you will receive from DTC your pro rata share of e Proceeds received by DTC for redeliveries made in such issue and e Securities that had not been redelivered Your pro rata share of settlement proceeds will be credited to your Participant settlement account Note For pledgees with multiple Participant accounts this credit will be applied to the account previously desig
81. ferred Stock Investment the amount of each is based on the Participant s activity at DTC as further explained in this Service Guide Additionally a Participant may make a Voluntary Participants Fund Deposit to further support its activities The Required and Voluntary Participants Fund Deposits must be in cash which if a Participant fails to settle for any reason are available to DTC as immediate liquidity to complete settlement and collateral to support any borrowing against DTC lines of credit Amounts Each Participant must make a minimum deposit of 7 500 to the Participants Fund Many Participants are required to deposit additional amounts based upon a 60 business day rolling average of the Participant s six highest intraday net debit peaks A Participant s portion of the Participants Fund is in direct relation to the liquidity requirements generated by the Participant and its Affiliated Family if any as more fully described below The Required Preferred Stock Investment of a Participant must be in a minimum amount of a par value of 2 500 A Participant s actual Required Preferred Stock Investment is calculated on a substantially similar basis to the calculation of the Required Participants Fund Deposit How the Required Deposit to the Participants Fund and the Required Preferred Stock Investment are Calculated for a Participant DTC monitors the levels of each Participant s net settlement debits during each Business Day and r
82. ffset and Mark to Market ID Net transactions will be used to offset the balance of any other CNS transactions and the net of those transactions will be used for purposes of determining Clearing Fund obligations pursuant to NSCC s current procedures subject to a revised mark to market calculation applicable to ID Net Firms ID Net transactions will receive their own separate mark to market MTM calculation This ID Net MTM total will be added to each member s daily clearing fund requirement DTC Participants Fund DTC s Participants Fund calculation is based upon a Participant s legal entity net debit peaks DTC will continue to include the debits and credits associated with ID Net deliveries that are processed on behalf of an ID Net Firm in its fund calculation 41 Omgeo For more information on how ID Net will affect other Omgeo processing please refer to the Omgeo Product Bulletin in the TradeSuite section of the Omgeo website Terminating the ID Net Service If an ID Net Subscriber wanted to terminate their participation in ID Net the following procedure would apply e A subscriber to the ID Net service will need to submit an ID Net exit notification to DTC s Account Administration area Upon receipt of the form it will be reviewed for all required information and authorization If acceptable the appropriate masterfile update will take place that evening at approximately 7 p m eastern time e Once the update has o
83. free account to complete other items on the recycle queue You can do this regardless of the deliveries that created the PDA position For example Suppose a single delivery of 100 shares creates a 100 share PDA position in your account The POSM function s PDA release feature allows you to move any quantity up to 100 shares from your PDA account back to your general free account Assuming you release 75 shares from the PDA when the 100 share delivery clears Risk Management Controls the system looks for 100 shares in the PDA With only 25 shares remaining in the PDA the system looks for the additional 75 shares in your general free account to complete the 100 share delivery If the shares are there the delivery completes if not the delivery is placed at the end of your recycle queue and the 25 shares in the PDA are released back to your general free account At the cutoff for syndicate closings approximately 1 15 p m eastern time DTC releases all PDA positions back to your general free account At that time DTC also disables the blockage feature of option 2 allowing transactions for which there is sufficient position to complete while attempting to complete transactions you entered in FIFO order Warning DTC cannot ensure FIFO ordering of transactions requiring RAD approval Pend Hold Pend Hold allows you to hold and release unhold transactions DTC will not process held transactions until the holding Participant releases the hold
84. from the DTC Honest Broker Participant Account DTC HB Account Note In performing the role of honest broker DTC will undertake no risk other than that arising from its own gross negligence 2 DTC will establish a DTC HB Account for the receipt and redelivery of the pledged securities 3 In operating the DTC HB Account DTC will act exclusively as agent for the pledgees delivering securities to the DTC HB Account 4 Each pledgee must notify DTC of its intent to use the Honest Broker procedure and will use DTC s Demand of Collateral procedure see Collateral Loan Program for more information for pledged positions that the pledgee intends to deliver to the DTC HB Account Pledgees can enter demand of collateral instructions by using the Demand for Collateral function DCL Note Using DTC s Demand of Collateral procedure a pledgee can move securities from its DTC pledge account to the general account of any DTC Participant other than the pledgor including its own Participant account or the DTC HB account 5 In accordance with the function cutoff times the pledgor will provide the following information via the Honest Broker function to each affected pledgee and to DTC e The identity of each issue for which the pledgee is requested to deliver shares to the DTC HB Account e For each issue information on the pledgor s transactions proposed to be settled that day by redelivery of the pledged positions This information will be in
85. g a pledgee account If the account number indicated in a DTC report or statement is the account number of a repo account the information in the report or statement does not represent a pledge of or other transfer of a limited interest in the securities credited to the repo account but instead represents a transfer by the Participant to the Receiver of the entire interest in such securities 6 DTC will accept instructions solely from the Receiver with respect to the disposition of securities credited to the Receiver s repo account The Receiver may redeliver the securities to the Participant which delivered them to the Receiver s repo account The Receiver may instruct DTC to deliver securities credited to the Receiver s repo account to the Receiver s DTC Participant account if the Receiver is also a Participant or to any other DTC Participant 13 account DTC has no duty to inquire whether any instruction to DTC from the Receiver is permitted by any agreement among the parties to the transaction If a Receiver is unable to submit instructions to DTC by automated means the Receiver may submit instructions by contacting DTC s Settlement Department Any Receiver that instructs DTC to deliver securities credited to the Receiver s repo account to the Receiver or to a DTC Participant designated by it shall a be deemed to represent and warrant to DTC that i the Receiver has the right to have the securities specified in such instruction
86. he NSCC settlement credit generated from short covers cannot be used to offset your DTC settlement balance intraday DTC and NSCC legal entity balances will be cross endorsed before final net settlement figures are published The short cover guaranty does not apply to ACATS transactions because there are no funds settlement obligations related to ACATS transfers Long Allocations DTC guarantees to NSCC replacement collateral for any long allocations which may be redelivered in the DTC system intraday Therefore DTC will only process the redelivery if the Participant has substitute collateral available The purpose is that collateral will be available if the Participant fails to settle at NSCC The collateral treatment of long allocations received into a Participant account is as follows 1 The Participant does not receive credit for the delivery in its Collateral Monitor and 2 The securities are classified as collateral net additions CNS Look Ahead Processing DTC recognizes that the net effect of a receive and a turnaround delivery might permit the completion of those transactions whereas in some cases attempting to complete the receive by itself would not allow the transactions to complete because of collateral constraints Because the CNS account 888 has no Net Debit Cap or Collateral Monitor constraints DTC s system can perform look ahead processing to determine whether the net effect of your receive versus payment RVP transactio
87. he operation of a DTC pledge account and all DTC procedures applicable to pledge accounts are applicable to shared control accounts No deliveries vs payment pledges vs payment or physical deposits can be made to a shared control account and no deliveries vs payment pledges vs payment or physical withdrawals can be made from a shared control account A Participant should not deliver securities to another Participant s shared control account In the instructions for a delivery of securities to a shared control account the mandatory hypothecation code field should be completed in the same manner as it is for a delivery to a pledge account The DTC fees and charges for a transaction involving a shared control account are the same as the fees and charges for a transaction involving a pledge account The DTC monthly account usage charges applicable to a shared control account are charged to the Participant The DTC reports and statements to the Participant and the pledge for a transaction involving a shared control account are the same as the reports and statements for a transaction involving a pledge account 3 As with a pledge account voting rights on the securities credited to a shared control account are assigned to the Participant Cash dividend and interest payments and other cash distributions on such securities are credited to the original account Distribution of securities for which the ex distribution date is on or prior to the payable date
88. he security to complete the transaction Authorization Exemption and Cancel Processing for ID Net Firms ID Net Firms may exempt a receive before the night of T 2 from a bank that is in the ID Net Service via a new IMS capability This receive exemption will only be permitted on a trade for trade basis This exemption will exit the transaction from ID Net by returning the original clearing firm number back into the receiver field and making the appropriate CNS adjustment entries The transaction will then be available for trade for trade settlement ID Net Firms should continue to authorize exempt cancel their deliveries from their account as they do today e Authorization of ID Net Firm deliveries by the ID Net Firm is not necessary e ID Net Firms may exempt their deliveries in the ID Net process either through a new Inventory Management System IMS function option or systematically on a trade for trade basis by submitting the Omgeo control number as they do now e Global exemptions of ID Net deliveries will only be available via the Settlement User Interface If an ID Net Firm sends in a global exemption systematically for its account it will not apply to its ID Net deliveries e Ifan ID Net Firm s delivery is exempted or pend cancelled by the ID Net Firm the transaction will be exited from ID Net For exempted transactions the ID Net Firm can no longer act upon that delivery i e authorize it at a later time e Ifan ID Net Firm s t
89. ht of T 2 will be placed back into an unprocessed state in IMS and the ID Net Firm will have to authorize these trades if it intends to deliver them Applicable output messages will be available for all exited ID Net trades If an ID Net trade is exempted or pend cancelled the transaction will be exited from ID Net For exempted transactions the ID Net Firm can no longer act upon that delivery i e authorize it at a later time Some of the reasons that a trade may be exited from ID Net are as follows 39 Change of Eligibility After a trade has been affirmed and deemed eligible for ID Net the ID Net process will continue to check the transaction s eligibility up until 8 p m on the night of T 2 If a trade becomes ineligible for example a Reorganization is announced the trade will be removed from the ID Net process regardless of whether it is in an authorized or an exempt state The trade will be staged for trade for trade settlement between the ID Net Firm and the ID Net Bank and will maintain its current state i e authorized trades will remain authorized and exempted trades will remain exempted Attempts to Cancel After an ID trade is affirmed ID Net Firms on occasion generate an attempt to cancel via Omgeo and exempt the ID trade since the trade may no longer be valid If the trade is in the ID Net process and is being staged for delivery from the ID Net Subscriber Receive Account 919 ID Net Firms should continue to exempt
90. ill not allow 19 At this time This process takes place this until final figures are posted e Once final figures are posted DTC sends reminder messages every ten minutes until the Settling Bank complies by acknowledgment or refusal e A Settling Bank with a final figure of a net net debit must ensure that funds are available in its Fed account for payment via the NSS See Settlement Payment for Net Net Debit Balances for more information The later of Cutoff for Settling Banks to acknowledge their net net 4 15 p m or 30 minutes after net net settlement balance or refuse to settle for a specific settlement balances are first made Participant available e DTC applies failure to settle procedures to Settling Banks that have not sent refusal or acknowledgment messages if required Prior to 5 00 p m if no settlement DTC processes an NSS file with the Federal Reserve Bank extensions of New York to debit or credit each Settling Bank s NSS account as applicable Note If instructed by DTC in the event that NSS is unavailable Settling Banks in a net net debit balance must remit payments to DTC via Fedwire by the later of 5 00 pm or 1 hour after net net settlement balances are first made available DTC applies failure to settle procedures to Settling Banks with net net debit final figures that have not paid DTC 5 00 p m Cutoff for Participants to enter valued DOs and pledges to their Settling Banks and the Settling Bank s a
91. in effect Active status or not Deactivated status MMI MP Transaction Inquiry page Used to see the MP transactions processed within the last 21 business days You can see statuses for MPs that are released held or failed You can look up transactions at the various levels such as acronym product program base CUSIP number MMI MP Transaction Releases page Used to release the MP transactions that are pended MMI MP Pend Inquiry IPAs can view their MP Pend transactions within the last 21 business days on the MMI MP Transaction Inquiry page of the Settlement User Interface Transactions are archived and maintained by DTC for 7 years SETTLEMENT WEB RISK MANAGEMENT CONTROL INQUIRY FUNCTION The Risk Management Controls screen displays additional details about a collateral group s current balances The screen includes amounts for money market instrument MMI maturities that are held in a pending status in IMS by the issuing and paying agent IPA PENDING ACTIVITY INQUIRY FUNCTION Participants can view items on the Pending Activity Inquiry screen 51 Participants Fund and Preferred Stock Investment Purpose The Participants Fund and the Participants Preferred Stock Investment provided in DTC Rule 4 create liquidity and collateral resources to support the business of DTC and to cover losses and liabilities incident to that business For this purpose every Participant has a Required Participants Fund Deposit and a Required Pre
92. in the seg 100 account until acquired by a U S citizen Use the Account Segregation Releases functions to segregate and release foreign owned or specialized ownership issues When you enter F in the Serial Number field for these securities on your Participant Daily Activity Statement these securities will appear with the serial number 100 You can process these transactions exactly as you would any other transaction for segregated securities 75 DTC will report to the transfer agents TAs for communications maritime and specialized ownership issues the holdings in each Participant s seg 100 accounts for each security and the TAs will note their records accordingly In the rare instance in which total alien holdings in an issue may exceed statutory limitations and the increase in foreign owned shares registered in the name of Cede amp Co caused the statutory limitation to be exceeded a TA will advise DTC of the amount by which those foreign owned shares must be reduced According to the seg 100 procedures you are required to immediately withdraw from your general free account any foreign owned shares that cannot be credited to your seg 100 account because of foreign ownership limitations DTC will cooperate with the issuer and its TA to facilitate the withdrawal and will disclose to the issuer your name and the number of shares to be withdrawn You should be aware that issuers may place restrictions on such shares At the request of
93. ion is settled through DTC as a debit credit to the pledgor s and pledgee s DTC money settlement account When pledging securities to a pledgee the pledgor s position is moved from the pledgor s general free account to the pledgee s account which prevents the pledged position from being used to complete other transactions Likewise the release of a pledged position would move the pledged position back to the pledgor s general free account where it would then be available to complete other transactions Important Terms The following terms are important to understanding the Settlement Service This term __Refersto_ E Aggregate A limit to the settlement debit an Affiliated Family can incur Affiliated Family at any point during the processing day Net Debit Cap chill A systemic way DTC can prohibit you from processing certain activities for example valued delivery chill will prevent you from making valued deliveries from your account Collateral Monitor DTC s process for measuring the sufficiency of the collateral CM in your account to cover your net settlement obligation collateral value The market value of a security less the applicable DTC haircut Computer to A batch transmission system for input output based on Computer Facility various protocols between your mainframe and DTC s CCF CCF 11 mainframe Continuous Net The system employed by NSCC to settle NYSE AMEX Settlement C
94. ional Securities Clearing Corporation NSCC OCC DTC and NSCC have jointly created the loan program to minimize the collateral and financing requirements of common OCC and NSCC member firms by synchronizing the release of OCC s guarantee obligation with satisfaction of the member s obligation to NSCC How the Product Works The Options Clearing Corporation Disbursement OCCD function has been developed by DTC and OCC to allow Participants to negotiate loans with pledgee Participants using securities pledged to OCC for margin purposes as collateral The OCCD function allows Participants to submit collateralization requests that require approval from the pledgee and OCC The OCCD function allows pledgee Participants to review Participants collateralization requests and either approve or reject them Only pledgee approved collateralization requests appear on OCC s approval screen in the OCCD function Pledgee approved collateralization requests can then be approved or rejected by OCC Only collateralization requests approved by both the pledgee and OCC are processed by DTC An OCC approved collateralization request generates a Demand of Collateral DCL transaction activity code 58 that moves the securities from the requesting Participant s pledge account 014 to an OCC control account Once the DCL transaction completes a valued pledge activity code 54 will be processed from the OCC control account to the pledgee designated by the Par
95. ipants who choose not to monitor their account for free delivery activity after 5 00 p m and are not aware of these free receives until the next day Participants can update their accounts to turn on RAD at 5 00 p m for all free receives via a profile in the Settlement User Interface 56 Indexed Principal Transactions You can view and act on MMI transactions in RAD for issues that contain an indexed principal feature Deliver Order DO transactions are directed to RAD whenever e An issuing paying agent IPA initiates a DO in an MMI program that allows for indexed principal as a possible feature of any issue under the program or e A dealer sales agent initiates a turnaround DO in an MMI program that allows for indexed principal of any issue under the program or e A Participant other than an IPA initiates a DO in an issue already designated as having an indexed principal feature Wind Down Participant DTC may in its discretion apply RAD to all DOs and POs initiated by a Wind Down Participant regardless of value Receiving Participants may raise their RAD limits to manage such transactions RAD Contact Number For more information on RAD call DTC s Customer Support Center at 888 382 2721 OCC Market Loan Program All reclaims to the OCC account will recycle until the OCC submits a redelivery back to the lender or until the reclaim drops at the recycle cutoff If the OCC does not submit a delivery to the lender then the borrowe
96. it Amount shall pay the other clearing agency an amount equal to the Common Settling Bank s Debit Amount owed to the other clearing agency in full satisfaction of the settlement obligation of the Common Settling Bank to the other clearing agency If the sum of such DTC Credit Amount and NSCC Debit Amount or DTC Debit Amount and NSCC Credit Amount as the case may be is a negative number then the absolute value of that amount shall be owed by the Common Settling Bank to the clearing agency to which the Common Settling Bank has a Debit Amount such amount shall be paid by the Common Settling Bank via NSS in the manner provided in clause 3 a above in full satisfaction of the settlement obligation of the Common Settling Bank to such clearing agency and the clearing agency with the Credit Amount shall pay the other clearing agency an amount equal to the Common Settling Bank s Credit Amount in full satisfaction of the settlement obligation of the clearing agency from whom such Credit Amount was owed to the Common Settling Bank If the sum of such amounts equals zero i e the Credit Amount due from one clearing agency equals the Debit Amount owed to the other clearing agency then the clearing agency that owes the Credit Amount to the Common Settling Bank shall pay the amount of such Credit Amount to the other clearing agency in full satisfaction of both the settlement obligation of the Common Settling Bank to the clearing agency owed the Debit
97. it and the other a debit The net value of these two flows is used to update the CM Since the value of securities as collateral is subject to a haircut on the market value the cash component for settlement value of each transaction is generally greater in value than its securities component Thus the completion of a delivery versus payment generally results in an increase in the deliverer s CM and a decrease in the receiver s CM based on the difference between the collateral value of the securities and the settlement value of the transaction Transactions that do not have a cash component such as deposits and free deliveries are considered to have a zero cash component When processing a transaction DTC verifies that the deliverer s and receiver s CMs will not become negative when the transaction completes If the transaction would cause either party to have a negative CM and thereby be undercollateralized the transaction will recycle until the deficient account has sufficient collateral to complete see Recycle Processing Controlling Collateral Securities received versus payment are automatically designated as net additions NA because the receiver has not yet paid for these securities Your CM is credited the collateral value market value minus the applicable haircut of all positions designated NA Conversely your CM is not affected by positions designated as minimum amount MA You can manage your collateral in the following ways
98. ivery will go directly to the original clearing firm e Authorized ID Net Bank deliveries that are pending for position or the deliverer s or receiver s risk management controls will also be exited from ID Net and will continue to recycle in the system to the ID Net Firm The ID Net Bank delivery will be systematically updated so that the original clearing firm will be moved back from the third party field to the receiver field and the ID Net Subscriber Deliver Account 719 will be placed into the third party field The transaction will continue to recycle with the same Relative Block Number RBN the unique transaction number applied by the processing system however if it re pends or completes it will be assigned a new RBN that will point to the original RBN ID Net Firm Deliveries e ID Net Firm deliveries from the ID Netting Subscriber Receive Account 919 that are pending for position or because of risk management controls will drop at 11 30 a m eastern time on settlement date e Re introduction of ID Net Deliveries for ID Net Firms 40 Deliveries that do not complete for position or controls will be available for immediate re introduction from the original clearing firm s account through an optional IMS function at 11 30 a m eastern time The ID Net reintroduced drop will appear and will be charged as a regular ID trade MITS transaction type in IMS The reintroduced drop can be viewed by the ID Net Firm in the Transactio
99. late the Required Preferred Stock 53 Investment for each Participant Participants having the highest PS Averages will accordingly be required to make the largest investment and Participants with the lowest PS Averages will be required to make smaller investments or even potentially no amount above the 2 500 minimum Settlement of Participants Fund Deposits The Required Participants Fund Deposit for each Participant is recalculated daily If in the daily calculation the amount of the difference between the prior day s Required Participants Fund Deposit and the newly calculated Required Participants Fund Deposit is equal to or exceeds 500 000 and the difference represents 25 percent or more of the newly calculated required fund deposit the affected Participant must to the extent any excess amount of the Participant s Actual Participants Fund Deposit does not already satisfy the new requirement deposit the difference in the Participants Fund on the same Business Day that the difference was calculated and a report or other notification of the change is made available to the Participant In addition after settlement on the last business day of each month DTC calculates each Participant s requirement Each Participant will be notified of their new requirement on the first Business Day of the month If a Participant s requirement has increased beyond the value it currently has on deposit at DTC a debit transaction will process in it
100. ll aspects of settlement processing Processes deposits and withdrawals of Federal book entry eligible securities Settlement Transactions There are three main types of transactions processed through the Settlement system Deliveries DTC s delivery program allows you to settle securities transactions by making book entry deliveries to another Participant s account The securities are immobilized in DTC s custody eliminating the need for physical movement of certificates DTC reduces the seller s position and increases the buyer s position without the need to move physical certificates Deliveries can be made with or without the condition of money payment depending on your delivery instructions Payment Orders POs The payment order service provides you with a convenient method for settling amounts of money related to securities transactions that are effected separately through DTC earlier on the same day or on a previous day You can use payment orders to collect option contract premiums and mark to market open contracts such as stock loans Collateral loans The collateral loan service allows you the pledgor to pledge securities as collateral for a loan or for other purposes and also request the release of pledged securities This service allows such pledges and pledge releases to be made free meaning that the money component of the transaction is settled outside of the depository or valued meaning that the money component of the transact
101. lows Participants to establish a standing withdrawal request Rather than requiring Participants to manually request the return of their SPP P amp l credits DTC will push available SPP P amp l credits to Participants that have established an SPP P amp l profile via the Settlement User Interface only The push of funds will occur after the valued recycle cutoff and the funds will be sent to the Participant s Settling Bank for the account specified in the SPP P amp l Push Profile Participants will be able to set a minimum balance they want remaining in their account based upon their settlement balance at the time of the push Risk Management Controls About the Product Risk Management Controls protect you from the inability of one or more Participants to pay their settlement obligations Risk Management Controls are based on guidelines established by the Federal Reserve Bank FRB DTC currently employs four primary Risk Management Controls for processing securities e Collateralization e Net Debit Caps e Largest Provisional Net Credit LPNC for Money Market Instruments MMIs e ssuer Participant Number IPN Collateral Control Collateralization Collateralization ensures that your account has sufficient collateral for DTC to liquidate if you fail to pay your settlement obligation and become insolvent DTC s collateralization procedures prevent the completion of transactions that would cause your net debit to exceed the total
102. lting from certain transactions to be available for redelivery turnaround regardless of Memo Segregation constraints DTC gives you two options for creating Memo Segregation positions 1 Provide DTC with specific Memo Segregation transactions using the Memo Segregation function instructing DTC to establish or adjust Memo Segregation positions 2 Provide DTC with standing instructions to have certain types of transactions automatically increase Memo Segregation positions and ignore Memo Segregation positions in order to allow redeliveries turnarounds to complete To provide DTC with standing instructions submit a Memo Segregation Request form To get a copy of this form contact your Relationship Manager Non Optional Memo Segregation Transactions Independently of the preceding options the following transactions always reduce your Memo Segregation position e Withdrawals by transfer WTs Certificates on demand CODs e Free deliver orders DO except those processed with reason codes 10 29 98 100 220 260 268 270 278 280 288 290 291 600 619 704 708 and CNS short covers e Deliveries processed with reason codes 95 97 630 640 and reclaim codes 197 631 and 641 free and valued When one of these transaction types is processed against your account with a Memo Segregation position the system checks the free account If sufficient shares exist both the free position and the Memo Segregation position are reduced by
103. lure to settle through another settling bank DTC will not contact any Participant that paid or received its settlement balance through another settling bank on the day of the failure to settle Each Participant that had a net debit balance on the day of the settling bank s failure to settle must pay the net debit balance to DTC by 12 00 noon eastern time on the day of the request from DTC Ifa Participant does not pay its net debit balance from the day of the settling bank s failure to settle by that time DTC may apply any of its Participant failure to settle procedures to the Participant After settlement with all Participants that settled through the settling bank including any application of the Participant failure to settle procedures DTC will repay any borrowings made as a result of the settling bank s failure to settle and will return collateral to Participants Any interest charges and other costs associated with such borrowings will be charged to the settling bank to the extent of its Participants Fund deposit and other collateral available to DTC and any remaining amount of such charges and costs will be charged to the Participants that settled through the settling bank and had net debit balances on the day of the settling bank s failure to settle Such Participants will be charged in proportion to their net debit balances on the day of the settling bank s failure to settle In addition to those costs and charges DTC may charge any applicabl
104. mits an SPO to DTC crediting its settlement account for the amount of the difference between the original and new market values and debiting the account of the borrower the payor Participant for the same amount Receiver Authorized Delivery for Payment Orders All Payment Orders are subject to matching via RAD prior to delivery of the payment Note You can use Participant Settlement Statements to get a list of Settlement activity codes and their descriptions 55 Receiver Authorized Delivery RAD About the Product RAD allows Participants to review and either approve or reject incoming deliveries before they are processed All valued DOs POs institutional deliveries MMI transactions reclaims pledges and releases of pledged securities are subject to RAD controls Participants are allowed to set their own RAD limits on a global or bilateral level Global limits apply to all contra participants and bilateral limits allow Participants to set individual limits against a specific contra participant Stock Loans Participants may establish bilateral and global RAD profile limits specifically for their stock loan and stock loan return activity Applicable stock lending transactions will be checked against the receiver s stock lending profile limits for passive approval or will otherwise await the receiver s active approval based on the parameters of the profile Absent a Participant establishing a Stock Loan RAD limit profile a Partici
105. n which is recycling for insufficient collateral and the turnaround CNS transaction for example short cover allows you to remain collateralized If so DTC will complete both transactions Look ahead processing helps maximize the smoothness of transactions and limits infusions of collateral by Participants Although this situation is rarely encountered in transactions daily DTC provides automated look ahead processing so that each receive pending for insufficient collateral that has a corresponding turnaround to CNS is checked by this process unless you place the CNS transaction on hold CNS Processing Contact Number For more information on CNS Processing call the Customer Support Center at 888 382 2721 NSCC ACATS Settlement Accounting Operation Processing at DTC NSCC s Rules amp Procedures establish the NSCC ACATS Settlement Accounting Operation which interfaces with DTC s system to move securities from the account of one Participant to another NSCC maintains an account at DTC with respect to the associated securities movements 17 When securities that are the subject of an ACATS transfer are credited to a receiving Participant s Account at DTC those securities will automatically be designated as Minimum Amount MA as defined in the DTC rules Accordingly when such securities are credited to the receiving Participant s account DTC will not have any security interest lien or other claim on those securities and tho
106. n Authorization Inquiry option in IMS An ID Net reintroduced drop will remain in an Unprocessed state will not be processed unless the ID Net Firm authorizes the delivery in IMS ID Net Firms can elect to have their ID Net reintroduced drops automatically authorized by setting their ID Net Drop Authorization Profile to passive ID Net Firms should use the new ID Net Drop Auth Profile Update option in the IMS function to switch their ID Net drop profile from Active the default to Passive ID Net Firms can view their ID Net drop authorization profile in the IMS function by selecting the ID Net Drop Auth Profile Inquiry option Reclaims ID Net same day reclaims are only applicable to deliveries from the ID Netting Subscriber Receive Account 919 These reclaims will be directed to the original clearing firm rather than the omnibus account 919 and are subject to DTC s risk management controls and applicable RAD limits DTC strongly recommends that ID Net reclaims of receives from the ID Netting Subscriber Receive Account 919 include the Relative Block Number RBN and Original Date Pend Holds ID Net Banks will be permitted to place holds on their ID Net deliveries that are pending for insufficient position in the Pending Transaction function ID Net Firms will not be permitted to place pend holds on their ID Net deliveries that are being processed from the ID Netting Subscriber Receive Account 919 NSCC Clearing Fund O
107. nated The crediting of these proceeds which will be applied as code 78 adjustments will occur just before DTC s final settlement figures are produced Transactions in Honest Broker processing will be included on the regular daily activity and settlement reports The Settlement Department can also provide individual reports upon request Honest Broker Contact Number For more information on Honest Broker for Redelivery of Pledged Securities call DTC s Customer Support Center at 888 382 2721 ID Net Service Benefits ID Net is a service that ultimately benefits all parties involved in institutional trading e Reduces the aggregate value of settlements system wide through netting efficiencies e Presents cost savings for banks and brokers through reduced fees and or deliveries e Increases the certainty of settlement for matched institutional trades e Encourages early affirmation Overview Unlike exchange trades and most prime broker trades most institutional delivery transactions do not currently flow through NSCC s Continuous Net Settlement system CNS Rather these institutional transactions settle at DTC The ID Net Service will allow subscribers to the service to net all eligible affirmed ID transactions against their CNS transactions if any The ID Net Service will accept eligible affirmed institutional transactions from Omgeo LLC or other Affirming Agency that is eligible for the ID Net Service and offset the ID Net Fi
108. nce or net credit balance for each Acronym as defined in the DTC Rules DTC continuously monitors the applicable MMI Acronyms in which each Participant has the two largest net credits to determine the LPNC in accordance with the DTC Rules By way of example only on a business day prior to settlement if an account has an MMI maturity presentment for which a credit of 50 million is due but it is also purchasing an MMI issuance in the same Acronym for 25 million and both the maturity presentment and issuance deliveries have satisfied position controls net debit cap and collateral monitor controls the system will reflect with respect to this Acronym a net credit due to the settlement account of 25 million A similar calculation would be completed with respect to each Acronym for which a net credit to the settlement account is anticipated to determine the two largest pending net credits for any Acronym the sum of which equals the LPNC at that time The amount of the LPNC will not be credited to the settlement account until after the time for reversals has passed at which time the amount is credited to the settlement account offsetting any net debit balance to reduce the settlement obligation if any of the Participant It may be that the credit of the amount of the LPNC to the settlement account of the Participant creates a net credit balance so that the Participant has no settlement obligation and is due a net payment in settlement 70
109. net net figure for each Settling Bank The end of day net net figure is the net of all Participant s net balances after cross endorsement with the National Securities Clearing Corporation NSCC for which a Settling Bank settles including its own accounts Note Any Settling Bank that settles for both Participants of DTC and participants of NSCC will have its net net credit or debit balances at DTC and NSCC aggregated and netted to one consolidated debit amount or credit amount as applicable Settlement Example The following details illustrate and example of how the settlement process works e Settling Bank ABC settles for Participants 1 2 and 3 e Participant 1 has a gross debit of 2 million and a gross credit of 1 million giving it a net debit of 1 million e Participant 2 has a gross debit of 3 million and a gross credit of 2 million giving it a net debit of 1 million e Participant 3 has a gross debit of 2 million and a gross credit of 3 million giving it a net credit of 1 million e Settling Bank ABC s net net figure would be a debit for 1 million which is the sum of the net figures of Participants 1 2 and 3 As illustrated in the example net net settlement increases the likelihood of timely settlement and reduces the number and the dollar amount of payments due to DTC In the example DTC would instruct the Fed to charge the Settling Bank s American Banking Association ABA routing number for 1 million via NSS
110. ng DTC s Risk Management Controls PTA transactions that meet all of DTC s editing and processing requirements complete in DTC s system and no position is reserved in the PTA account Likewise transactions that recycle for an insufficient position will not affect your PTA account Only PTA transactions that recycle as a result of risk management controls which means that the delivering or pledging Participant has sufficient position to complete the transaction will cause position to be reserved in the PTA account Non PTA transactions that recycle as a result of risk management controls do not affect your PTA account After position is reserved in your PTA account it is no longer available for any other transactions you may initiate The transactions associated with positions in the PTA account recycle normally the PTA indicator does not affect recycle algorithms and the position remains in the PTA account until any of the following occurs e Your Risk Management Controls change to allow completion of the transaction The position is automatically released from your PTA account at the PDA cutoff approximately 1 30 p m eastern time Note This condition applies to valued PTA transactions only positions reserved for free PTA transactions are not automatically released at the PDA cutoff and positions for valued PTA transactions entered after the PDA cutoff will not be reserved in the PTA The intended receiver cancels the PTA transaction DTC
111. ng allocations After the trades are netted free book entry movements at DTC to or from Omnibus account 888 allow NSCC participants to e Deliver short covers to NSCC for those participants obligated to deliver securities e Receive long allocations from NSCC for those participants entitled to receive securities To process transactions smoothly between DTC s system and the CNS system DTC and NSCC have put in place certain collateralization arrangements and financial guarantees to ensure that 15 Debits created in DTC s system continue to be collateralized when the securities serving as collateral are delivered as CNS short covers and Long allocations or approximate values of long allocations are made available to NSCC to cover certain exposures 16 Short Covers When short covers are delivered from your DTC account NSCC guarantees that e The value of securities received versus payment that are used for CNS short covers will be equal to the prior day s closing price and e The value of securities not received versus payment that are used for CNS short covers will be equal to the prior day s closing price less an applicable haircut In either case your Collateral Monitor is increased by the amount guaranteed by NSCC Without these guarantees deliveries to CNS may not be permitted under DTC s collateralization rules because DTC would have neither the securities nor the collateral in the event of a failure to settle Note T
112. nking Association ABA number and the purpose of the loan Pledging Purposes Any securities you pledge to the FRB through the Collateral Loan Program are deemed pledged to the FRB as fiscal agents of the United States for its principal the Treasury Department when pledged for e Treasury Tax and Loan Collateral for Treasury Tax and Loan account balances under 31 C F R Part 203 Treasury Circular No 92 e Public Purposes Collateral for deposits of public money under 31 C F R Part 202 Treasury Circular No 176 Any securities you pledge to the FRB through the Collateral Loan Program are deemed pledged to the FRB as principal as Collateral when pledged for i discount window advances under 12 C F R Part 201 Regulation A of the Board of Governors of the Federal Reserve System Discount or e ii daylight funds overdrafts on the books of the FRB Daylight Overdraft Collateral pledged for either purpose may be credited to a single Pledgee Account of the FRB Note An indication that a security is pledged for Discount or Daylight Overdrafts is made when collateral is initially or primarily used for either purposes However in accordance with FRB agreements and operating circulars such collateral so designated regardless of such designation shall serve as security for any obligation of the pledgor to the FRB Categories of Securities to be Pledged DTC eligible securities are generally good for all
113. nt the Participant will be deemed to instruct DTC to transfer to the receiving party the entire interest in the securities not a security interest or other limited interest Background Previously procedures in the Collateral Loan Program did not permit Participants to differentiate between a pledge of securities which involves the transfer of a security interest or other limited interest in the securities and a sale which involves the transfer of the entire interest in the securities Effective September 2 1997 DTC implemented procedures to specifically provide Participants with the capability to process repurchase transactions or other types of financing transactions through the mechanism of DTC s Collateral Loan Program Repo accounts and pledge accounts are individually identified in DTC s Reference Directory Organizations interested in establishing a repo account should contact their Relationship Manager 12 Procedures for DTC Repo Accounts The repo account procedures listed below should be used in conjunction with DTC s existing Collateral Loan Program procedures The procedures listed below are an addition to DTC s Procedures for Pledgees 1 Any organization a Receiver that is eligible to establish a pledgee account at DTC may establish a repo account at DTC A repo account is available to effect repurchase transactions or other types of financing transactions through use of the procedures in DTC s Colla
114. nt if it is selling Preferred Stock or debited as settlement amount if it is purchasing additional Preferred Stock as appropriate Submitting an Initial Participants Fund Deposit or a Voluntary Deposit For initial deposits by new Participants and voluntary deposits by existing Participants wire the funds to DTC formatting the instruction to conform to Fedwire standards for Fed fund transfers Receiving Bank DTC s ABA Number 026002066 ABA Number Receiving Bank DTC s telegraphic name DTC SDFS Name 54 in this tiea enter O Originator The name of the Participant whose account is to be credited ORG Originator to Settlement Fund Deposit SFD followed by a slash and the Participant s Beneficiary account number For example OBI OBI SFD 123 Note The data in the Originator to Beneficiary I nformation OBI field is required for processing by DTC For banks that use another field name include OBI in your entry For example BBI OBI SFD 123 Payment Orders About the Product DTC s Payment Order service allows you to settle money payments for transactions that were processed separately How the Product Works A Participant wanting to collect money the payee Participant from another Participant the payor Participant first contacts the payor Participant to reach agreement on the amount payable The payee Participant then submits to DTC a premium payment order PPO or a securities payment order SPO
115. nt of the SPP thus SPPs also reduce your actual net debit See Wire Instructions for more information To view your CM balance use the Risk Management Controls Inquiry function Net Debit Caps Net Debit Caps help ensure that DTC can complete settlement even if a Participant fails to settle They are based on your net debit history at DTC and automatically rise or fall relative to the average of your highest intraday net debit peaks in accordance with the calculation described below in Calculating Your Net Debit Cap A Net Debit Cap recalculated daily is applied to your account to limit the settlement net debit you could incur at any point during a processing day Your Net Debit Cap is limited by DTC s established maximum Net Debit Cap the value of which is always set lower than DTC s total available liquidity Currently the maximum Net Debit Cap you can have is 1 8 billion Before completing a transaction in which you are the receiver DTC calculates the resulting effect the transaction would have on your account and determines whether your resulting Net Debit Balance would exceed your Net Debit Cap Any transaction that would cause your net settlement debit to exceed your Net Debit Cap is placed on a pending recycling queue until another transaction creates credits in your account see Recycle Processing for more information Most credits are generated when you deliver securities versus payment pledge securities for value
116. o remove securities from your account and you do not have enough position to complete the entire transaction DTC will pend the transaction until you have enough position to cover the entire delivery Note An exception to this rule DTC does allow for partial NSCC Continuous Net Settlement CNS and ACATS deliveries DTC offers you two options for recycling your insufficient position transactions e Option 1 Automatic Prioritization e Option 2 First In First Out FIFO with Blockage To select a recycle option you must complete a Recycle Option Instruction form which you can obtain by calling the Compliance Department at 212 855 4931 Option 1 Automatic Prioritization If you select option 1 DTC will recycle your transactions using the same criteria used for Risk Management Control recycles See the Prioritization Schedule for the priority order Note If DTC cannot complete the first transaction on the queue due to Risk Management Controls the position is immediately made available to complete other transactions Therefore once the Risk Management Control requirements have been met position may no longer be available for the transaction and the transaction will then recycle because of insufficient position If you wish to control the order in which your transactions recycle option 1 may not suit your needs 59 Option 2 First In First Out with Blockage The difference between option 2 and option 1 is that with option 2
117. odic interest payment proceeds or both for an MMI issue An IPA must inform DTC of its refusal to pay by 3 00 p m eastern time After DTC verifies the default it begins MMI Issuer Failure procedures How the Product Works Upon notification of a default DTC Freezes the issue preventing further issuance and maturity activity Globally locks all CUSIP numbers associated with the failed issue to prevent any activity Devalues all of the Issuer s MMIs for Same Day Funds Settlement SDFS collateralization Reverses all of the Issuer s issuances maturities and income presentments processed that day Notifies Participants of the default via the FFSP function Reverses all deliveries of newly issued paper Notifying DTC of Temporary Refusal to Pay A Temporary Refusal to Pay Income Presentments occurs when a paying agent indicates an issuer s inability to fund income presentments IPs This is considered a temporary situation that will be resolved the next business day Paying agents enter these notifications via the MMRP function When DTC receives a notification it e Temporarily devalues to zero all of the Issuer s MMIs for collateralization The value will be reinstated the following business day e Temporarily reverses all of the issuer s issuances and income presentments processed that day These transactions will be automatically processed the next business day Notifies Participants of the temporary default Blocks from DTC s syst
118. ollateral value of securities received that are associated with the Participant IPN is based on a Participant s legal entity therefore this control will apply to every account of a Participant For example When a Participant has an IPA account that issues MMI securities on its own behalf and has a custody account in the same or a separate collateral group and the IPA account processes an MMI issuance delivery to its own custody account in its own MMI securities the custody account will receive no collateral increase for the collateral value of that issuance IPN control will not affect a Participant s net debit or its LPNC calculations Because IPN control affects the collateral value of an associated account IPAs may wish to monitor their accounts more 71 closely intraday for insufficient collateral especially if they have net maturity presentments versus issuances in their own MMI securities on a particular day Risk Management Controls Contact Number For more information on Risk Management Controls call DTC s Customer Support Center at 888 382 2721 Extension Requests DTC cannot grant you an extension of the foregoing deadlines unless a substantial volume of transactions is involved Please notify DTC as early in the processing day as possible if you think you may need to request an input extension This will allow DTC to discuss alternative methods of input To request an extension call DTC s Settlement Hotline at 212 855 5
119. ommon Settling Bank has both a DTC Debit Amount and an NSCC Debit Amount then following the acknowledgement of those respective balances by such bank in accordance with DTC and NSCC s procedures DTC shall instruct the FED to debit the FED account of such Common Settling Bank by the aggregate sum of such debit balances DTC upon receipt of such monies shall credit NSCC with the amount of the NSCC Debit Amount and credit DTC with the amount of the DTC Debit Amount from such Common Settling Bank b Ifthe Common Settling Bank has both a DTC Credit Amount and an NSCC Credit Amount then at the time established in DTC and NSCC s procedures DTC shall instruct the FED to credit payment to the FED account of the Common Settling Bank with the aggregate sum of such credit balances and shall debit NSCC with the amount of the NSCC Credit Amount and debit DTC with the amount of the DTC Credit Amount for such Common Settling Bank c Ifthe Common Settling Bank has a Debit Amount at one clearing agency and a Credit Amount at the other then If the sum of such DTC Credit Amount and NSCC Debit Amount or DTC Debit Amount and NSCC Credit Amount as the case may be is a positive number that excess amount i e equal to the positive number shall be owed by the clearing agency with the Credit Amount to the Common Settling Bank shall be paid to the Common Settling Bank in the manner provided in clause 3 b above and the clearing agency with the Cred
120. or Recycling Transactions can recycle because of Risk Management Controls or insufficient position A transaction may recycle under any of the following circumstances 1 The deliverer has insufficient position to complete the transaction 2 Completing the transaction would make the deliverer s collateral monitor negative that is the total remaining collateral in your account is less than the resulting net settlement obligation This could happen if the collateral value of the securities you are delivering exceeds the settlement value that would be credited to your account or if the delivery is free and your collateral monitor is not sufficient to absorb the decrease 3 Completing the transaction would cause the total value in the receiver s account including the securities involved in the transaction to be less than the resulting net settlement obligation that is your collateral monitor would be made negative This could happen if the amount that would be charged against your account exceeds the collateral value of the securities you are receiving and your collateral monitor is not sufficient to absorb the decrease 4 Completing the transaction would cause the receiver s net settlement obligation to exceed its net debit cap 5 For MMI securities the deliverer has insufficient other NA because the securities are deemed received versus payment position RVP NA and are being redelivered free or undervalued by more than 10 percent of the m
121. ore although not required to read the field machine readable users should be prepared to receive the depository third party field s potential new values and ensure that the population of this field will not adversely affect existing processing within their system Alternatively ID Net Subscribers may optionally program to read the depository third party field s to ascertain ID Netting Subscriber Account information and related ID Net processing Inventory Management System IMS Processing Authorization Exemption and Cancel Processing for ID Net Banks Today when a TradeSuite delivery from a bank is affirmed the delivery is sent to DTC s Inventory Management System IMS ID Net was developed to minimize systemic changes required by ID Net Banks If a trade is flagged as ID Net eligible DTC will automatically flip the original clearing firm from the receiver field into the third party field of the ID trade and will put the ID Netting Subscriber Deliver Account 719 in the receiver field 1D Net Banks will only be notified of this change if they elect to receive new messages that will be produced by DTC specifically for ID Net otherwise systemically this process will be transparent to ID Net Banks e ID Net Banks may continue to exempt authorize or cancel ID deliveries before the night cycle as they do today However for the day cycle it is recommended that ID Net Banks authorize their individual ID deliveries and discontinue
122. pant s transactions will be subject to the RAD functionality applicable to ordinary DOs including the established DTC limits as well as Participant established bilateral and global limits Approving or Cancelling Deliveries You can approve or cancel transactions received via DTC s Settlement User Interface or an automated RAD messaging process Turning RAD Limits On and Off You can turn off RAD limits via DTC s Settlement User Interface and allow DTC to process all your incoming deliveries You may want to turn off your RAD limits for example when you are unable to modify the bilateral limits of your contra participants because of time constraints Your bilateral RAD limits will not be in effect until you turn them back on via the Settlement User nterface Transactions that are automatically routed to RAD are not affected by your decision to turn off RAD processing they always require your approval before processing Free Transactions Participants can force free receives DOs to their RAD if input after 5 00 p m eastern time Forcing them will effectively block free receives from being booked into a Participant s account between 5 00 p m and the free delivery cutoff of 6 15 p m Unless designated otherwise by a profile all MMI free receives are sent to RAD at all times Participants who elect to turn on RAD at 5 00 p m will have all their free receive activity routed to RAD for approval or cancellation This will aid Partic
123. r s reclaim to the OCC will drop at the recycle cutoff i e the borrower will retain the securities and the debit for the stock loan delivery it received from the OCC Recycle Processing About the Product When DTC receives instructions to effect a transaction it may first be processed through one of several DTC systems before any DTC accounts are updated For example a transaction involving a delivery of securities may first be processed through one or more of the following e The IPO Tracking System e The Receiver Authorized Delivery RAD system e The Money Market Instrument MMI system After the transaction is processed it is entered into DTC s Account Transaction Processor ATP system where it is checked for various criteria see Reasons for Recycling before it is completed One critical function of ATP is Recycle Processing also referred to as Pend Processing DTC s recycle processor holds your transactions that cannot immediately complete All transaction types recycle if they cannot immediately complete except Minimum amount MA to net additions NA moves using Collateral Moves functions Releases of collateral Memo segregations using the Memo Segregation functions Segregations using the Account Segregation Releases function 57 e Transactions input with the prevent pend option see below Note These transactions will be dropped if they cannot complete when ATP performs its initial check Reasons f
124. r ATP activity code 42 in DTC This new activity code will move position from the delivering Participant s designated sub account to the receiving Participant s designated sub account either free or versus payment ATP will use the same serial number identifies sub accounts for both deliverer and receiver e All DO activity e g stock loans reclaims will be subject to administrator s approval e For Security Holder Tracking transactions received from Omgeo s TradeSuite ID system Participants still need to authorize their deliveries in IMS as they do today for DTC to attempt settlement in addition to the third party administrator approval e Trades submitted via Omgeo will be identified as either transaction type Matched Institutional Trades MITS or Late Matched Institutional Trades LMIT in IMS e Security Holder Tracking deliver orders follow regular Receiver Authorized Delivery RAD rules e DTC ATP Activity Code 42 deliveries will appear on the DTC Participant Account Statement under one of the following current Settlement Activity Codes as applicable 19 1D 26 0 DO SDFS 26 5 Stock Loan DO 26 6 Stock Loan Return DO e Stock loan reason codes will be permitted for Security Holder Tracking DOs and will update the stock loan tracking memo accounts as with normal stock loan tracked DOs e Participants will be able to identify those transactions awaiting administrator approval in IMS by means of the Settlement U
125. rade is exited from the ID Net process it will not revert back to an original ID trade from the ID Net Firm s account The ID Net Firm will need to submit the delivery itself or use the re introduced drop feature described below Settlement and Risk Management Processing Changes to Risk Management Control Updates for ID Net Firms ID Net will process an ID Net Firm s DTC debits and credits for its eligible ID trades through the NSCC ID Netting Subscriber accounts These ID trades will have offsetting debits and credits in the CNS system As a result NSCC may owe DTC on any given day for the net of all the ID Net trades processed for all ID Net Firms In order to protect DTC from having a failure exported from NSCC for liquidity purposes updates to Participants net debit caps and collateral monitors will be necessary as described below A new ID Net collateral monitor and net debit cap balance will be recorded in the processing system The ID Net collateral monitor will record the net balance of collateral generated for all 1D transactions processed through the ID Net service If the balance of collateral generated by all ID Net receives and delivers is positive the ID Net Firm s collateral monitor will not be increased by 38 that amount However if an ID Net transaction requires collateral the system will use the ID Net collateral surplus for that ID Net Firm before attempting to use other collateral from that ID Net Firm If there is
126. receive principal dividend or interest allocations or wire funds SPPs to DTC s account at the FRBNY Calculating Your Net Debit Cap Net Debit Caps are calculated daily as follows 1 The system records your collateral group s three highest intraday net debit peaks over a rolling 70 business day period using simulated net debit peaks instead of actual net debit peaks If you have elected to group your accounts into separate families see Grouping Accounts into Collateral Families the system first calculates the average simulated net debit peak of each family and adds together the average net debit peaks of all your families to obtain your overall average simulated net debit peak 2 The system multiplies your average simulated net debit peak by a factor to determine your Net Debit Cap which cannot exceed DTC s established maximum of 1 8 billion Factors are based on a sliding scale between 1 and 2 where smaller average peaks are multiplied by larger factors and larger average peaks are multiplied by smaller factors 68 The established minimum Net Debit Cap is equal to twice the sum of all Participants minimum deposits to the Fund Note Your Settling Bank can set your maximum Net Debit Cap However the maximum amount set by a Settling Bank cannot exceed the Net Debit Cap calculated by DTC s system DTC may also limit your Net Debit Cap to any amount regardless of your intraday net debit peaks Although most transactions are su
127. rioritization Schedule for the priority order e Within the transaction types transactions are given priority on the basis of 1 Settlement value for valued transactions or 2 Market value for free transactions such as free deliveries or withdrawals Note This prioritization schedule defines only the order in which DTC attempts to complete recycling transactions DTC completes any transaction it can If the first transaction on the recycling queue cannot be completed DTC will move to the next transaction and attempt to complete it Warning If you have multiple Participant accounts you must be aware of how your account structure affects your recycling transactions If you have grouped your accounts into a family structure see Grouping Accounts into Collateral Families all your accounts within that family share the same collateral monitor and net debit caps This also means that all transactions within a family share the same risk management recycling queues For example suppose you have accounts A and B in a collateral family and have two RVP deliveries recycling against your net debit cap one for account A and one for account B The larger of these deliveries is placed first on the recycling queue Hence when settlement credits are applied against either account A or account B the larger delivery is attempted first Insufficient Position Recycles If you enter a transaction to deliver or pledge securities Such as a transaction t
128. rm side of each transaction with the participating ID Net Firm s other CNS obligations if any Eligibility for the ID Net Service will require that a participating entity be a Member of NSCC and a Participant of DTC ID Net Firm and that a participating bank be a Participant of DTC ID Net Bank collectively ID Net Subscribers In addition eligibility for ID Net processing will be based on the underlying security being processed the type of transaction submitted for processing and the timing of affirmation matching Participation in the ID Net Service will be voluntary and will be 35 governed by the rules and procedures applicable to the ID Net Service as described in this Notice All ID Net Subscribers will be required to enter into separate ID Net Subscriber agreements with NSCC and or DTC as applicable that govern their use of the ID Net Service To facilitate the processing of ID Net transactions two new securities accounts will be established by NSCC at DTC on behalf of all ID Net Firms that have elected to use the ID Net Service the ID Netting Subscriber Deliver Account and the ID Netting Subscriber Receive Account collectively referred to as the ID Netting Subscriber Accounts NSCC will be the owner of both accounts and will act as agent for the ID Net Firms NSCC will process ID Net transactions through these accounts on behalf of participating ID Net Firms While NSCC will direct transactions
129. rmine the Participant s portion of its Affiliated Family allocation 2 Calculation will be based on the Participant s Net Debit Cap NDC in relation to its total Aggregated Affiliated Family NDC Participant NDC CD a DD ee ee n y Affiliated Family NDC a Y of the Affiliated Family allocation is the Participant s portion of the Affiliated Family allocation b This calculation will be done for all Participants within each Affiliated Family that has an Overage Required Preferred Stock Investment Calculation The following are the steps taken to calculate the Required Preferred Stock Investment Calculation 1 The minimum investment is 2 500 per Participant which across all Participants the number of which may vary from time to time adds up to an aggregate threshold amount The difference if any between that aggregate threshold amount and 150 000 000 the PS Differential is then allocated ratably among all Participants based on each Participant s average the PS Average of its six largest intraday net debit peaks over a rolling 60 business day period as of the last day of each quarter year 2 The calculation and reallocation among Participants of the Required Preferred Stock Investments are performed as of the last business day of each quarter Based on the PS Average as of the last business day of the quarter for each Participant the calculation incrementally allocates the PS Differential to calcu
130. rocess DTC must be instructed in writing to set up a specific CUSIP for tracking At the same time the issuer must instruct DTC as to whom will perform the function of the administrator for the CUSIP within the SH Tracking Service Upon receipt of all of the aforementioned documentation DTC will make the CUSIP DTC eligible and will activate the tracking indicator on its security master file Additionally once it is made eligible DTC will perform asset servicing for the issue The administrator appointed by the issuer will control movements of the particular CUSIP for which it has been appointed Once the tracking indicator has been activated on the master file and the administrator has been appointed no transfer of the securities shall take place in the tracked security without the approval of the administrator through the Inventory Management System IMS The administrator based on requirements of the issuer shall be solely responsible for determining whether a transaction should be effected in DTC Once approved by the administrator DTC may perform centralized book entry settlement IMS will only allow an administrator access to view and approve transactions for CUSIPs for which they have been appointed administrator as reflected in DTC s records The tracked securities will not be held as part of a Participant s general free account nor will they be considered eligible collateral in DTC s settlement system Although the SH Tracking
131. rocessing schedule All times are eastern time Cutoff Time ET This Occurs 1315 p m DTC s cutoff for syndicate closings 1 30 p m DTC releases all pending delivery account PDA positions and reverts to default recycle processing 2 00 p m Cutoff for e Valued MMI issuances 2 45 p m Cutoff for e RAD approval of MMI valued issuance deliver order transactions 255 p m Cutoff for entering release requests designating position as eligible for CNS 3 00 pm Cutoff for e An Issuer s Paying Agent notifying DTC of the default of an MMI issue that would require the reversal of transactions in DTC s system 3 00 p m Forced Receiver Authorized Delivery RAD period begins Note You can continue to enter valued and free transactions However all valued transactions are forced into RAD and require the receiving Participant s approval 3205 pam Largest Provisional Net Credit LPNC control ends DTC begins using your actual collateral monitor and net settlement balances instead of simulated collateral monitors and net settlement balances in determining whether Risk Management Control recycles can complete 3 10 p m e Cutoff for pledgees to approve pledge release requests designating position as CNS eligible e Valued recycle cutoff All valued and CNS transactions that cannot be completed because of insufficient position collateral or net debit cap are dropped from the system e CNS input cutoff Note All valued transactions input
132. ructions MA to NA transfers e Pledgees to enter free pledge release returns e Pledgees to approve free pledge release requests Cutoff for the Authorization and Exemption function e Recycle cutoff for all free transactions Cutoff for inputting segregation and memo segregation instructions Cutoff for ANE NDO cutoff 25 Cutoff Time ET This Occurs 26 Extension Requests DTC cannot grant a Participant an extension of the foregoing deadlines unless a substantial volume of transactions is involved Please notify DTC as early in the processing day as possible if you think you may need to request an input extension This will allow DTC to discuss alternative methods of input To request an extension call DTC s Settlement Hotline at 212 855 5800 27 ADDENDUM A How the Product Works Following is an outline of the Honest Broker procedure 1 DTC will activate its Honest Broker procedure only upon a pledgor s request when pledgees are unwilling to return pledged securities directly to a pledgor and only after it consults with the concerned parties to determine that taking this action is appropriate DTC may also activate the procedures in case of a pledgor s extended operational outage DTC will notify pledgees and DTC Participants when the Honest Broker procedures are activated DTC will advise Participants of the possibility that deliveries in settlement of their transactions with the pledgor if any may be received
133. s The guidelines for using the Collateral Loan Program are as follows 1 You can use the Collateral Loan Service function the Computer to Computer Facility CCF or Message Queuing MQ to submit collateral loan pledges and release requests to DTC Release returns are also available through CCF and MQ However release approval is available only through the Settlement User Interface 2 You must ensure that the securities you are pledging are available in your general free account 3 When a stock distribution requiring due bills is declared on securities pledged as collateral the distribution automatically becomes additional collateral 4 In the instance of a substantial cash distribution for which an exchange or similar securities organization would require due bills to accompany stock certificates for the amount of cash accruing on pledged shares the Pledgee may direct DTC to pay such funds directly to it as partial repayment of the loan Otherwise such funds will be paid by DTC to the Participant 5 At any time the pledgee can direct DTC to deliver pledged securities demand of collateral 6 Voting rights are assigned to you for pledged securities Demand of Collateral A demand of collateral takes securities that you pledged to a pledgee and places them in the general free account of a DTC Participant designated by the pledgee Pledgees can enter demand of collateral instructions by using the Demand of Collateral function or b
134. s failure to settle procedures and imposes fines on Settling Banks that are in net net debits that have sent refusal and or acknowledgement messages but the funds owed have not been paid by 5 00 p m eastern time or one hour from final figures whichever is later See Failure to Settle Fees Settlement Payment for Net Net Debit Balances 1 A Settling Bank with a net net debit balance must fulfill its obligation to DTC by 5 00 p m eastern time or one hour from final figures whichever is later DTC s receipt of funds after the deadline will result in a late fee charged to the Settling Bank See Failure to Settle Fees A Settling Bank must settle its net net debit balance via NSS After receiving an acknowledgement if applicable from the Settling Bank NSS will allow DTC to instruct the FRB to debit the Settling Bank s account at the FRB for its net net debit balance If the Settling Bank s account has sufficient funds it will be debited Upon confirmation from the FRB the Settling Bank s DTC account will be credited to reflect payment of its net net debit If the Settling Bank s account has insufficient funds DTC will receive notification from the FRB that the account was not debited If this occurs DTC will notify Settling Banks of their deficiencies The Settling Banks must then wire the funds to DTC according to the guidelines noted in the section below 2 Any Settling Bank that settles for both Participants of DTC and for Participants of N
135. s referred to in these procedures as the Acknowledgment Time 2 A settling bank may give DTC a refusal to settle notice by the Acknowledgment Time with respect to one or more Participants for which the settling bank performs settlement services By the Acknowledgment Time the settling bank must acknowledge its settlement balance as adjusted to reflect the refusal to settle notice 3 A settling bank will be deemed to have failed to settle with DTC if the settling bank does not acknowledge its settlement balance by the Acknowledgment Time A settling bank that settles only for itself has properly elected to no longer acknowledge its settlement balance will be deemed to have acknowledged its settlement balance by the Acknowledgment Time A settling bank with a net net debit balance or a net debit balance if the settling bank settles only for itself will not be deemed to have failed to settle if without acknowledging its settlement balance the settling bank pays the full amount of the settlement balance shown on its settlement statement by the Acknowledgment Time DTC s flat fee for a Participant failure to settle will be charged to a settling bank for each instance in which the settling bank has a net net credit balance and does not acknowledge its settlement balance by the Acknowledgment Time even though the settling bank acknowledges its settlement balance at a later time Solely for purposes of calculating that flat fee the settling bank s
136. s settlement account and this deficit will be collected with their DTC settlement that day If the Participant is required to increase its deposit the Participant will be notified and the amount will be systematically charged to the settlement account of the affected Participant as a Participants Fund contribution Activity Code 70 01 If the deposit requirement of a Participant decreases the Participant will be notified at least quarterly but the Participant can inquire and withdraw excess deposits monthly This allows a Participant to leave excess cash in the Participants Fund and reduce the level of administration that would otherwise be necessary DTC will also accept voluntary excess deposits to the Participants Fund for this purpose This section shall apply only to the calculation and collection of DTC Participants Fund Deposits as described above and does not supersede or limit any provisions of the DTC Rules or any rights of DTC in accordance with applicable law and DTC s Rule and Procedures including but not limited to with respect to transactions in securities and money payments Reallocation of Preferred Stock On the first settlement cycle of each quarter the aggregate of the Required Preferred Stock Investment of all Participants will be reallocated among all Participants based up the recalculation of each Participant s Required Preferred Stock Investments as described above A Participant may be credited a settlement amou
137. se securities will not constitute Collateral or be counted in the Collateral Monitor of the receiving Participant End of Day Settlement Process Overview DTC s End of Day Settlement Processing controls and coordinates the settling of Participant accounts and Settling Bank accounts on DTC s systems A Settling Bank is a bank Participant that settles for itself and may settle for other Participants including other bank Participants A Settling Bank can be located in any Federal Reserve district but it must have access to the Settlement User Interface and online access to the National Settlement Service NSS operated by the Federal Reserve Banks and the Fedwire system Note You a Participant must make formal arrangements with DTC and a Settling Bank for that Settling Bank to settle with DTC on the Participant s behalf Each Settling Bank must sign an agreement with DTC prior to the bank performing as a Settling Bank The actual settlement process occurs through the NSS system and is initiated when DTC posts final figures for Participants and Settling Banks Although the actual settlement process begins with the posting of the final settlement figures at approximately 3 45 p m eastern time each day DTC operates a settlement system that provides Participants and Settling Banks with online reports throughout the processing day These reports reflect gross debits gross credits and the net debit or credit for each Participant as well as a
138. separate collateral group for every account allows you to segregate your accounts and to allow the accounts to use only a specific portion of your collateral and Net Debit 69 Cap However segregating can decrease processing efficiency and increase your intraday financing requirements because excess collateral in one family is not automatically available to an account belonging to another family You should carefully evaluate your internal procedures and determine which method is most efficient for your operations Note If you group your accounts into families and do not provide DTC with instructions on the specific percentage of collateral and Net Debit Cap to be allocated to each family DTC allocates collateral and Net Debit Cap to each family based on your intraday net debit peaks relative to your other families You can maintain separate families of accounts to allocate your cap among your families at your own discretion However DTC will apply a forced allocation formula to major issuing paying agents which are defined as IPAs with average daily maturity presentments measured over the most recent month equal to or greater than 5 percent of DTC s total MMI maturity presentments A major IPA must allocate up to 40 percent of its total Net Debit Cap to its IPA family Largest Provisional Net Credit Procedures DTC established the largest provisional net credit LPNC as defined in the DTC Rules as an additional risk management control to pro
139. ser Interface s Security Holder Tracking inquiry functionality IMS Profiles for Security Holder Tracking Processing e Recycle Submission Activity Code Asset Class and Security Code profiles will not apply to activity code 42 e Security Holder Tracking transactions will be able to be reintroduced so activity code 42 is being added to the Reintroduced Drop profile Activity Inquiry Function e The new ATP activity code 42 will be displayed in the Activity Inquiry summary and detail screens The serial number is being added to the Activity Inquiry detail screen Activity Code 42 is also being added in the activity history and intra day activity systems Drops and Pends e Security Holder Tracking dropped deliveries will appear on Participant drop reports like other DOs e Participants will be able to view Security Holder Tracking DOs in the Pending Transactions function like other DOs All other DO actions e g Pend Hold Pend Cancel will be available for Security Holder Tracking items and will be billed at existing rates Output e DTC will include Security Holder Tracking deliver order transactions with the new activity code of 42 in the DTFPART Settlement Participant Activity files e Participants should make necessary changes to their systems to handle the new activity code 42 in DTFPART e The ATP activity code of 40 will be used in DTFPART for the initial underwriting takedown delivery from DTC s internal Underwriting a
140. serve Board s Operating Circular 12 and in NSCC s Rule amp Procedures for NSCC and NSCC s Settling Banks for purposes of i receiving and paying as NSCC s settling bank and for the account of NSCC end of day money settlement payments from or to as applicable NSCC Settling Banks and Participants ii with respect to the FED s National Settlement Service as the means of effecting such money settlement for NSCC and iii netting the amounts of those Settling Banks that act as such for both DTC and NSCC and crediting the account of either NSCC or DTC as the appropriate clearing agency with the settlement amounts determined in accordance with this procedure Settler Agreements provided by the Settling Bank to DTC for delivery to the FRB are hereby deemed to include the Settling Bank s NSCC settlement obligations as well as their DTC settlement obligations 29 d Consolidated Settlement Debit Amount means on any settlement day the net sum if a negative number i e debits being deemed negative numbers and credits being deemed positive numbers of a Common Settling Bank s applicable DTC Debit or Credit Amount plus its applicable NSCC Debit or Credit Amount 2 For each Common Settling Bank on each settlement day DTC as Settlement Agent shall aggregate and net the DTC Credit and or Debit Amount of the Common Settling Bank with the applicable NSCC Credit or Debit Amount of such Common Settling Bank and a Ifthe C
141. sh of funds will occur after the valued recycle cutoff and the funds will be sent to the Participant s Settling Bank for the account specified in the SPP P amp l Push Profile Participants will be able to set a minimum balance they want remaining in their account based upon their settlement balance at the time of the push P amp l Withdrawals Contact Number For more information about P amp I Withdrawals call DTC s Customer Support Center at 888 382 2721 P amp I withdrawals are subject to Risk Management Controls and will not be permitted if your account will be put into a debit balance Dropped items are recorded on your Drop report P amp I Withdrawals that have successfully completed are reflected on your settlement statements as funds transfer debit transactions Activity Code 95 3 DTC will provide you with a recap of your funds transfer activity Settlement Progress Payments About the Product If you approach or reach your net debit cap or have insufficient collateral you can continue to receive deliveries and avoid having transactions recycle by wiring Fed fund payments to your DTC account This procedure is called Settlement Progress Payments SPP Note SPPs must be received by 3 10 p m eastern time in order to prevent valued transactions from dropping at the 3 10 p m valued recycle cutoff Submitting an SPP Your SPP instructions should conform to the Fedwire formatting standards for Fed fund transfers In
142. t balances on that day DTC will not borrow funds from any Participants that settle through the settling bank which failed to settle DTC will also not borrow funds from any Participants whose settling bank has or would have after such borrowing a net net debit balance or a net debit balance on that day 8 If a settling bank is deemed to have failed to settle with DTC it must complete settlement by no later than 10 00 A M eastern time on the next business day by paying or receiving its settlement balance from the day of its failure to settle If the settling bank completes settlement with DTC DTC will repay any borrowings made on the day of the settling bank s failure to settle and will return collateral to Participants DTC will charge the settling bank for any interest charges and other costs associated with such borrowings Once DTC has completed settlement with the settling bank each Participant that settles through the settling bank will be deemed to have settled with DTC for the day of the settling bank s failure to settle and DTC will not be responsible for any obligations of the settling bank to such Participants 9 If a settling bank which is deemed to have failed to settle with DTC does not complete settlement by 10 00 A M eastern time on the next business day DTC will contact each Participant that settles through the settling bank and will request that the Participant pay or receive its settlement balance from the day of the fai
143. t that are MA not considered collateral Money Market Debt securities such as commercial paper or medium term Instrument notes that are eligible for DTC s MMI Program MMI Net Additions DTC s classification for securities in your account that are NA considered collateral net debit cap A limit to the settlement net debit you can incur at any point during the processing day night deliver A DO input on the day prior to settlement A reduced rate order NDO is charged for NDO transactions payment order A transaction in which a Participant charges another PO Participant for changes in value for outstanding stock loans or option contract premiums receive versus A sub counter of your NA position that indicates how much payment NA of your NA position was received versus payment during RVP NA the current day Receiver A control mechanism that allows you to review transactions Authorized prior to completion of processing It limits your exposure Delivery RAD from misdirected or erroneously entered DOs POs institutional delivery transactions MMI transactions reclaims pledges and releases of pledged securities reclamation or The return of a DO PO institutional delivery transaction or reclaim MMI transaction received by a Participant All reclaims are considered original transactions for purposes of DTC processing and are subject to DTC s risk management controls and RAD Risk The controls primarily net
144. tect against the occurrence on the same business day of an issuer insolvency or issuing and paying agent s Refusal to Pay and a Participant s failure to settle If by 3 00 p m eastern time DTC learns that an MMI issuing and paying agent refuses to pay for the maturity presentments and or periodic interest and principal payments of an MMI issuer or that an MMI issuer is insolvent it initiates the Issuer Failure process This process reverses maturity presentments valued issuances and valued deliveries and pledges originating from new issuances of the affected issuer and periodic interest and principal payments on MMI securities issued by that issuer and held in Participant accounts at DTC These reversals are allowed to override collateral monitor and net debit cap controls so additional protection is required LPNC procedures instead withhold credits due to valued deliveries or pledges of the MMI securities of the affected issuer so that the reversed transactions do not cause the net debit cap balance of a Participant to exceed its net debit cap or the collateral monitor control DTC tracks MMI activity in each Participant s account intraday and as MMI transactions including but not limited to P amp I payments credited to the account and deliveries to and maturity presentments from the account satisfy positions and risk management controls other than LPNC the settlement account of the Participant reflects in real time the net debit bala
145. teral Loan Program where the parties wish to distinguish transactions from pledges of collateral A repo account is identified with a separate account number from any pledgee account of the Receiver and the repo accounts of Receivers are separately identified in all listings of accounts made available by DTC Except as modified by these Procedures all DTC procedures applicable to pledgee accounts are applicable to repo accounts 2 Whenever a Participant instructs DTC to deliver securities from the account of the Participant to a repo account of a Receiver the Participant will be deemed to instruct DTC to transfer to the Receiver the entire interest in the securities which are the subject of the instruction not a security interest or other limited interest in such securities The terms of the transaction between the Participant and the Receiver which may be a repurchase transaction or other type of financing transaction are determined by agreement of the parties to the transaction 3 The operation of a repo account at DTC is identical to the operation of a pledgee account As with a pledgee account voting rights on securities credited to a repo account are assigned to the Participant which delivered the securities to the repo account Cash dividend and interest payments and other cash distributions on such securities are credited to the account of the Participant Distributions of securities for which the ex distribution date is on or prior to the
146. the issuer or its TA DTC provides periodic reports that list individual Participant names and their positions that are segregated in the seg 100 account Warning Under DTC s Rules and Procedures you are responsible for verifying the accuracy of the Participant Daily Activity Statement Associated PTS Functions The following PTS functions are used in association with Sub Accounting Service __Usethisfunction TO RSEG Release securities SEG Segregate securities Note You can also perform these functions via MQ or CCF Segregation of Securities Contact Number For more information about Segregation of Securities call DTC s Customer Support Center at 888 382 2721 U S Government Securities About the Product DTC allows Participants to move Fed eligible securities from their accounts on the Federal Reserve s the Fed s book entry system to accounts at DTC and visa versa To move Fed eligible securities from the Fed to DTC Participants must transfer the securities to DTC s Fed account via the Fed s security transfer system the Fed s system Securities eligible for DTC s U S Government Securities processing can be identified by transfer agent 400 TA 400 or accessed through the GWIZ function Depositing U S Government Securities You can deposit U S government securities in your DTC account by moving the securities through the Federal Reserve book entry securities transfer system from your custodian ac
147. ther reasonable penalty determined by DTC in accordance with its rules in light of the facts and circumstances of such unauthorized use or distribution By its acceptance of Information or any Data File each Participant agrees that in addition to all other remedies that may be available DTC and its affiliate DTCC Solutions shall be entitled to seek specific performance and injunctive and other equitable relief as a remedy for any breach of this Procedure by such Participant its officers employees advisors or agents Neither DTC nor DTCC Solutions shall be liable for any loss cost or expense arising out of the use of any Data File or the Information contained therein or the gross negligence or willful misconduct of any Participant with respect to any Data File or the Information contained therein provided hereunder the failure of any Participant to comply with these Rules and Procedures or applicable law or for any consequential special or punitive damages related thereto The contents of the Service Guides are updated in different formats on a periodic basis Participants and other authorized users of the Service Guides will find the most current version of the Service Guides as well as DTC Important Notices which address the contents of the Service Guides on DTC s internet site dtcservices dtcc com DTC shall bear no responsibility for any losses associated with the failure of Participants or other authorized users to follow DTC s most current
148. through these accounts on behalf of ID Net Firms the ID Net Firms not NSCC will be responsible for satisfying applicable DTC risk management controls and Participant Fund requirements for their respective activity through the ID Netting Subscriber Accounts The ID Net service offers netting efficiency and reduced security movements for ID Net Subscribers who are NSCC Members NSCC Members however may need to make system changes to reflect how institutional deliveries will now be processed through their system For Bank ID Net Subscribers the ID Net service was specifically designed to minimize development and to make ID Net processing as transparent as possible For more information contact your Relationship Manager Eligibility A Participant Eligibility ID Net is available to members of DTCC subsidiaries NSCC Members participating in the ID Net service must be eligible for CNS processing as well as Participants in DTC ID Net Firms Banks must be DTC Participants ID Net Banks ID Net Firms and ID Net Banks participating in the ID Net Service are referred to collectively as ID Net Subscribers All agent ID numbers associated with a given ID Net Bank will be included for processing In order to subscribe firms will follow these steps e A subscriber to the ID Net Service will need to submit an ID Net subscriber form to both DTC and NSCC e Upon receipt of the form DTC s Account Administration will review it for all
149. ticipant in the collateralization request The valued pledge credit received into the OCC control account is then applied to the Participant s NSCC balance Participants will see these credits as activity code 35 OCC Collateral Money in NSCC s settlement system Note Although Participants will see the DCL transaction from their pledge account to the OCC control account in DTC s Activity Inquiry function they will not be able to view the valued pledge from the OCC control account to their pledgee in the Activity Inquiry function However Participants can determine if the valued pledge portion of the collateralization request has been completed in DTC s system by viewing the status of the collateralization request in the Browse option of OCCD A Made status indicates that the valued pledge has completed in DTC s system In addition Participants will see the credits from the valued pledges in their NSCC balances after 2 30 p m eastern time Once DTC settlement is final all net net debits have been received and DTC releases its risk management controls the securities are moved from the OCC control account s pledge position to the Participant s pledge position 14 account The Participant and the pledgee will see this movement as a Participant Swing activity code 7 in the Activity Inquiry function DTC will charge the same fee for processed OCC collateralization requests as it does for valued pledges Demand of Collateral
150. tion type or settlement value with other transactions already in the recycle queue New transactions that you introduce using option 2 will not be processed on receipt Instead they will be forwarded directly to the position recycle queue of the initiating Participant Option 2 procedures keep transactions pending for position in FIFO order therefore newly introduced transactions will be placed at the bottom of the position recycle queue Regardless of the recycle option elected newly introduced transactions that are placed below a transaction that is held with blockage are subject to the blockage feature Newly introduced transactions that are placed above a transaction held with blockage are not subject to the blockage feature DTC s hold procedures will not alter the current process of placing at the top of the position recycle queue deliver orders with reason codes 540 560 and 570 and deliveries to CNS Pending Transaction Account You can reserve position for pending transactions in DTC s Pending Transaction Account PTA using the PTA indicator available in the Deliver Order functions If you want specific transactions to be subject to the PTA procedures to have the position reserved set the PTA indicator to Y Transactions with the PTA indicator left blank are not subject to the PTA procedures How PTA Processing Works PTA transactions input into DTC s system are subject to DTC s normal editing and processing requirements includi
151. tive price volatility of the collateral and impose a haircut on the market value of securities Securities that are not acceptable to DTC s line of credit banks do not receive collateral value in our system therefore a 100 percent haircut is applied to these securities DTC employs haircuts ranging from 2 to 100 percent Because the collateral value of securities is based on their prior day s closing market prices these haircuts may not be sufficient in cases where prices fall dramatically intraday DTC can reprice and modify haircuts of selected issues intraday and can systemically revalue the collateral of Participants holding these securities Using the Collateral Monitor to Measure Available Collateral DTC tracks collateral in your account by a control position called the Collateral Monitor CM At the opening of each business day your CM is credited with your Participants Fund deposit At all times the CM reflects the amount by which the collateral in your account exceeds the net debit in your settlement account In other words the CM equals the sum of the value of your collateral and net settlement obligation For example if you have collateral securities with a market value of 10 000 and a 10 percent haircut the value of your collateral is 9 000 If you also incurred a debit of 8 000 your CM is 1 000 10 000 0 1 x 10 000 8 000 Conceptually every transaction translates into a collateral flow and a cash flow one a cred
152. ttling bank and have net debit balances The amount of collateral retained from each Participant will be at least equal in collateral value to the Participant s net debit balance In its discretion DTC may decide not to make payments on that day to some or all of the Participants that settle through the settling bank and have net credit balances DTC will make such payments through the settling bank on the next business day if the settling bank completes settlement with DTC on that day If the settling bank does not complete settlement on the next business day DTC may make such payments only when DTC settles with all of the Participants that settle through the settling bank and had net debit balances on the day of the settling bank s failure to settle qs If a settling bank with a net net debit balance or a net debit balance if the settling bank settles only for itself is deemed to have failed to settle with DTC DTC will attempt to obtain funds in an amount equal to the net net debit balance or the net debit balance in order to complete settlement with all other settling banks To secure any borrowings made for that purpose DTC will use the collateral retained from Participants that settle through the settling bank and have net debit balances If the settling bank s net net debit balance exceeds DTC s liquidity resources DTC may borrow funds on a secured basis from Participants with net credit balances by not paying the full amounts of the net credi
153. urity date a reorganization presentment RP activity code 28 1 is generated MMI MP Pend Levels Users can create a Pend profile for an MP based on acronym product program and base CUSIP number Acronym The four character DTC identifier for the issuer of the MMI Product Type The type of money market instruments MMI There are 14 different MMIs which include Corporate Commercial Paper Municipal Commercial Paper Tax Exempt Municipal Commercial Paper Taxable Bankers Acceptance Discount Note 50 Bank Note Short Term Medium Term Note Bank Note Medium Term Deposit Note Medium Term Institutional Certificate of Deposit Preferred Stock in commercial paper like mode Corporate Variable Rate Demand Obligation VRDO for Commercial Paper CP Municipal Commercial Paper Tax Exempt VRDO CP and Municipal Commercial Paper Taxable VRDO CP Program The section of the Securities Act of 1933 for which an MMI is exempt Examples include SEC 3 a 2 4 2 144A and Reg S Unless selected the default is none Base Number The first 6 digits of the CUSIP issuance also referred to as the issuer or CUSIP base number MMI MP Pend Menu MMI MP Profile Maintenance page Used to pend MPs by adding a Pend profile You can later deactivate re activate or delete a profile MMI MP Profile Inquiry page Used to see the MP Pend profiles you have added to MP Pend You can see whether the Pend profile for a given MP is currently
154. uthorization of those transactions e Eligible Participants can process valued DOs and pledges to a Participant or to pledgee accounts of their Settling Bank for example to a Participant or pledgee account specified in advance by the Settling Bank not just any Participant or pledgee within the Settling Bank e These transactions can be processed after final figures and before 5 00 p m because they only affect a Participant s net figures not those of the Settling Bank Note DTC programmatically subjects these transactions to the Settling Bank s authorization via the Receiver Authorized Delivery RAD process Also to become eligible to process these transactions Participants must sign an agreement with their Settling Bank and notify DTC about it Acknowledgment and Refusal Settling banks can use the Settling Bank Acknowledgment function to perform acknowledgment activities after final figures have been posted Once the message Final Figures appears on the SETB SDFS Menu Selection screen each Settling Bank should access the Settling Bank Acknowledgment function to do one of the following e Acknowledge its entire net net balance or e Refuse to settle for a Participant or multiple Participants 20 Acknowledgment and Refusal Rules The following rules apply to the acknowledgment and refusal process 1 A settling Bank that settles for accounts of other Participants than its own must always acknowledge its own net net b
155. will allocate property and rights such as interest payments dividend distributions and voting rights for segregated securities Segregation transactions are subject to your collateral monitor control and do not recycle for position or insufficient collateral These allocations were previously based on a position capture done the prior night Now DTC will perform a real time position capture immediately prior to the allocation to account for any adjustments Participants made prior to allocation You should release on or before the payment date certain segregated positions for securities being reorganized If you fail to release these positions they will be automatically decremented to avoid driving your general free accounts into short negative positions when proceeds are allocated You can avoid this automatic decrease of your segregated position by releasing the segregated securities on or before the payment date Seg 100 Account You may deposit certain foreign owned shares of communications maritime and specialized ownership issues as specified in the Corporate Eligible Securities Book into a special account at DTC identified as segregation account 100 seg 100 You can move securities back and forth between your general free account and your seg 100 account as appropriate to reflect changes in the amount of certain foreign owned and specialized ownership issues on deposit at DTC IMPORTANT These shares must be deposited and maintained
156. y making special arrangements with DTC s Settlement Department A pledgee that is a DTC Participant can move securities to its DTC Participant account Pledges to Federal Reserve Banks If you are a depository institution maintaining a deposit account at a Federal Reserve Bank FRB you can make free pledges and release requests to the FRB You must use the COLL function to pledge and release pledges to FRBs FRBs have special requirements and procedural modifications to which DTC has agreed DTC or an FRB may change these operating procedures no later than one day following receipt of written consent from the other DTC or the FRB will notify DTC Participants in writing at least 10 business days before such changes become effective However if DTC consents to the FRB s request that such changes become effective immediately according to DTC s Rules and applicable law Participants will receive immediate notification in writing from the FRB of changes taking effect immediately Note Pledges to FRBs are free of value FRB Pledge Eligibility Pledgor Eligibility All DTC bank Participants that are members of the Federal Reserve are automatically eligible to pledge securities to FRBs that are DTC pledgee banks using the Participant non participant pledge facility Non Participant Eligibility DTC allows non participants to pledge collateral to FRBs through DTC bank Participants Bank Participants and non participants must provide their American Ba
157. ystem Since all outgoing Federal Reserve Deliver Orders will be free transactions they will recycle until DTC s free recycle cutoff normally 6 35 p m ET To coincide with the Fed s cutoffs DTC will open 77 the Federal Reserve Deliver Order function at 8 30 a m ET and will allow input of Federal Reserve Deliver Order reversals reclaims until 3 30 p m ET Validation of Activity Your activities involving U S government securities are recorded on your Participant Daily Activity Statement You can also verify activities via the Activity Inquiry function Check your statement or the applicable screen in the Activity Inquiry function to ensure that your transactions were properly processed and recorded Report discrepancies between your records and DTC s to the Reconciliation division via the PINS function as soon as possible Warning Under DTC s Rules and Procedures you are responsible for verifying the accuracy of your Participant Daily Activity Statement For more information about the U S Government Securities book entry system call DTC s Settlement Hotline at 212 855 5800 78

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