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Overview of DTCC’s Underwriting Department

Overview of DTCC’s Underwriting Department

Presented by

James Balbo

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AgendaAgenda DTC Eligible Security Types Overview of the Underwriting Service Underwriting Work Flow

Eligibility OFAC Processing Quality Assurance Packaging/ Closing Verification

NUWS / NIIDS Reengineering MMI Program Older Issue Eligibility

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DTC Eligible Security TypesDTC Eligible Security Types

• Equities • Corporate Debt• Municipal Bonds and Notes

• Asset Backed Securities (ABS)

• Collateralized Mortgage Obligations (CMOs)

• Variable-Rate Demand Obligations

• Money Market Instruments (CP, Inst CDs, Bas)

• American / Global Depositary Receipts (ADRs/ GDRs)

• UIT, Insured Transactions and ETFs

• Certificates of Deposits

2006: Approximately 51,000 new issues underwritten worth nearly $4.4 Trillion

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Underwriting Work Flow

Overview of the Underwriting ServiceOverview of the Underwriting Service

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Underwriting Work FlowUnderwriting Work Flow

Eligibility Requirements

Application for Eligibility Paper Based Eligibility Questionnaire

WUN - Web Underwriting PUND - Participant Underwriting Offering Statement Paper Based Prospectus/Official Statement

ELF- Electronic Filing System Letter of Representations (For Book Entry Only)

BLOR, ILOR & Riders Operational Arrangements (OA)

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Electronic File ( ELF) Management SystemElectronic File ( ELF) Management System Stores, retrieves, and manages offering documents

Reduces paper flow,improves efficiencies and reduces costs associated with delivery of hard copy

Provide inquiry capabilities to other DTCC areas including Dividends, Reorg and Legal.

Underwriting Work Flow ProcessingUnderwriting Work Flow ProcessingInput of Security Information

Issuer Name Security Description Settlement Date Offering Amount CUSIP # Interest Rate Maturity Date Pricing Interest Payment Structure Puts / Calls Transfer Agent # DTC Participant #

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The Office of Foreign Assets Control (OFAC)

The Office of Foreign Assets Control (OFAC)

The Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury administers and enforces a series of laws that impose economic sanctions designed to further U.S. foreign policy and national security objectives.

Sanctions are imposed against targeted foreign countries and territories, as well as specially designated nationals (SDN’s) and blocked persons, which may include terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction.

All financial institutions, including U.S. banks and subsidiaries of U.S. banks, are required to comply with the economic sanctions and embargo programs administered under regulations issued by OFAC.

Systemic Screening within Underwriting Database

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Underwriting Work FlowUnderwriting Work Flow

Verifies “Critical” Data Prior to Closing

144A Portal Indicator Interest Payment Structure Record Dates DTC Participant # Required Documentation Received

Quality Assurance (QA)

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Packaging

Underwriting Work FlowUnderwriting Work Flow

Custodian is DTC

OR Custodian is Transfer Agent

(FAST)

DTC’s FAST program allows the Depository to place its customers’ assets in the custody of participating FAST Transfer Agents. In doing so, the movement of physical securities is minimized, thus reducing the risks associated with lost securities, as well as the costs of insuring, handling, and shipping physical certificates.

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Closing

Underwriting Work FlowUnderwriting Work Flow

Fast Reject Automated Confirmation (FRAC)

Cut off Time: 1:15 P.M

Late Credit Closing

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Verification of Asset Servicing Details

To Ensure Data Quality

Vendor (Bloomberg)

Master File Maintenance

GWIZ

Underwriting Work FlowUnderwriting Work Flow

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Communications ExternalCommunications External

Lead Underwriters

Financial Advisors Agents

Counsel

DTC Participants Correspondents Issuers Industry Groups Standard & Poors NYSE, American & NASDAQ

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Communications InternalCommunications Internal

Underwriting

SecuritiesValuation Deposits

Vault

Other DTCDepts.

Reorg

Recon Planning

Legal

Redemptions

Dividends

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MMI ProgramMMI Program

Eligible MMI Products Institutional Certificates of Deposit

Medium-Term Notes Deposit Notes Bank Notes Commercial Paper Automated Processing vs. Underwriting Process Issuing/Paying Agents (IPAs)

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Older Issue EligibilityOlder Issue Eligibility

Eligibility Request Form Submitted by DTC Participant

Copy of Certificate LOR for Book-Entry Only Issues Legal Opinion Required for Certain Restricted Securities

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Reengineering ObjectivesReengineering ObjectivesStrategic goal: implement a unified end-to-end platform from issuance through entire asset servicing life cycle

– Provide more accurate and timely servicing information

– Replace legacy sub-systems with newly architected platform

– Automate and streamline redundant processes and data storage

– Increase flexibility with rules-based system

– Enhance functionality: ISO15022, multi-currency, international numbering systems

– Reduce ongoing technology support costs

– Support New Issue Information Dissemination

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New Issue Information Dissemination– Syndicate Desk

• Communicate to members of the underwriting syndicate, vendors, and non-syndicate members – partially automated/Manual

Trading of New Issue– Middle Office (Trade support)

• Receipt and Set up of New Security Master Data - Manual or from vendor

DTC Eligibility, Closing and Distribution– Syndicate Operations – Communication to DTC - Manual

Current State of New Issue Processing

5593 R- 19Current State of New Issue Processing

BookBuildingService

(External orInternal)

Underwriters(Correspondnet and Direct Clearing)

Data Vendors(Bloomber,InteractiveData, S&P/

Kenny, Reutersect

RTTMMunicipals

- New Issue Information- Trade Reporing

IndustryUtilities

(DTC, CUSIP,PORTAL,Euroclear,

Clearstream

InternalTrade

ProcessingSystem

MSRB

TRACECorporates

- DealProcessing

- TradeProcessing

NASD

- New IssueInformation

- New IssueInformationrequired for

closing

ServiceBureaus

DTC ParticipantsBrokers/Banks

Customers

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Future State of New Issue Processing

New Issue Information Dissemination– Syndicate Desk

• Communication to members of the underwriting syndicate – Automated/Manual

• Communication to the Vendors/non syndicate members – Automated by DTC

Trading of New Issue– Middle Office (Trade support) – Procurement/Receipt and Set up of New Security

Master Data - Manual at firm or vendor – Automated by DTC

DTC Eligibility, Closing and Distribution– Syndicate Operations – Communication to DTC and other industry utilities -

Automated by DTC

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Future State of New Issue ProcessingNew Issue Information Dissemination – How will DTC

automate?– DTC is linking with Major Book Building/Running Services (Bondesk Syndicate, Dealogic,

i-Deal, Marketpipe, NAPA, Bloomberg Deal, ZIA) – DTC has flexibility to link with underwriter’s proprietary Book Building/Running, trade

processing, security master system(s) or service bureau– DTC is linking to information service providers, service bureaus, participants, and regulators

Trading of New Issue – How will DTC automate?– DTC will provide for real time distribution of new issue information required for security

master set up for DTC Participants and Bank Custodians.

DTC Eligibility, Closing and Distribution – How will DTC automate?– Syndicate Operations – DTC will store new issue information for the purposes of eligibility

closing and distribution

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NewUnderwriting

SystemWeb InputScreens

UnderwriterDirect

Transmission

Book BuildingService

(External orInternal)

Underwriters(Correspondnet and Direct Clearing)

New DTC Underwriting System

DTC Underwriting Database

DataVendors

DTC Participants

UnderwriterIndirect

Transmission(via agent)

RTTM RegulatorsIndustryUtilities

Future State of New Issue Processing

“The Real Time New Issue Electronic Pipeline”

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Future State Benefits New Issue Information Dissemination– Avoids re-keying – STP from bookbuilding/running systems

– Automated regulatory compliance of MSRB rule G34 and NASD rule 6260

– Automated dissemination to vendors in real time – Bloomberg, Interactive, S&P, ect

– Facilitates faster processing of secondary market trades - Automated receipt of security data in real time

5593 R- 24Future State BenefitsUnderwriting Eligibility, Closing and Distribution– Facilitates more timely and efficient eligibility process – No rework for

institutional customer trade processing

– Ability to view real times status of eligibility and closing process and take action

– Facilitates better control of disincentive fees through an alarm clock warning system

– Facilitates better control of the correspondent/clearing firm relationship

– Enhanced audit trail - ability to view field(s) change history on web based screens

– Greater ability to capture asset serving information and pass to DTC Corporate Actions System

5593 R- 25Future State Benefits Underwriting Eligibility, Closing and Distribution– Enhanced Functionality –

• Supports more complicated asset types

• Supports issues with multiple underwriters

• Supports streamlined over-allotment processing

• Supports issue queries

• Will support electronic agent confirmation of issue details

• Will support links to other industry utilities (e.g. CUSIP, PORTAL, Euroclear and Clearstream)

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Future State Practical Implications - “Out with the Old”– Hard Copy, Faxed, and e-mailed information and offering

documents will no longer be accepted by DTC

– Discontinue separate e-mails/fax’s/phone calls to information service providers, DTC, and other industry utilities

– Web Underwriting System (WUN) - Retired

– Participant Underwriting System (PUND) - Retired

– DTC Prospectus e-mailbox - Retired

– Paper DTC Eligibility Questionnaire - Retired

– Manual status of issue eligibility and closing process

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Future State -- “In with the new”

– Web-based system with enhanced functionality

• Accessible through DTC SMART Network, or internet utilizing digital certificates

• Three factor authentication – User ID, Password, and location (via network or digital certificate)

– User Access - • Each Participant will have an access coordinator

• Each firms access coordinator can assign an access coordinator for the Underwriting system

• The access coordinator for the Underwriting system will be able to add, modify and delete users.

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Future State -- In with the new”

– Electronic path into DTC for each asset class resulting in earlier delivery of information to DTC

– e-Eligibility form

– Correspondent underwriters must use system or utilize clearing firms – facilitates closer communication and coordination

– Deal offering documentation must be uploaded into the system

– Real time message based data distribution for each Asset Class

– Real time deal status via an electronic “Dashboard”

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QuestionsQuestions