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DTCC Update




                                                  STA
The Depository Trust & Clearing Corporation   October 2008
                                                             2
Agenda

• Cost Basis Legislation
 • AccuBasis


• DRS Move All Shares

• FAST Update

• Elimination of Certificated WTs

                                    3
Cost Basis Nightmare




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What is cost basis???

• The original value of an asset for tax
  purposes (usually the purchase price),
  adjusted for stock splits, dividends and
  return of capital distributions. This value
  is used to determine the capital gain,
  which is equal to the difference between
  the asset's cost basis and the current
  market value.



                                                5
Cost Basis

• Emergency Economic Stabilization Act of
  2008 (“Wall Street Bailout”)

• Gross proceeds of the sale of a security or
  mutual fund

• Adjusted cost basis

• Gain or loss is long term or
      short term


                                                6
   Cost Basis

• Covered securities
 • Equity issues

 • Note, bond, debenture or other evidence of
   indebtedness

 • Commodity, or contract

 • Other, as the Treasury Secretary
     determines




                                                7
Cost Basis

      When does it all start???
• Equities                 • Jan 2011

• Mutual funds             • Jan 2012

• Debt & Other             • Jan 2013

       Equities: begin tracking securities
        positions and pricing Jan 2010



                                             8
Cost Basis – Other things to consider

• Track cost basis as purchases are made

 • DRiP , ESOP, voluntary purchase, etc.

• Move data at time of a transfer

• 1099 reporting – extended to Feb 15

• Average basis method, or as directed by
  the asset holder

                                            9
Cost Basis - Issuer Services

• DTCC’s AccuBasis:
 • Securities Pricing back to 1925

 • Dividend and corporate action event look-up

 • Adjusted Cost Basis calculations

 • True Value of an Investment

 • Birth-to-death valuation of securities

 • Reinvestment Chronicles

                                                 10
AccuBasis

• Business models:
 • Web link

 • White label

 • File transfer and batch processing

 • Integrated solution

 • Customization

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AccuBasis
• Some current customers:
 • Aflac

 • H&R Block

 • Hawaiian Electric

 • Manhattan Stock Transfer

 • First American Stock Transfer

 • The Walt Disney Company

 • Horizon Investment Services, LLC

 • Johnson Controls



                                      12
 AccuBasis
“The information is definitive…”
  Ashlea Ebling, Forbes 2008 Investment Guide issue




                                                      13
FAST Update




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FAST

• Members only:
 • Submit application

 • SEC audits (last two if available)

 • Sign DTCC “Operational Arrangements”

 • Proof of Insurance: $10 million or $25 NYSE
   listed issue(s)
 • TA timeliness

 • Registered TA

 • External/independent audit
                                                 15
FAST



• Pending SEC rule:
 • $1M E&O

 • External audit report

 • Safe location for certs (safe, vault or other secure
   location accessible by only authorized personnel)

 • Theft and fire central alarm system



                                                          16
FAST

• Fee bearing issues:
   DTC's policy is to pay reasonable and customary
   transfer fees for physical certificate processing, such
   as for deposits, withdrawals, rush transfers,
   cancellation of certificates, registration changes,
   and other such transfer transactions. The transfer
   agent fees that we pay are stated fees: posted in the
   agent's procedures, on their web page, and/or as
   part of their contract with the issuer, etc. All
   registered holders, including investors holding
   directly on the books of the agent or issuer, pay the
   same transaction fees as charged to DTC, and the
   fees that are charged are allowable based on the
   relevant securities exchange on which the issuer is
   listed.



                                                             17
FAST

• Fee bearing issues:

   In the case of cancellation fees resulting in the
   issuance of DRS statements, including posting
   down DTC’s FAST position, DTC will pay
   cancellation fees that are posted with DTC.




                                                       18
DRS




      19
State of DRS

• Educate Issuers, Exchanges,
  Broker/Custodians, Investors

• Assist issuers in complying with
  Exchange requirements

• DRS statement only

• Remove certificates from circulation

                                         20
DRS “Move-All”

 Two major enhancements:

 • Option to move-all shares
   • Move all full shares

   • Sell fractions

   • Close account

 • Dual SS/TIN

• Pending SEC rule filing

• Eliminate 7,000 Profile rejects monthly
                                            21
DRS “Move-All”



• November 3:       Go live date

• December: Allocate remuneration
 • $1.5 million for about 25 TAs

• January 2009:
 • >$1 per transaction going forward



                                       22
DRS Profile Insurance/Surety

• Profile Insurance
   • $25 million per transaction ($25 per trans.)

• Profile Surety (One)
   • $3/$6 million ($3,150 a year)

• NEW Profile Surety (Two)
   • $7.5/$15 million ($6,000 a year)




                                                    23
Eliminate certificated WTs




                             24
What we are NOT doing:


Eliminating Withdrawals


                          25
Elimination of Certificated WTs



What we ARE doing:

   Preventing certificate
        proliferation


                                  26
Elimination of Certificated WTs

• Why get rid of certs?
   • Delays in trading/risk

   • Ease of corporate action processing

   • Industry costs > $350 million

   • Inherent risk     > $63 million

   • Catch up to our international friends:
    India, France, China, Australia, Argentina

                                                 27
Elimination of Certificated WTs

• WTs processed:
 • 20 years ago: 27,000 ADT
 • Today:         1,200ADT



• Deposits processed:
                              75% of certificates presented for
 • 2002:         12,000 ADT   transfer were issued in customer
                              name within the previous 6
 • Today:         4,500 ADT   months




                                                              28
Elimination of Certificated WTs

 Request for physical certificates is
 diminishing
 • 88% of WTs are for DRS eligible issues

 • DTC participants voluntarily default WTs to direct
   registration statements
   • > 48% of all WTs are in DRS statement form

 • Investors that receive a statement stay in statement
   • <2% of investors that receive a statement request a certificate

   • Over 40 million shareholders


                                                                       29
Elimination of Certificated WTs

• January 2, 2009:
  • Eliminate certificated WTs for DRS eligible/participating
    issues

  • Exception/Rush WTs

• After July 1, 2009
  • Eliminate certificated WTs for all DRS issues

• 4Q09 – Sunset DMD Service

• Continuing efforts to eliminate physical certificate
  processing

                                                                30
Going Forward


  By 2011:
    • Immobilization complete
    • Dematerialization 90% implemented
      • Little to no Physical Withdrawals = Less
        Deposits
      • Explore new processing models

    • Few certificates in system
      • All listed issues participating in DRS
      • Bearers matured
      • Non-Transferables destroyed
                                                   31
 Questions/Comments?

           Q&A


Q&A                    Q&A


            Q&A
                             32
Resources

• Hand-outs in the back of room
• www.shareholderservices.org
• www.dtcc.com/nomorepaper.com
• www.sec.gov
• www.sifma.org
• www.stai.org



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