Managed Accounts Service

David H. Gardner and Brett GinterThe Depository Trust & Clearing Corporation

October 17, 2006

The Bank Depository User Group2006 Annual Meeting

Managed Accounts Service

3

Separately Managed Accounts Defined

• A portfolio of individually owned securities managed on behalf of a client

• Investment Managers tailor account based on individual client needs restrictions and tax sensitivities

• Single all inclusive wrap fee

• Sponsors-Managers-Service Providers

• Types of accounts: SMA, MSP, MDP, UMA, UMH

• A portfolio of individually owned securities managed on behalf of a client

• Investment Managers tailor account based on individual client needs restrictions and tax sensitivities

• Single all inclusive wrap fee

• Sponsors-Managers-Service Providers

• Types of accounts: SMA, MSP, MDP, UMA, UMH

4

• Managed Accounts are the fastest growing product

in the financial services industry- 15%-25%

• Between 1992 and 2003 private banks’ portion of the overall wealth market plummeted from 62% to 24%

• 5 Wirehouse sponsors hold 80% of MA AUM with Banks having less than 8% market share

• 70% of Banks surveyed this year are employing “open architecture” between internal and external offerings (3rd party)

• Your conflict is in your culture and bureaucracies not your infrastructure

• Portfolio construction and performance is no longer a simple allocation strategy of stocks-bonds-cash

• In 2Q of this year, a Bank was listed in the top 3 firms for SMA asset growth

• Managed Accounts are the fastest growing product in the financial services industry- 15%-25%

• Between 1992 and 2003 private banks’ portion of the overall wealth market plummeted from 62% to 24%

• 5 Wirehouse sponsors hold 80% of MA AUM with Banks having less than 8% market share

• 70% of Banks surveyed this year are employing “open architecture” between internal and external offerings (3rd party)

• Your conflict is in your culture and bureaucracies not your infrastructure

• Portfolio construction and performance is no longer a simple allocation strategy of stocks-bonds-cash

• In 2Q of this year, a Bank was listed in the top 3 firms for SMA asset growth

Why Managed Accounts?

5

Why Did We Build This Service?

• We were asked to. Industry leaders and the MMI recognize data standards, consistent processes and centralized connectivity are vital to support continued industry growth. A bigger piece of a $12 trillion pie

• Current environment is inefficient, costly to operate, error prone. It became a one to many environment preventing an efficient many to many environment

• Participants don’t speak the same language or use similar processes, so it’s not scalable

• High risk operations rely on email/fax/paperwork, so it lacks customer data integrity and security

• To reduce the barriers to entry for consumer choice and sponsor offerings

• Leverages DTCC infrastructure and secure network to create seamless communications and straight-through processing of these complex accounts

• We were asked to. Industry leaders and the MMI recognize data standards, consistent processes and centralized connectivity are vital to support continued industry growth. A bigger piece of a $12 trillion pie

• Current environment is inefficient, costly to operate, error prone. It became a one to many environment preventing an efficient many to many environment

• Participants don’t speak the same language or use similar processes, so it’s not scalable

• High risk operations rely on email/fax/paperwork, so it lacks customer data integrity and security

• To reduce the barriers to entry for consumer choice and sponsor offerings

• Leverages DTCC infrastructure and secure network to create seamless communications and straight-through processing of these complex accounts

6

MAS – Under the Hood

• Centralized Communications HUB: one to many

• Open Architecture & XML Compliant

• Utilizes MMI 2.0 Standard Data Messaging

• Provides Standard Platform for Account Set-up & Reporting

• Conduit for Account Messages Between All Participants

• Sponsors Save Money by Eliminating Redundant Systems to Support Third Party Investment Manager Communications

• Increases Operational Efficiencies

• Reduces Error Risk

• Centralized Communications HUB: one to many

• Open Architecture & XML Compliant

• Utilizes MMI 2.0 Standard Data Messaging

• Provides Standard Platform for Account Set-up & Reporting

• Conduit for Account Messages Between All Participants

• Sponsors Save Money by Eliminating Redundant Systems to Support Third Party Investment Manager Communications

• Increases Operational Efficiencies

• Reduces Error Risk

7What is a Data Standard?(Disparate processes to a standard format)

Data FieldsControl NumberNotification TypeNotification DateNotification TimeSenderReceiverClient Account NumberLegal Account TitleClient Identification NumberClient Identification DescriptionCustodian DesignationCustodian Acct NumberSponsor ProgramInvestment Manager StyleCurrencyBranch Ledger NumberFC/Team NumberFC/Team Name3rd Party Identification3rd Party NameFC/Team Phone NumberFC/Team Address 1-4FC/Team CityFC/Team StateFC/Team ProvinceFC/Team ZipFC/Team CountryFC/Team Fax NumberFC/Team e-mailFC/Team correspond via e-mail

Data FieldsMargin/CollateralTotal Account ValueCash Value for this accountSecurity Value for this accountCustodian ContactCustodian telephone number Clearing FirmClearing NumberInvestment Manager ChangeClient Account Number ChangeOld Client Account NumberAccount TypeAccount Type - ERISAAcct Risk ToleranceTax StatusManage Tax AwareTax Strategy Transition InstructionsMuni Account State DesignationMuni Account State Designation CodeSystematic DistributionSystematic Distribution Start DateDistribute All IncomeSystematic Distribution AmountUnsupervised AssetsInvestment PolicyNew AccountTerminated Investment ManagerAccount Style ChangePrior Investment StyleValue of Client AccountsClient 1 PrefixClient 1 SalutationClient 1 Suffix

Data FieldsClient 1 TitleClient 1 Last NameClient 1 First NameClient 1 Middle NameClient 1 Address Line 1-4Client 1 CityClient 1 StateClient 1 Zip codeClient 1 ProvinceClient 1 State of ResidenceClient 1 CountryClient 1 Phone NumberClient 1 Fax NumberClient 1 CorrespondenceClient 1 E-mail AddressClient 1 Correspondence via e-mailEstimated Net WorthDate of Birth: Client 1Designated Country of the Client ResidenceDesignated Country of the CitizenshipTotal Annual IncomeClient Risk ToleranceProxy VotingFederal Tax RateState (and local) Tax RateClient 2 PrefixClient 2 SalutationClient 2 SuffixClient 2 TitleClient 2 Last NameClient 2 First NameClient 2 Middle Name

Data FieldsDate of Birth: Client 2Expected Retirement Date Client 1Expected Retirement Date Client 2Interested Party NameInterested Party CategoryInterested Party Address 1-4Interested Party CityInterested Party StateInterested Party ProvinceInterested Party Zip CodeInterested Party CountryInterested Party e-mail addressInterested Party CorrespondenceInterested Party Correspondence via e-mailDoes client have other Managed AccountsOther Investment Manager(s)Questionnaire TypeQuestionnaire Answer(s)Risk Profile SummaryTime HorizonRestrictionsRestriction TypeRestriction Rating Agency NameRestriction Rating Agency CodeRestriction Activity TypeRestriction QualifierRestriction DescriptionAccount Billing MethodSecond Request Notice

New Account Set-Up and its data elements

8

Standard Messages – Phased ReleaseAccount Profile: Open, Change, Terminate

New Account Profile

New Account Funding

Authorization to Trade

Client Profile Update

Account Termination

Contributions

Distributions

Account Maintenance Tax Trading Guidelines

Specific Security Tax Trading Guidelines

Wash Sale Restriction

Short Positions

Debit Cash

Investment Restriction

Custodian Change

FC/Team Change

Halt Trading/Resume Trading

Investor Manager Style Change

Corporate Actions & Fee Billing Voluntary Corporate Actions

Voluntary Corporate Actions Decision

Voluntary Corporate Actions Processing

Proxy Information Client Override

Fees Summary

Fees Detail

Release 17 Messages

Release 17 Messages

Release 210 Messages

Release 210 Messages

Release 36 Messages

Release 36 Messages

Account Setup Message $7.50

Other Messages

$5.00

9

Current State: Redundant Many to Many

$$ Processing Risk $$

Operating Redundancy

Non-secure non-scalable network

10

Future State with DTCC MAS Using MMI 2.0 Standards

BankSponsor

DTCC MASDTCC MAS

Ent

itlem

ent

Val

idat

ion

Aud

it

Rou

tingNew Account

Profile SENT

2.0

Ok to

use

?

MM

I 2.0

U

sed

?

Tra

il an

d

Tim

e

Wh

ere

to

go ?

Other 3rd party Investment Managers - N

Internal Investment Manager

New Account Profile Received

2.0

11

How do you get from where you are to MAS?

• Outsource (TAMP) or Not

• Front End Changes vs Translation Layer

• Batch vs Intraday Batch vs Message Based

• Institutional vs SMA processing

• Operational Effectiveness

• Enterprise Initiatives

• Messaging

• Workflow

• Security

• Connectivity

• Etc…

• Outsource (TAMP) or Not

• Front End Changes vs Translation Layer

• Batch vs Intraday Batch vs Message Based

• Institutional vs SMA processing

• Operational Effectiveness

• Enterprise Initiatives

• Messaging

• Workflow

• Security

• Connectivity

• Etc…

12

Smith BarneyG

TS

Tra

nsl

ato

rDTCC MASDTCC MAS

Ent

itlem

ent

Val

idat

ion

Aud

it

Rou

ting

Internal Investment Manager

DTCC/Citigroup Approach

Other 3rd party Investment Managers - N

13

Outsourced (TAMP) Model – Sponsor

Ad

ap

ters

DTCC MAS

DTCC MAS

Ent

itlem

ent

Val

idat

ion

Aud

it

Rou

ting

Outsourcer

(TAMP)

Other 3rd party Investment Managers -

N

Internal Investment Manager

Application Provider 1

Bank Sponsor

Bank Sponsor

Bank Sponsor Application

Provider 2

14

Outsourced Model – Investment Manager

Sponsor Outsourcer

DTCC MAS

DTCC MAS

Ent

itlem

ent

Val

idat

ion

Aud

it

Rou

ting

Ad

ap

ters

Investment Manager 1

Investment Manager N

Application Providers

Investment Manager 2

15

Data Gathering & Current State

Develop Future State

Develop High Level

Release Plan

• Develop Future End State

• Develop Client Current State• Complete Data Gathering Session• Compile Business Requirements• Compile Functional Requirements • Develop DTCC Current State

2-4 weeks

Current State

3-4 weeks3-4 weeks

Future State High Level Release

• Develop Release Plan• Complete Interim End States

First Steps

16

First Steps

Data Fields

M/O

Field Source

System Source

Translation Action Approach

DTCC Schema Element Name Element Reference

Control Number M

DTCC/MMI N/A

Simple Translation Algorithm SMA_AT   SMASRefID

Notification Type M

MMI Predefin

ed N/A

Table Cross Reference Translation

Predefined By MMI SMA_AT  

BusinessMsgNameDataType

Sender MDTCC/

MMICustomer

File Hardcode

4 Digit Code Defined by

MMI or DTCCSMA_STD, SMA_AT SPInfo std:SPID

Receiver MNew Field

Product File Straight Copy

4 Digit Code Defined by

MMI or DTCC. SMA_STD, SMA_AT   IMID

Client Account Number M

Client Account

#

New Account

File Straight Copy

Straight Copy Client Account

Code SMA_STD, SMA_AT AcctInfo std:AcctNum

Legal Account Title M

Client Name

Customer File Straight Copy

Straight Copy Client Code SMA_AT AcctInfo LegalTitle

FC/Team Name O

FC Name FC File Straight Copy FC Name SMA_AT SPInfo FCID

FC/Team Phone Number O

FC Master Field FC File Straight Copy Straight Copy SMA_AT SPInfo FCNm

FC/Team e-mail O TBD FC File N/A

Needs Research SMA_AT

SPInfo, FCComm, Comm Email