Note
accompanying Capital Group Spreadsheet
Attached
is an Excel spreadsheet which (we hope) provides a clear illustration of the factors
we as an investment manager find important or necessary in order to fulfill our
security identification functions. We've included comments in several of the cells
to help clarify why specific factors may be important. Also, without getting too
detailed, the following are our answers to the 4 primary questions you'd asked
in your Investigation
1.
What do industry participants need for unique security identification (at what
level of granularity and for which type of product) to perform their function?
The first column on the left of the spreadsheet lists the primary factors in the
level of granularity we require. The second row from the top identifies the various
functions in which those factors are necessary.
2.
Are these data elements needed for identification of the attribute of the security
or attributes of an event/transaction? All the factors we've listed, except for
the last - "Clearing Agency/Depository" - are important to us as attributes of
the security. We've included a comment for the factor "Clearing Agency/Depository"
that explains this attribute is only important in the "Settlement" function in
that it is a requirement that the Investment Manager provide this information
to the Custodian Bank in the trade instructions. If and when the communication
of broker settlement instructions by the investment manager ever becomes a reality,
this factor will no longer be important to an IM's functions.
3.
How do various segments of the industry currently get the information they need
to fulfill their security identification functions? From a functional perspective,
once the asset is set up in our asset database, all other departments rely on
the "Database" function for all security identification requirements. The folks
maintaining the database, however, will receive information from a variety of
sources - primarily information vendors. If necessary, we can expand on this at
the meeting.
4. What
are the real-world, concrete examples of problem situations? What industry adjustments/developments
will make this issue more important and why? We can discuss this during the meeting.
If you're asking us to explain what types of problems can exist if any of the
listed factors are missing, the scope of this project could increase exponentially.
If you're asking us to provide examples of common problems relating to insufficient
information on the asset based on the identifier, we don't really know of any
until the custodian banks tell us. These will generally stem from settlement problems
or reconciliation where the banks use a different security identifier based on
the depository where the assets are held.
Reply
to Capital Group's spreadsheet from Merrill Lynch
Interesting.
I think the fact that "Clearing Agent / Depository" is seen as only a Settlement
problem highlights the key issue here.
IMs
tend not to know where stock is held, since this function is performed by them
(or rather, for the Beneficial Owners of the funds under management). They leave
it to the Broker Dealer and Global Custodian to sort out the compatibility of
settlement in the post-trade processing. This is why the GSTPA process includes
Settlement Details matching (including place of settlement).
The
problem is that, if the Place of Settlement is actually incompatible between the
BD and Custodian, then one of them has to "re-align" their holdings ..... ie transfer
the stock to a compatible Place of Settlement. If there is a REGISTER mis-match......
then this is going to take some time, and the trade is likely to fail.
To
achieve T+1, this sort of incompatibility will need to be spotted at the time
of order / execution. With nothing at the ISIN / CUSIP level to help this process......
that's our challenge!
