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DTCC to Automate, Streamline Buy-In Notification
by Edward C. Kelleher
DTCC is developing a new Web-based system that will standardize and automate the creation, delivery and tracking of buy-in notices for the securities industry and provide a single point of entry for brokers sending or receiving buy-in notices.
The new service, called SMART/Track for Buy-Ins, represents another important straight-through processing initiative for the industry that will streamline and speed up communications between senders and receivers, helping to eliminate the current manual process of sending buy-ins by fax and messenger. The service replaces an older system that served as a messaging facility only and did not track or save buy-in notices.
Buy-ins are executed when a broker fails to deliver securities in time for settlement. The broker expecting the securities sends a buy-in notice to the delivering broker, saying that they will go elsewhere to buy the securities and hold the delivering broker liable for any price variation or difference. In other words, if the stock was first promised at $10 a share by the broker, and now sells for $12 a share, the receiving broker will hold the sell-side broker accountable for the $2 a share difference.
“DTCC began working with the Ad Hoc Buy-in Committee of the Securities Industry Association (SIA) last year, obtaining input from the industry and discussing what would be required to automate the buy-in process,” said Margaret Koontz, vice president, Product Development for DTCC. “We’ve since finalized the business requirements and completed a prototype of the system.”
The system will provide a central information point, sending notifications and tracking the life of a buy-in notice. It will retain data for seven years for both broker-to-broker and broker-to-bank buy-in notices, which includes Continuous Net Settlement (CNS) buy-in notices, as well as non-CNS buy-ins. The system will be browser-based and will replace the Participant Exchange (PEX) service, which currently serves as a messaging facility for buy-ins.
On-line Notification
“The online notification of CNS Executions helps eliminates the delays found in today’s buy-in process. This enhancement brings us a step closer to straight-through processing for buy-ins,” said Robert Santangelo, co-chair of the SIA’s Buy-in Committee. “Participants getting bought in will receive information much sooner with the automated service, which will minimize the risks associated with getting prices either late in the day or early the next morning, as it sends buy-in information to allocated brokers in real time. ”Santangelo also said that “the new service is much more user friendly” than the PEX service “and that it has the potential to do a lot more for the buy-in industry in the future,” as additional enhancements eliminate manual steps.
“The new system will enable participants to manage their exposure to open buy-ins since, in addition to providing a communications facility, it will provide tracking functionality with online reporting and status information of open buy-ins,” said Koontz
Participants will be able to view the status of an open buy-in and accept or reject a buy-in notice. They will also be able to transmit an extension for a non-CNS buy-in, according to Vincent McDevitt, manager, DTCC Product Management.
“Thousands of buy-in notices are routinely sent out by firms in the course of a day,” McDevitt said. “During an eight-day period in February, an average of almost 2,300 CNS buy-in notices per day were transmitted via PEX. During the same period, more than 2,000 non-CNS buy-ins were transmitted per day through PEX as well. And buy-ins are also delivered between counterparties outside of PEX,” said McDevitt. “One of the other great benefits of the system is that it will retain information, so participants won’t have to maintain a buy-in archive of their own.”
Phase one for the implementation of SMART/Track for Buy-Ins will be implemented in the fourth quarter of 2005 and will automate CNS buy-ins, requiring all DTCC participants who want the new service to register for it. Phase two, which will automate all non-CNS buy-ins, will be completed in mid-2006.
Editor’s Note: For more information on SMART/Track for Buy-ins, contact Margaret Koontz at (212) 855-5695 or e-mail mkoontz@dtcc.com, or Vincent McDevitt at (212) 855-5694 or e-mail vmcdevitt@dtcc.com @ |
