Obligation Warehouse OW

1
Obligation Warehouse (OW)

• NSCC

Elena Staloff Vincent McDevitt
Confidential
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Agenda

• Obligation Warehouse Service
• Initial Features and Processes
• Populate the Warehouse
• Advisory Processing
• CNS Daily Eligibility Check
• Re-netting and Re-pricing Process
• Other Features
• 2010 and Beyond
• Next Steps

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Obligation Warehouse Service

• The Obligation Warehouse (OW) is NSCCs proposed
  replacement for its Reconfirmation and Pricing
  Service (RECAPS)
• The OW will
• Automate real-time matching/confirmation of fails
• Reduce the number of fails outstanding by routing
  eligible securities to CNS daily
• Net and re-price non-CNS eligible securities
• Mitigate risk and provide net capital relief by
  marking failed obligations to market
• Provide straight through processing for buy-ins,
  liability notices, frozen letters, and corporate
  actions

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Populate the OW - Obligations from NSCC Systems

• Populate the OW with the following locked-in
  obligations
• NSCC Balance Orders
• CNS cuts (items made CNS ineligible)
• ACATS receive and deliver obligations
• Excludes mortgage backed, foreign securities,
  user security identifiers and government
  securities)
• ACATS safekeeping will be marked X-CNS
• A control number will be assigned to each
  locked-in obligation

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Populate the Warehouse - Match and Store
X-Clearing Obligations

• Participants would submit open obligations for
  real-time matching and storage in the OW
• Excludes mortgage backed securities, foreign
  securities and government securities
• The OW Match criteria
• Contra participant
• Trade date
• Settlement date
• Shares
• CUSIP/ISIN
• Currency code (use USD as default)
• Final money (tolerance - 5/million using
  sellers price)
• X-CNS
• A control number will be assigned to each matched
  and unmatched obligation

6
Advisory Processing

• Participants can respond to an item alleged
  against them as follows
• Accept an un-matched obligation
• DK an un-matched obligation
• Reject an un-matched obligation
• Submitting participant can delete obligations
  prior to matching

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Check CNS Eligibility Daily

• Scan the OW daily for matched CNS eligible
  obligations with a settlement date of the next
  day or prior at 600PM
• CNS eligible obligations will be swept into CNS
  as miscellaneous activity and will be reported on
  the miscellaneous activity report with a unique
  code
• Obligation routed to CNS will be cleaned-up
  from the warehouse
• Obligations marked X-CNS will be excluded from
  CNS

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Re-net and Re-price Matched Obligations

• Re-netting and Re-pricing Process
• Monthly process
• New obligations will be stored in the OW and old
  obligations will be cleaned-up as RECAPed
• Money adjustments will be sent to settlement
  (Code 20)
• Next business day assigned as settlement date for
  new obligations
• Re-netting and Re-pricing Exclusions
• Only matched fails will be included in the
  re-netting and re-pricing process
• Securities without a current price (20 days)
  will be not re-netted and re-priced but will be
  assigned a new settlement date
• Participants may exclude obligations from
  re-netting and re-pricing
• All X-CNS items will be excluded from re-netting
  and re-pricing
• Process will Replace RECAPS

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Other Processes

• Mandatory reorg processing
• Convert matched obligations from old security to
  new security
• Send any cash components to money settlement
• Clean up obligations in OW when delivery takes
  place
• DTC Settlement
• NY Window
• Acknowledgement by both participants
• Participants can cancel or modify unmatched
  obligations
• Participants can cancel or modify matched
  obligations with contra-party approval
• Obligation history 7 years

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2010 and Beyond

• Dividend processing
• Link to SMART/Track
• Buy-ins
• Voluntary reorgs
• Frozen Letters
• User security identifier processing
• Foreign securities
• Non NSCC participants

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Next Steps

• Next Steps for 2008
• Meet with FINRA
• Begin functional analysis
• Start build
• Next Steps for 2009
• Publish formats
• Distribute testing information

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Obligation Warehouse (OW)

• NSCC

Confidential