Financial Services Industry quest for Straight Through Processing XBRL – US Conference December 4 – 5 2006 XBRL – US Conference December 4 – 5 2006.

Financial Services Industry quest forStraight Through Processing

XBRL – US Conference

December 4 – 5 2006

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Theme and Objectives

•Revealing what is under the covers of the Financial Services Industry

•The Importance of Straight Through Processing to the Financial Services Industry

•How XBRL could help provide long sought after solutions

•Revealing what is under the covers of the Financial Services Industry

•The Importance of Straight Through Processing to the Financial Services Industry

•How XBRL could help provide long sought after solutions

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“BACK OFFICE”

“WALL STREET”

Wall Street 101: Very simplified view of the Financial Services Industry

Sell Side

Brokers

Buy Side

Asset Managers

You & Me

Act for

Stock Exchange

Product

Stock in Companies you and I work at

DTCC

Stock EligibilityAsset Servicing

• Dividends• Mergers / Tenders• Stock Splits

TradedTraded

SettlementAsset Servicing

• Dividends• Mergers / Tenders• Stock Splits

So, where are the stocks I buy?

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Depository Trust & Clearing Corporation (DTCC)

•United States Central Securities Depository • Founded in 1976 in response to “Paper

Crises”

•Industry owned utility

•Networked securities services, clearance and settlement hub for US financial markets

•Processed over $1.4 quadrillion (10 ) of securities transactions in 2005.

•United States Central Securities Depository • Founded in 1976 in response to “Paper

Crises”

•Industry owned utility

•Networked securities services, clearance and settlement hub for US financial markets

•Processed over $1.4 quadrillion (10 ) of securities transactions in 2005.

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5

The Problem: No overall plan for the provision of electronic information from the Securities Issuers to Investors

• Increased FTE

• Limited STP

• Risk and Liability Exposure

Problem

• Manual Processing

• Interpretation of Issuer Intentions

• Receiving Timely Information

ConsequenceEntity

DTC• Underwriting Processing• New Issue (NIIDs) • Corporate Action Announcements• Corporate Action Processing

Many Organizations involved with little co-ordination

• Increased FTE

• Inefficient Processing

• Risk and Liability Exposure

• Reduced Revenue

• Manual Processing

• Ineffective delivery of Timely, Complete and Accurate Information

• Lack of Investor confidence

Financial Services Industry• Broker / Dealers

• Custodians

• Agents

• Possible negative Public Relations• Increased overhead • Potential Penalties / Fines

• Lack of Standards

• No single dissemination pointIssuers

• Lack of Investor Confidence

• Investor Uncertainty

• Distribution of Corporate Information in a ‘useful’ and ‘meaningful’ way

Regulators• SEC, MSRB, NASD

Many Manual Processes &

Lack of Standards=

Reduced STP

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The weakest link in the STP chain occurs between the Issuer and the Marketplace

InvestorsIssuers

Standards and STP Scale

We need to bring in the Issuers /

Agents

We know what the Investor

Needs

Standards work has largely been within the domain of the Asset Servicing Community....Need to circle back to the Issuer Community

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Leveraging “at Source” data DTCC would create value added products and services for Issuers and

Participants, streamline asset servicing, and act as enabler for Issuer disclosure and transparency

Investigating leveraging XBRL to lead the Industry and address the problem

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Why should this be considered now?

• Companies are burdened by: • A current process that is fragmented, paper orientated and

costly

• Pressure under the Sarbanes-Oxley Act to improve Financial Reporting, Corporate Governance and Audit Practices

• The SEC acknowledges the current inefficiencies by:• Recognizing that the current process is paper intensive and

costly

• Recognizing that the Internet has not been fully utilized

• The SEC is looking to offering solutions by:• Supporting the adoption of XBRL (Interactive Data) as

means to provided timely and accurate information at low cost

• Passing the Access = Delivery on Securities Offering Reform

• EDGAR disclosure pilot underway focused on tagging issuer disclosure data elements - perhaps expand this to asset servicing

• Companies are burdened by: • A current process that is fragmented, paper orientated and

costly

• Pressure under the Sarbanes-Oxley Act to improve Financial Reporting, Corporate Governance and Audit Practices

• The SEC acknowledges the current inefficiencies by:• Recognizing that the current process is paper intensive and

costly

• Recognizing that the Internet has not been fully utilized

• The SEC is looking to offering solutions by:• Supporting the adoption of XBRL (Interactive Data) as

means to provided timely and accurate information at low cost

• Passing the Access = Delivery on Securities Offering Reform

• EDGAR disclosure pilot underway focused on tagging issuer disclosure data elements - perhaps expand this to asset servicing

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Does XBRL provide an opportunity for an Issuer based STP solution?

• Consumer Federation of America¹• “We need to make it as easy as possible for them (Investors) to

get the information they really need and to understand the information they get.”

• Morgan Stanley¹ • “If we can actually take data and get it in that for (interactive),

it will certainly improve the analysis from a transparency timeliness point of view and out ability to deal with complexity.”

• United Technologies Corporation¹• “I think if we can have the investor and analyst community make

a much stronger statement to companies that they want and need this data in XBRL format, then …. given that its’ coming from your shareholders or representatives of your shareholders, is going to get quite a bit of attention (within the company).”

• SEC Chairman Christopher Cox² • “That’s why the advent of interactive data is so important at this

point. It would help fill an informational gap that could be making markets less efficient. In one case it is making the data more reliable; in the other it is making analysis more widespread.”

• Consumer Federation of America¹• “We need to make it as easy as possible for them (Investors) to

get the information they really need and to understand the information they get.”

• Morgan Stanley¹ • “If we can actually take data and get it in that for (interactive),

it will certainly improve the analysis from a transparency timeliness point of view and out ability to deal with complexity.”

• United Technologies Corporation¹• “I think if we can have the investor and analyst community make

a much stronger statement to companies that they want and need this data in XBRL format, then …. given that its’ coming from your shareholders or representatives of your shareholders, is going to get quite a bit of attention (within the company).”

• SEC Chairman Christopher Cox² • “That’s why the advent of interactive data is so important at this

point. It would help fill an informational gap that could be making markets less efficient. In one case it is making the data more reliable; in the other it is making analysis more widespread.”

²Speech to the American Enterprise Institute (May 30th 2006) ¹SEC Interactive Data Roundtable (June 12th 2006)

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Why DTCC? Developing a case for Transaction Processing Partnerships driven by Corporate Disclosure

• DTCC “The Financial Industry’s Advocate” • Defined asset servicing and processing taxonomies could

revolutionize the traditional paper based operating models in Issuer to Investor communication

• Reengineering our Underwriting platform including New Issue Information Dissemination which is a logical entry point for Issuer disclosure into the US financial markets

• Becomes the “Enabler” for Issuers to meet the regulatory disclosure demands of the SEC - Accelerates realizing SEC vision

• ‘Standards Body” for asset servicing benefiting our Participants and securities Beneficial Owners

• SEC “The Investor Advocate” Synergy with DTCC• Similar organizations, similar visions, similar objectives

and different audiences

• SEC: “p”artnership would link all parties (Issuer, Agents, Participants, Beneficial Owners..) SEC/DTC Alliance

• DTCC “The Financial Industry’s Advocate” • Defined asset servicing and processing taxonomies could

revolutionize the traditional paper based operating models in Issuer to Investor communication

• Reengineering our Underwriting platform including New Issue Information Dissemination which is a logical entry point for Issuer disclosure into the US financial markets

• Becomes the “Enabler” for Issuers to meet the regulatory disclosure demands of the SEC - Accelerates realizing SEC vision

• ‘Standards Body” for asset servicing benefiting our Participants and securities Beneficial Owners

• SEC “The Investor Advocate” Synergy with DTCC• Similar organizations, similar visions, similar objectives

and different audiences

• SEC: “p”artnership would link all parties (Issuer, Agents, Participants, Beneficial Owners..) SEC/DTC Alliance

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Xbrl: an open standard (taxonomy) that can support different Formats/Products supported by many Organizations - Globally

Data Elements obviously exist but have to be located, naming convention normalization and possible reference to other documents to be fully utilized

to convey Issuers complete intentions

Page 5Expiration Date; Withdrawal of

Tender

Page 8MaturityInterest

Page 52Prospectus is a Summary of the

New Notes refer to the Indenture filed as exhibit 4.k

under Current Report filing (8k) on 11/25/05

Xref another filing

Specific but incomplete Data Element

Expiration & Withdrawal details commingled

Page 8Maturity Interest

Summary - see page 76 for complete details

Page 5Expiration Date

Specific Data Element

Page 6Withdrawal of Tenders

Specific Data Element

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DTCC acting as the Taxonomy Manager and User of Issuer information direct from the Source

Enable end users to

gain information

directly

DTCC to play a central role in defining & disseminating

Corporate Information

DTCC utilize information for current

products and processing

needs

DTCC develop new Constituency and Products -

Issuers and Infrastructures

ISSUER END USERS

SEC

OtherDocuments

Underwriting

CorporateAction

Beneficial Owner

$

Financial Services

Data Vendors

$

Stock Exchange

Underwriting

Issuer / Agents

NewServices

Product &Processing

EnablerNew

Services

Xbrl TaxonomyManager

ContentManager

CorporateAction

Processing

ContentProvider

CorporateAction

Announcement

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Potential Operational Benefits to the US Securities Markets

• Asset Servicing

• Lead the definition of the Corporate Actions processing XBRL taxonomy to drive STP, minimizing the risk and expense of asset servicing with direct feeds of processing information originating from Issuers

• Underwriting

• Define the Underwriting XBRL Taxonomy into the reengineered Underwriting and NIID system, to streamline asset creation and create the infrastructure for Issuer disclosure

• Define the Prospectus XBRL Taxonomy to facilitate Access = Delivery, and New Issue Information Dissemination

• Corporate Actions

• Issuer generated Corporate Action Announcements

• Others….

• Asset Servicing

• Lead the definition of the Corporate Actions processing XBRL taxonomy to drive STP, minimizing the risk and expense of asset servicing with direct feeds of processing information originating from Issuers

• Underwriting

• Define the Underwriting XBRL Taxonomy into the reengineered Underwriting and NIID system, to streamline asset creation and create the infrastructure for Issuer disclosure

• Define the Prospectus XBRL Taxonomy to facilitate Access = Delivery, and New Issue Information Dissemination

• Corporate Actions

• Issuer generated Corporate Action Announcements

• Others….

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The Corporate Action environment represents substantial cost and risk to the industry

• DTCC commissioned 2 studies performed by a UK economic consultancy agency – Oxera Consulting Ltd

• 2004 Report: Corporate Action processing: what are the risks?

• Missed or incorrect activity may result in individual losses in millions

• Sub-optimal trading exposes the industry to as much as $8 billion annually

• 2006 Report: Share prices and trading activity over the corporate action processing cycle

• New focus on corporate action information for trading desks

• Means changes in importance provided to corporate actions information

• Means changes in the way this information is provided and used by firms

Copies for the reports can be found at: www.dtcc.com/ThoughtLeadership/perspectives.htm

• DTCC commissioned 2 studies performed by a UK economic consultancy agency – Oxera Consulting Ltd

• 2004 Report: Corporate Action processing: what are the risks?

• Missed or incorrect activity may result in individual losses in millions

• Sub-optimal trading exposes the industry to as much as $8 billion annually

• 2006 Report: Share prices and trading activity over the corporate action processing cycle

• New focus on corporate action information for trading desks

• Means changes in importance provided to corporate actions information

• Means changes in the way this information is provided and used by firms

Copies for the reports can be found at: www.dtcc.com/ThoughtLeadership/perspectives.htm

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A fresh approach was necessary

• In 2005, we decided to pursue a “one-stop shop" strategy for client corporate action data needs

• Basic tenets:

• Pursue “at-source” initiatives wherever possible

• Cover all event types, geographies, and asset classes

• Enable customers to STP the data (across their firms) without need for manual intervention

• In 2005, we decided to pursue a “one-stop shop" strategy for client corporate action data needs

• Basic tenets:

• Pursue “at-source” initiatives wherever possible

• Cover all event types, geographies, and asset classes

• Enable customers to STP the data (across their firms) without need for manual intervention

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What have we have Done?

• Validation of Problem and Solution

• Currently working with a Major B/D to develop a Business Case

• Reached out to the SEC xbrl working group

• Reached out to the SIA

• Reached out to selected Vendors

• Reached out to the xbrl US governing organization

• Validation of Problem and Solution

• Currently working with a Major B/D to develop a Business Case

• Reached out to the SEC xbrl working group

• Reached out to the SIA

• Reached out to selected Vendors

• Reached out to the xbrl US governing organization

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What are the Next Steps?

• Next Steps

• Complete Validation

• Work with key Industry Organizations

• Discuss with a few major issuers and their Bankers/Agents

• Complete Business Case

• Present to DTCC Senior Management

• Learn from XBRL-US group how to best proceed

• Next Steps

• Complete Validation

• Work with key Industry Organizations

• Discuss with a few major issuers and their Bankers/Agents

• Complete Business Case

• Present to DTCC Senior Management

• Learn from XBRL-US group how to best proceed

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What are the Open Questions?

• Need to define DTCC’s role, from simply overseeing changes to the taxonomy to hosting and managing the data warehouse

• Need to understand the effect of an ‘open portal’, as this would reduce the barriers to entry, enable potential competitors and strengthen existing players

• Need to determine the level of interest/support of the SEC

• Need to establish the Industry (Issuer and Investor) benefits

• Need to clarify ‘who-pays … ?’

• Need to define DTCC’s role, from simply overseeing changes to the taxonomy to hosting and managing the data warehouse

• Need to understand the effect of an ‘open portal’, as this would reduce the barriers to entry, enable potential competitors and strengthen existing players

• Need to determine the level of interest/support of the SEC

• Need to establish the Industry (Issuer and Investor) benefits

• Need to clarify ‘who-pays … ?’