Is Time on Your Side?
CAN THE NSCC MAKES THINGS CLEAR?
Clearance and settlement systems sit between funds and their intermediaries, and stand in a prime position to play a heightened role in a potential solution, according to many industry insiders. Firms on both sides of Wall Street, including executives from Fidelity Investments and Edward Jones, have advocated this measure, though details on how to accomplish this have not yet been publicly presented.
The NSCC, which processed 83 million mutual-fund transactions through its Fund/SERV platform in 2002, currently offers multiple alternatives for processing, ranging from batch to real-time processing. Processing includes taking orders from a broker/dealer, identifying, aggregating and sending them on to the appropriate fund, then doing the reverse for a confirmation of receipt from the fund to the broker/dealer.
Real-time processing for everyone seems optimum to meet the newly proposed mutual-fund deadlines. However, a spokesman for the NSCC notes that, because there are two trading parties involved, there may be differences in their technological resources. "One trading party may have real-time capabilities, while the other may not."
Rydex's McGovern concurs that while Fund/SERV may be ready for real time, its entire customer base is not. "Newer technology is not at all of the broker/dealers yet," he concedes, but adds that the NSCC is interactive with a handful of companies, and others are moving towards that real-time goal.
Still, he says that even if real-time processing exists, many brokers wait until the end of the day to make their trades. This ensures they have all the news possible leading up to the 4 p.m. valuation of the fund.
Unger suggests another contribution that could be made by clearing agencies, which today have no fiduciary responsibility.
"Even though they could see illegal trades taking place (such as a late trade) - and they would see them if they were clearing for those illegal trades - they have no fiduciary responsibility to either not clear, or bring those trades to the attention of the regulators," she says. "There should be more liability and more responsibility by the ultimate arbiter of the trade, which is the clearing agency."
In a response to the SEC's proposal for a hard cutoff at 4 p.m., the NSCC issued a statement saying there were "various processing solutions we might be capable of offering through enhancements to our NSCC subsidiary's Fund/SERV processing system."
The statement suggests a possible time stamp-verification process that could indicate when the Fund/SERV system receives each file order. However, the NSCC adds that it is too premature to comment further on the issue.
Tweet This