DTCC Responds To 'Breakpoints' Controversy By Revamping Fund/SERV

The Depository Trust & Clearing Corporation (DTCC) is modifying its Fund SERV mutual fund order routing network to take account of the recommendations of the NASD Industry Task Force on "breakpoints" in mutual fund sales. "We are committed to working

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The Depository Trust & Clearing Corporation (DTCC) is modifying its Fund/SERV mutual fund order-routing network to take account of the recommendations of the NASD/Industry Task Force on “breakpoints” in mutual fund sales.

“We are committed to working with the Task Force in achieving its objectives to help the industry deliver information on breakpoint discounts with greater efficiency,” says Ann Bergin, DTCC managing director for Distribution Services, which includes National Securities Clearing Corporation’s (NSCC’s) Mutual Fund Services. “Our Mutual Fund Services, specifically Fund/SERV and Mutual Fund Profile Service, are robust, flexible systems that have built-in capabilities to accommodate a broad range of information. Together, we believe they can become integral parts of the overall solution.”

Bergin represents DTCC on the NASD Task Force, and both she and Barbara Simon, vice president, Mutual Fund Services, are members of two of the new working groups formed by the Task Force. Bergin says preliminary work on modifications began several months ago in anticipation of the Task Force’s recommendations, and that DTCC will continue to work with the Task Force, as well as fund companies, firms, the Investment Company Institute and the SIA, as it enhances its systems.

“Any enhancements to existing services or, in fact, the development of new services, are brought to market by working closely with our various users,” she says. “We expect that the same coordination with the industry regarding breakpoint issues will result in clear consensus on how our services can be delivered quickly and with minimum impact on our customers. We’re hoping to complete this effort early in 2004.”

The two NSCC Mutual Fund Services that have been identified as being able to provide part of the solution are Fund/SERV – to enable broker/dealers and fund transfer agents to transmit and receive information so that the transaction can be processed with the appropriate breakpoint information; and Mutual Fund Profile Service – to make available in a standardized format information related to breakpoint discounts offered by fund families.

Fund/SERV, introduced in 1986, links fund managers with broker/dealers and other distributors of funds, and has become de facto industry standard in the US for processing fund purchases, redemptions, exchange orders and account registrations. The Task Force concluded that Fund/SERV was the preferred vehicle for transmitting information necessary to identify and support proper breakpoint discounts.

Over the years, Fund/SERV’s capabilities have been significantly expanded to support additional investment products, including 401(k) and other retirement plans, 529 Qualified State Tuition Plans, Stable Value Funds, Guaranteed and Bank Investment Contracts, Unit Investment Trusts, Bank Collective Investment Trusts and Separate Accounts.

Mutual Fund Profile Service (MFPS) is an automated, centralized system that improves the flow of critical information to and from fund families and their distributors. Examples of the information currently available with MFPS are daily Net Asset Value and daily accrual rates; as well as security information, including breakpoint and contingent deferred sales charge information. “The service in its present form does include breakpoint schedules from funds, but not the rules surrounding eligibility. Once the terminology is standardized, we will make changes to the service to reflect the eligibility requirements in our system,” ads Bergin.