Accounting and Inventory Management



Inventory Management

IMS is a single point of entry for all trade-related input into the settlement system from customers, central matching utilities such as Omgeo, service bureaus, including trade related net settlements from CNS.

IMS allows profiles to be set to either active or passive.

Without IMS, participants may have to internally withhold some or all deliveries from the processing system and release them to DTC in the desired order they wish.

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Sub Accounting – Segregation of Securities

The Sub-Accounting Service allows you to protect securities on deposit at DTC by moving them from your general free account to your segregated account. The securities remain segregated and unavailable for any transactions until you authorize DTC to release them and return them to your general free account.

On payment day, DTC will automatically allocate cash merger and mandatory put payments as well as municipal and corporate redemption payments for securities segregated on DTC's books. In addition, DTC will allocate property and rights such as interest payments, dividend distributions and voting rights for segregated securities. Segregation transactions are subject to your collateral monitor control, and do not recycle for position or insufficient collateral.

These allocations were previously based on a position capture done the prior night. Now, DTC will perform a real time position capture immediately prior to the allocation to account for any adjustments Participants made prior to allocation. You should release on or before the payment date certain segregated positions for securities being reorganized. If you fail to release these positions, they will be automatically decremented to avoid driving your general free accounts into short (negative) positions when proceeds are allocated. You can avoid this automatic decrease of your segregated position by releasing the segregated securities on or before the payment date.

You may deposit certain foreign-owned shares of communications, maritime, and specialized ownership issues, as specified in the Corporate Eligible Securities Book, into a special account at DTC identified as segregation account #100 (seg-100). You can move securities back and forth between your general free account and your seg-100 account, as appropriate, to reflect changes in the amount of certain foreign-owned and specialized ownership issues on deposit at DTC.

IMPORTANT: These shares must be deposited and maintained in the seg-100 account until acquired by a U.S. citizen.

Use Segregation/Release in PBS to segregate and release foreign-owned or specialized ownership issues. When you enter F in the Serial Number field for these securities on your Participant Daily Activity Statement, these securities will appear with the serial number "100." You can process these transactions exactly as you would any other transaction for segregated securities.

DTC will report to the transfer agents (TAs) for communications, maritime and specialized ownership issues the holdings in each participant's seg-100 accounts for each security, and the TAs will note their records accordingly. In the rare instance in which total alien holdings in an issue may exceed statutory limitations, and the increase in foreign-owned shares registered in the name of Cede &Co. caused the statutory limitation to be exceeded, a TA will advise DTC of the amount by which those foreign-owned shares must be reduced.

According to the seg-100 procedures, you are required to immediately withdraw from your general free account any foreign-owned shares that cannot be credited to your seg-100 account because of foreign ownership limitations. DTC will cooperate with the issuer and its TA to facilitate the withdrawal and will disclose to the issuer your name and the number of shares to be withdrawn. You should be aware that issuers may place restrictions on such shares.

At the request of the issuer or its TA, DTC provides periodic reports that list individual participant names and their positions that are segregated in the seg-100 account.




Investment Identification

At your request, DTC will segregate securities for the account of a firm, partner, officer, stockholder, or for an omnibus account.

Securities are segregated by the serial number appearing on the Investment Identification Instruction form. The serial number appears on the Participant Daily Activity Statement on the date of activity and is reported on the end-of-month statement until you no longer have a position in the issue or you have instructed DTC to release the securities from segregation.

Dividends and interest due are allocated as follows:

  1. Cash dividends and interest due are allocated to the Investment Identification positions and other positions. Allocations appear on your Dividend/Reorganization Cash Settlement List.
  2. Stock dividends are calculated on the Investment Identification positions and other positions, and are credited to your general free account on the payable date.
  3. Stock splits are calculated on the general free and pledged positions as well as the Investment Identification account. The dividend is added to each respective account on settlement date.
  4. DTC allocates cash merger and mandatory put payments as well as municipal and corporate redemption payments for positions segregated on DTC's books.

Investment Identification activity is recorded on your Participant Daily Activity Statement. Check your statement to be sure your transactions were properly processed and recorded.

Warning! Under DTC's Rules and Procedures you are responsible for verifying the accuracy of your Participant Daily Activity Statement. You must report discrepancies to DTC's Reconciliation division as soon as possible after you receive the statement. 

 


Memo Segregation

Participants can protect fully-paid-for customer securities using the Memo Segregation function. Memo Segregation is similar to the Segregation function, which allows a Participant to protect fully-paid-for customer securities by moving them from a free position to a protected (segregated) position. However, whereas Segregation allows a Participant to move only existing positions, Memo Segregation allows the Participant to create memo-segregated positions within its free positions, thus allowing the Participant to protect anticipated, fully-paid-for customer securities.

Note- See Memo Segregation DO Reason Codes for descriptions of the codes referenced in this section.

A Participant can have its Memo Segregation counter automatically increased upon receipt of certain transactions. The Participant can also allow positions resulting from certain transactions to be available for redelivery (turnaround) regardless of Memo Segregation constraints. DTC gives the Participant two options for creating Memo Segregation positions:

  1. Provide DTC with specific Memo Segregation transactions using the Memo Segregation function, instructing DTC to establish or adjust Memo Segregation positions.
  2. Provide DTC with standing instructions to have certain types of transactions automatically increase Memo Segregation positions, and ignore Memo Segregation positions in order to allow redeliveries (turnarounds) to complete.

 

To provide DTC with standing instructions, submit a Memo Segregation Request form. To get a copy of this form a Participant should contact its Relationship Manager.



Independently of the preceding options, the following transactions always reduce a Participant’s Memo Segregation position:

  • Withdrawals-by-transfer (WTs) Certificates-on-demand (CODs)

  • Free deliver orders (DO), except those processed with reason codes 10-29, 98, 100, 220, 260-268, 270-278, 280-288, 290-291, 396, 600-619, 704-708, and CNS short covers

  • Deliveries processed with reason codes 95, 97, 630, 640 and reclaim codes 197, 631, and 641 (free and valued).

 

When one of these transaction types is processed against a Participant’s account with a Memo Segregation position, the system checks the Participant’s free account. If sufficient shares exist, both the free position and the Memo Segregation position are reduced by the amount of the transaction.

Note -

If the free position is greater than the Memo Segregation position, and the transaction is for the entire free amount, the Memo Segregation position is reduced to zero; it does not become a negative value.

 

A Participant can activate any of five Memo Segregation indicators by providing DTC with a standing Memo Segregation instruction. When the Participant activates a Memo Segregation indicator, the Participant’s free position and Memo Segregation position are automatically updated according to the indicators that the Participant has elected.

Activate Indicator

To

1 Automatically increase the Participant’s Memo Segregation counter upon the receipt of:
  • Free and valued DOs with reason codes 40, 99, 330, & 340
  • DRS-related Deliveries with reason codes 390 and 391
  • WT reversals
  • Positions resulting from voluntary and mandatory reorganizations.
2 Automatically increase the Participant’s Memo Segregation counter upon receipt of transactions with reason codes 41-48, 331-338, and 341-348.
3 Automatically increase the Participant’s Memo Segregation counter upon the receipt of CNS receives from the Fully-Paid-For Securities or "E" account.
4 Turnaround securities positions, regardless of Memo Segregation constraints, for positions received from DOs with reason codes 10 ,30, and 600, except those with reason codes 10, 20, 260, 270, 280, or 290.
5 Turnaround securities positions, regardless of Memo Segregation constraints, for positions received from:

All DOs, except those with reason codes 20-29, 40 - 48, 99, 261-268, 270-278, 290, 291, 330-338, 340-348, 390, 610-619, 705-707 and CNS receives from the “C” and “E” accounts except if the turnaround is a reason code 10, 20, 260, 270, 280, or 290.

 6  A Participant may elect to increase automatically its Memo Segregation counter by the units of securities credited to the Participant’s account in any ACATS transfer to that account.

 

Memo Segregation indicators 4 and 5 control the capability that allows certain positions to be used for turnarounds up to the amount of the received position, regardless of Memo Segregation constraints.

Even if the Participant has no pending deliveries at the time a position is received from a DO with reason code 10 or 30, DTC retains, throughout that day's processing cycle, a notation of the number of shares received from such deliveries. DTC also processes any deliveries regardless of when they are submitted that day, up to that number, regardless of the Participant’s Memo Segregation position.



The following is a listing of descriptions of the reason codes referred to in the “Memo Segregation” section above.

  • 10 (Stock Loan)
  • 11 (Stock Loan Reclaim-DK)
  • 12 (Stock Loan Reclaim-Wrong Quantity)
  • 13 (Stock Loan Reclaim-Wrong Security)
  • 14 (Stock Loan Reclaim-Wrong Money)
  • 15 (Stock Loan Reclaim-Partial)
  • 16 (Stock Loan Reclaim-Needs Account Information)
  • 17 (Stock Loan Reclaim-Needs Due Bill)
  • 18 (Stock Loan Partial Reclaim/Partial Return)
  • 19 (Stock Loan Recall)
  • 20 (Stock Loan Return)
  • 21 (Stock Loan Reclaim-DK)
  • 22 (Stock Loan Return Reclaim-DK)
  • 23 (Stock Loan Return Reclaim-Wrong Security)
  • 24 (Stock Loan Return Reclaim-Wrong Money)
  • 25 (Stock Loan Return Reclaim-Partial)
  • 26 (Stock Loan Return Reclaim-Needs Account Information)
  • 27 (Stock Loan Return Reclaim-Needs Due Bill)
  • 28 (Stock Loan Return Partial Reclaim-Partial Return)
  • 29 (Stock Loan Recall Reclaim)
  • 30 (Delivery Versus Payment)
  • 40 (Transfer of Customer Document)
  • 41 (Transfer Customer Account Reclaim-DK)
  • 42 (Transfer Customer Account Reclaim-Wrong Quantity)
  • 43 (Transfer Customer Account Reclaim-Wrong Security)
  • 44 (Transfer Customer Account Reclaim-Wrong Money)
  • 45 (Transfer Customer Account Reclaim-Partial)
  • 46 (Transfer Customer Account Reclaim-Needs Account Information)
  • 47 (Transfer Customer Account Reclaim-Due Bill)
  • 48 (Transfer Customer Account-Partial Reclaim/Partial Return)
  • 90 (ADR Stock Loan Return-Untracked)
  • 95 (ACATS Value With Memo Seg)
  • 97 (Delivery Versus Payment With Memo Seg)
  • 98 (Transfer of Account Without Memo Seg)
  • 99 (Bulk Transfer of Account)
  • 100 (Account Transfer Without Memo Seg Reclaim)
  • 197 (Account Transfer With Memo Seg Reclaim)
  • 220 (Repo Tracking)
  • 260 (OCC Stock Loan)
  • 261 (OCC Stock Loan Reclaim-DK)
  • 262 (OCC Stock Loan Reclaim-Wrong Quantity)
  • 263 (OCC Stock Loan Reclaim-Wrong Security)
  • 264 (OCC Stock Loan Reclaim-Wrong Money)
  • 265 (OCC Stock Loan Reclaim -Partial)
  • 266 (OCC Stock Loan Reclaim-Needs Account Information)
  • 267 (OCC Stock Loan Return-Untracked)
  • 268 (OCC Stock Loan- Partial Reclaim/Partial Return)
  • 270 (OCC Stock Loan Return)
  • 271 (OCC Stock Loan Return Reclaim-DK)
  • 272 (OCC Stock Loan Return Reclaim-Wrong Quantity)
  • 273 (OCC Stock Loan Return Reclaim-Wrong Security)
  • 274 (OCC Stock Loan Return Reclaim-Wrong Money)
  • 275 (OCC Stock Loan Return Reclaim-Partial)
  • 276 (OCC Stock Loan Return Reclaim-Missing Account Information)
  • 277 (OCC Stock Loan Return-Untracked)
  • 278 (OCC Stock Loan Return-Partial Reclaim/Partial Return)
  • 280 (ADR Stock Loan-Untracked)
  • 281 (ADR Stock Loan Reclaim-DK)
  • 282 (ADR Stock Loan Reclaim-Wrong Quantity)
  • 283 (ADR Stock Loan Reclaim-Wrong Security)
  • 284 (ADR Stock Loan Reclaim-Wrong Money)
  • 285 (ADR Stock Loan Reclaim-Partial)
  • 286 (ADR Stock Loan Reclaim-Needs Account Information)
  • 287 (ADR Stock Loan Reclaim (Needs Due Bill)
  • 288 (ADR Stock Loan Partial Reclaim/Partial Return)
  • 290 (ADR Stock Loan Return-Untracked)
  • 291 (ADR Stock Loan Return Reclaim-DK)
  • 330 (Direct Rollover to IRA)
  • 331 (Direct Rollover to IRA Reclaim-DK)
  • 332 (Direct Rollover to IRA Reclaim-Wrong Quantity)
  • 333 (Direct Rollover to IRA Reclaim-Wrong Security)
  • 334 (Direct Rollover to IRA Reclaim-Wrong Money)
  • 335 (Direct Rollover to IRA Reclaim-Partial)
  • 336 (Direct Rollover to IRA Reclaim-Needs Account Information)
  • 337 (Direct Rollover to IRA Reclaim-Needs Due Bill)
  • 338 (Direct Rollover to IRA Partial Reclaim/Partial Return)
  • 340 (Direct Rollover to Qualified Plan)
  • 341 (Direct Rollover to Qualified Plan Reclaim-DK)
  • 342 (Direct Rollover to Qualified Plan Reclaim-Wrong Quantity)
  • 343 (Direct Rollover to Qualified Plan Reclaim-Wrong Security)
  • 344 (Direct Rollover to Qualified Plan Reclaim-Wrong Money)
  • 345 (Direct Rollover to Qualified Plan Reclaim-Partial)
  • 346 (Direct Rollover to Qualified Plan Reclaim-Needs Account Information)
  • 347 (Direct Rollover to Qualified Plan Reclaim-Needs Due Bill)
  • 348 (Direct Roller to Qualified Plan Partial Reclaim/Partial Return)
  • 390 (Direct Registration Transfer)
  • 391 (Direct Registration Reversal)
  • 396 (Direct Registration Reclaim DK-Without Memo Seg)
  • 600 (Collateral DO Return)
  • 601 (Collateral DO Reclaim-DK)
  • 602 (Collateral DO Reclaim-Wrong Quantity)
  • 603 (Collateral DO Reclaim-Wrong Security)
  • 605 (Collateral DO Reclaim-Partial)
  • 606 (Collateral DO Reclaim-Needs Account Information)
  • 607 (Collateral DO Reclaim-Needs Due Bill)
  • 608 (Collateral DO-Partial Reclaim/Partial Return)
  • 609 (Collateral DO Recall)
  • 610 (Collateral DO Return)
  • 611 (Collateral DO Return Reclaim-DK)
  • 612 (Collateral DO Return Reclaim-Wrong Quantity)
  • 613 (Collateral DO Return Reclaim-Wrong Security)
  • 615 (Collateral DO Return Reclaim-Partial)
  • 616 (Collateral DO Return Reclaim-Needs Account Information)
  • 617 (Collateral DO Return Reclaim-Needs Due Bill)
  • 618 (Collateral DO Return-Partial/Reclaim-Partial Return)
  • 619 (Collateral DO Recall Reclaim)
  • 630 (Repo With Memo Decrease)
  • 631 (Repo Reclaim With Memo Decrease)
  • 640 (Repo Return With Memo Decrease)
  • 641 (Repo Return Reclaim With Memo Decrease)
  • 704 (OCC Stock Loan-Untracked)
  • 705 (OCC Stock Loan Reclaim-Untracked)
  • 706 (OCC Stock Loan Return-Untracked)
  • 707 (OCC Stock Loan Return RCL-Untracked)
  • 708 (EuroCCP Net Obligation)

Security Holder Tracking Service

The Security Holder Tracking Service allows a third party administrator to track the number of beneficial holders of an issue.

Background

The Security Holder Tracking Service or the SH Tracking Service will allow issuers, either themselves or through an issuer-designated administrator, to track and limit the number of beneficial owners for an individual CUSIP.

In order to support the settlement and asset servicing of certain securities, DTC was asked to build a mechanism which would allow issuers to track and limit the number of beneficial owners of its securities.

For more information, contact DTCC Relationship Management at (800) 422-0582.

To support the tracking of holders in a designated security, DTC provides access to IMS to those administrators assigned by the issuer. Once the issue is established on the DTC master file as one that requires tracking, all transactions are held in IMS awaiting administrator approval to proceed to settlement.

In order to use the service, DTC must be notified during the underwriting eligibility process that the issue requires third-party tracking. Upon receipt of all required documentation, DTC will activate the tracking indicator on its security master file and provide IMS access to the assigned administrator, but only to allow for inquiry and approval/disapproval of transactions assigned to the respective administrator.

During the Underwriting closing process, the position will move from a DTC internal account to a designated sub-account of the lead underwriter. The move from the DTC internal account to the lead underwriter is subject to the approval of the administrator. Once the shares are moved into the designated sub-account, all share movement from that point on will require the approval of the designated administrator through IMS.

Once transaction approval has been received, and all other settlement risk controls have been met, the shares will move from the delivering Participant’s sub-account to the receiving Participant’s sub-account, either free or versus payment. These Security Holder Tracking transactions will use a new Account Transaction Processor (ATP) activity code in DTC (42). Normally, deliver orders move position from one Participant’s general free account to another Participant’s general free account, either free or versus payment.

For risk management purposes, these issues will be designated as having zero collateral within DTC’s settlement system.

DTC must be instructed in writing to set up a specific DTC-eligible CUSIP for tracking. At the same time, the issuer must instruct DTC as to whom will perform the function of the administrator for the CUSIP within the SH Tracking Service.

Upon receipt of all of the aforementioned documentation, DTC will make the CUSIP DTC-eligible and will activate the tracking indicator on its security master file. Additionally, once it is made eligible, DTC will perform asset servicing for the issue. The administrator appointed by the issuer will control movements of the particular CUSIP for which it has been appointed. Once the tracking indicator has been activated on the master file and the administrator has been appointed, no transfer of the securities shall take place in the tracked security without the approval of the administrator through the Inventory Management System (IMS). The administrator, based on requirements of the issuer, shall be solely responsible for determining whether a transaction should be effected in DTC. Once approved by the administrator, DTC may perform centralized book-entry settlement.

IMS will only allow an administrator access to view and approve transactions for CUSIPs for which they have been appointed administrator as reflected in DTC’s records. 1

The tracked securities will not be held as part of a Participant’s general free account nor will they be considered eligible collateral in DTC’s settlement system.

Although the SH Tracking Service was developed to address the specific concerns of closely held Rule 144A issues, in practice it could be used for other types of securities for which the number or character of the beneficial owners requires some level of control by a third-party administrator.

 

_______________

1 As DTC is relying solely on the instructions of the administrator in order to effect settlement in tracked securities and has no knowledge of the number or character of the underlying beneficial owners, use of the SH Tracking Service by any party will constitute an agreement that DTC shall not be liable for any loss or damages related to the use of the SH Tracking System. Each user of the SH Tracking Service agrees to indemnify and hold harmless DTC and its affiliates from and against any and all losses, damages, liabilities, costs, judgments, charges, and expenses arising out of or relating to the use of the SH Tracking Service.

Regardless of where executed, trades will be submitted to the Tracking Service either via a Matching Utility or a DTC Deliver Order (DO).

Directly Submitted DOs

  • DTC uses a new DO option through which to submit both valued and free Security Holder Tracking deliveries. These items can be submitted via the Settlement User Interface and machine-readable media.
  • Security Holder Tracking deliveries uses an Account Transaction Processor (ATP) activity code, 42, in DTC. This activity code moves position from the delivering Participant’s designated sub-account to the receiving Participant’s designated sub-account, either free or versus payment. ATP uses the same serial number (identifies sub-accounts) for both deliverer and receiver.
  • All DO activity (e.g., stock loans, reclaims) is subject to administrator's approval.
  • For Security Holder Tracking transactions received from a Matching Utility, Participants need to authorize their deliveries in IMS for DTC to attempt settlement (in addition to the third-party administrator approval).
  • Trades submitted via a Matching Utility will be identified as either transaction type Matched Institutional Trades (MITS) or Late Matched Institutional Trades (LMIT) in IMS.
  • Security Holder Tracking deliver orders follow regular Receiver Authorized Delivery (RAD) rules.
  • DTC ATP Activity Code 42 deliveries appears on the DTC Participant Account Statement under one of the following current Settlement Activity Codes (as applicable): 19 (ID), 26-0 (DO SDFS), 26-5 (Stock Loan DO), 26-6 (Stock Loan Return DO).
  • Stock loan reason codes are permitted for Security Holder Tracking DOs, and update the stock loan tracking memo accounts as with normal stock loan tracked DOs.
  • Participants are able to identify those transactions awaiting administrator approval in IMS by means of the Settlement User Interface’s Security Holder Tracking inquiry functionality.
  • Recycle, Submission, Activity Code, Asset Class, and Security Code profiles do not apply to activity code 42.
  • Security Holder Tracking transactions are able to be reintroduced, so activity code 42 is being added to the Reintroduced Drop profile.

The ATP activity code 42 is displayed in the Activity Inquiry summary and detail screens. The serial number is on the Activity Inquiry detail screen. Activity Code 42 is also located in the activity history and intra-day activity systems.

  • Security Holder Tracking dropped deliveries appear on Participant drop reports like other DOs.
  • Participants can view Security Holder Tracking DOs in the Pending Transactions function like other DOs. All other DO actions (e.g., Pend Hold, Pend Cancel) are available for Security Holder Tracking items and are billed at existing rates.
  • DTC includes Security Holder Tracking deliver order transactions with the new activity code of 42 in the DTFPART Settlement Participant Activity files.
  • The ATP activity code of 40 is used in DTFPART for the initial underwriting takedown delivery from DTC’s internal Underwriting account to the lead underwriter’s sub-account.
  • IMS is available to third-party administrators for trade approval prior to settlement.
  • DTC uses an interface for administrators to view (inquiry), approve and disapprove transactions pending settlement at DTC.
  • Alternatively, administrators may approve/disapprove transactions through ISO command messages. Messaging layouts - including status codes, MT548, can be accessed via the User Documentation section on DTCC’s website.
  • If a delivery is reclaimed or dropped after it has been approved by the administrator, the administrator can be notified through receipt of transaction state change messages from DTC and/or by IMS inquiry. Administrators should only update records for “Made” transactions.