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    Updated AMF Overdraft White Paper Updated AMF Overdraft White Paper Document Transcript

    • The Asset Managers Forum Overdrafts Initiative: Guidelines relating to Overdrafts Aid to Public Comment Date: February 28, 2008 These proposed guidelines are subject to review by all market participants. Written comments are due by April 30, 2008, and may be submitted to George Reis of The Asset Managers Forum staff at greis@sifma.org. Please contact George Reis at 212-313-1180 for additional information. New York 360 Madison Avenue ▪ New York, NY 10017-7111 ▪ P: 212.313.1000 ▪ F: 212.313.1018 ▪ www.theassetmanager.com
    • Table of Contents: 2
    • Executive Summary Asset managers are responsible for achieving the client’s investment objectives and to do so, the asset manager today is actively managing the available funds in order to reach the maximum return on investment. As the cash management process gets tighter and more complex it creates instances of overdrafts at the client’s custodian bank. As a result, there is a need for guidelines to reduce and deal with overdrafts. Custodians send opening day cash forecast reports, intra-day cash balance reports and cash transactions reports to assist asset managers in their cash management function. Many of these reports are sent via automated messages or are available on their web site. These reports should be used by asset managers in conjunction with their internal cash management system. The Overdrafts White Paper’s recommendations are grouped under actions to be taken by custodians, asset managers and the industry at large. • The custodian recommendations center on daily multi-currency cash management reporting with updates through the day, reporting of overdrafts using standardized formats developed in conjunction with asset managers, daily reporting of overdrafts and communicating sweep cut-off times. Also custodians and asset managers should open lines of communication to resolve root causes of overdrafts. • The asset manager recommendations encourage implementation of a comprehensive cash management system to effectively project cash requirements by currency, incorporate sweep cut-off times in the reporting system, research overdraft conditions daily, on-board multi-currency clients to CLS, develop metrics on overdrafts and encourage clients to communicate cash movements timely. • The industry recommendations center on establishing a standard cut-off time of settlement date minus one at 10AM for submitting netting instructions on FX trades and establishing an industry minimum for claims on overdrafts. 3
    • 1. Introduction At the February 2007 AMF conference “Hardball with the AMF”, asset managers and custodians discussed how they can better serve their clients. One of the discussion topics was their experiences in tracking and resolving overdrafts. Both parties felt the situation should be explored in greater depth as to causes and resolution of overdrafts and to develop guidelines for the industry. Several AMF members brainstormed the overdraft issues at a March 2007 AMF Roundtable discussion and found great interest among asset managers and custodians to form a study group known as the Overdraft Working Group. The co-chairs are Thomas Dara of BlackRock, Jesse Robinson of Western Asset Management and William Filonuk, Bank of New York Mellon with Gary Nussenbaum of Lord Abbett as AMF Steering Committee Liaison. The group’s objective was to reduce overdrafts and the attendant processing costs, to reduce risk and reduce costs associated with unintentional overdrafts at asset managers and custodians. An integral part of an asset manager’s responsibility is a comprehensive cash management process to ensure the client’s cash and securities transactions are accurately and promptly recorded, properly invested and not overdrawn. In general, overdrafts in client accounts are receiving more attention from a regulatory and compliance standpoint in part driven by Sarbanes Oxley certification requirements. Asset managers are increasingly expected to monitor and report on overdrafts and reimburse clients under certain conditions. To achieve optimum investment of the client’s funds, the asset manager and custodian must interact closely to avoid overdraft conditions. An overdraft is a loan made by a bank to provide liquidity for unplanned events. Overdraft loans are not meant to provide financing, nor are they meant to be used to create leverage in a portfolio. Because of limits set by banks, regulators and the banks’ clients, a custodian bank can not always offer an overdraft facility of sufficient size to fund an unplanned event - particularly in markets that prohibit overdrafts. Therefore in the context of servicing investors and asset managers, overdrafts are not a steady or important source of income to custodian banks. Therefore they should be rare and should be avoided where possible. Cash management practices differ from firm to firm. Some asset managers actively manage their client’s cash balances (e.g. do not use bank sweep vehicles or money market vehicles) therefore they should use rigorous cash forecasting processes to avoid overdrafts. Competitive interest rates on idle cash balances can reduce or eliminate the need for active cash management. Overdrafts may cause contention with the asset manager’s client because of the costs involved and increased regulatory scrutiny. Clients have differing priorities and sensitivities, based on account type and investment mandate. Some clients are willing to absorb an overdraft cost if it is viewed as cost of doing business and generating investment returns, whereas other clients have a mandate to completely avoid overdrafts. This is particularly true in certain international markets, including Japan. Overdrafts are resource-intensive for asset managers and custodians. Many asset managers have a dedicated group focusing on trade settlement exceptions including fails, claims and overdrafts, which require monitoring, tracking and initiating or responding to any related charges, which is often a manual process. There is currently no industry solution or vendor that offers an automated process for overdraft monitoring and tracking. 4
    • 2. Goals The main goals of the AMF Overdrafts Working Group are: • Identify the most prevalent causes of overdrafts • Recommend guidelines to minimize overdrafts by pro-actively avoiding conditions that cause overdrafts • Recommend guidelines to improve transparency and reporting • Recommend guidelines for resolution of overdrafts Asset managers and custodians need more transparency into the process to ameliorate the causes, research the conditions and simplify the resolution of overdrafts. As custodians report overdrafts in “real time”, the asset managers should actively research the cause of an overdraft and resolve the cause in a timely manner. Additional goals of the working group are to promote daily research and timely reporting of overdrafts and to develop industry metrics related to overdrafts. 3. Overdraft Causes The Working Group identified 26 causes of overdrafts, which are listed on the table below. Grouping Root Causes AM Cash Management/Custodian Communication Client Cash Flows Principal & Interest Maturing Issues Cash Forecasting Errors Recon Errors Missing Trade Cutoffs Missing STIF Cutoffs Overspending Fees and Expenses Active Cash Management Fails Collateral / Margin Corporate Actions FX; International MBS Pool Settlements Settlement Practices Security Lending Too Late to Turnaround DK's -No Instructions Dual Eligible Securities Incorrect SSI's Dealer Time Cut-off Best Efforts Trade Processing Errors or Corrections Bank Errors Trader Input Errors Trade Corrections Missing / Duped Trades 5
    • For this paper the Working Group focused on the causes which are most frequent or have the most monetary impact. The Working Group categorized the discussion of overdraft causes into three main sections, namely: Custodian Communications, Asset Manager Cash Management Process and Industry Opportunities. 4. Custodian Communications Custodians provide daily cash projections by market and currency, which is an essential service for asset managers to properly manage client’s cash balances. 4.1 Cash Available Reporting Ideally, the custodian should provide a real-time or near real-time cash projection as to the expected close of cash settlements for a given market/currency. Within the projection there may be unsettled items however as the business day unfolds there will be less unsettled items enabling the asset manager to monitor the client’s cash positions and projected closing balances. The daily cash projection should be updated throughout the day thereby tracking (a) items that were surprises e.g. not included in the projection and (b) items that were not yet settled. An integral part of an asset manager’s responsibility is to develop a comprehensive cash management process and not to rely solely on the custodian’s information. • A recommended guideline for custodians is to provide daily cash projections each business morning and as all inclusive and straight through during the day (based on significant dollar thresholds) to enable asset managers to reconcile cash efficiently and better serve their mutual client. • A recommended guideline for custodians should individually and as an industry work with cash clearers in all currencies to improve communication so cash is credited on accounts on as timely basis as possible. • A recommended guideline for asset managers and custodians is to work together to develop a standardized Cash Availability Report as a daily reconciliation between the overdraft report and the availability report would result in explanations for overdrafts. The reconciliation should be fully automated. • Based on recommended standard report (above), the industry should submit a request to International Standards Organisation to include the new data elements. 4.2 Improved Reporting of Overdrafts Reporting on overdrafts differs by custodians in content, format and timing. Also, differences exist between client accounts that are contractual versus actual. It would be beneficial for all asset managers if the format and content of custodian overdraft reports were as standardized as practical regardless of currency. Custodian reporting is critical to identify the overdraft and tie the overdraft balance to the underlying trade or transaction that caused it. The overdraft charge should be identified also. Asset managers should reconcile to the custody overdraft balances and not to the fund accounting records, which are on a trade date basis not settlement date. More frequent reports (e.g. intraday or daily) would help the asset manager track and 6
    • research root causes. Asset managers would like custodians to notify them immediately when an account is overdrawn or an unexpected flow is initiated by the client. Asset managers need to be aware of the timing of posting of custodial fees to the account. There are items that generally do not appear on the cash forecast which cause problems, such as corporate actions and client cash withdrawals. This real-time notification would make it easier for the asset manager to avoid overdrafts by prompting them to address the issues during the trading day. Asset managers would also like next day reporting of overdrafts, which custodians say they do currently provide, or are, in most cases, capable of producing. Custodians produce the reports as batch jobs during the night so that they can then communicate cash balances daily. The overdraft shows as a negative cash balance on the customer account. The account domicile would naturally affect the timing of the report. Based on a custodian report, the opening cash balance of the account might show an overdraft, thus the asset manager becomes aware that the account is overdrawn and needs to raise cash. Generally, the overdraft charge posts to the client account in the beginning of the subsequent month. However, asset managers should assess the root cause on day one of the negative balance and determine what caused the overdraft, whether it was expected or not, and who is at fault (asset manager, counter-party, client or custodian). A summary report should be used at month-end with reason codes next to overdraft charges to clarify particular charges. (In the custodian reports, an overdraft is a debit interest item. As there are other debit-interest items on the reports, asset managers need transparency on what the overdraft related debit- interest charges are and what makes up the charges, i.e. the underlying daily overdraft balances and related charge accruals that tie back to the charge.) Should this be deleted??? There may be several transactions that contribute to a daily overdraft balance and problem transactions should be identified during the asset manager’s daily cash reconciliation process. The asset manager also needs to know what is included in month-end client reports. The custodian report should, at minimum, contain the following data points for each overdraft item: • Date of overdraft • Custody account name and number • Cash amount • Currency • Reason code o Trade fail o Unforecasted cashflow o FX related o Bank error o Overspending by PM o Corporate action • Interest rate • Comments • A recommended guideline is for asset managers and custodians to work together to develop a standardized multi-currency Overdraft Report including the above minimum data elements enabling the asset manager to efficiently identify the specific transaction(s) causing the overdraft. 7
    • • A recommended guideline is for asset managers and custodians to develop an automated reconciliation template between Asset Manager’sand Custodian’s Cash Available Report 4.3 Short Term Investment Funds (STIF) All major custodians offer beneficial clients short term investment funds (STIF) to sweep cash at various timeframes throughout the business day to maximize the investment performance of the client’s account. The STIF cut-off times cause a large number of overdrafts as cash related transactions can occur after the cut-off time. The STIF cut-off times are dependant on the custodian’s investment fund selected by the client, thus asset managers can not negotiate later cut-off times. The STIF cut-off times will vary based on the type of money market fund selected by the client plus the custodian’s lead time for posting asset manager transactions to the fund. Each fund company retains the right to alter its trading deadlines. For example, a US Government Fund might close at 1PM ET with a cut-off at noon whereas a general money market fund of CDs and CP might close at 5:30PM with a custodian cut-off at 4:30PM. In today’s competitive environment where clients face a proliferation of investment choices including alternative investments, asset managers are seeking higher returns for their clients across the board. This also leads to more aggressive cash management techniques as asset managers need to optimize results. Asset managers are managing tighter tolerances of cash liquidity which makes them more vulnerable to unexpected cash flows. The amount of liquid cash is based on investment mandate, but the trend is that many client accounts have less non- invested cash than heretofore. At many asset managers, the STIF rates are presented to portfolio managers in the morning so that they may decide whether to invest cash in these vehicles, repos or other investment choices. Asset managers need to be aware of these cut-off times and allow enough lead time for trades to settle. The asset manager’s trading technology platforms (vendor or in-house) generally do not have STIF cut-off times built into their systems so asset managers need to develop alternative procedures to monitor cash movements effectively. When trading, portfolio managers should be aware of the cut-off times and allow lead time for Operations to process trades promptly to ensure that they are reported to custodian before the STIF cut off. It is important for asset managers to receive custodian cash forecasts as early as possible so that the account activity can be reviewed and adhered to the STIF deadline. Many custodians provide multiple daily cash projections and cash balance reports enabling asset managers to monitor cash balances and make better cash investment choices. Recommended guidelines: • Custodians should provide the STIF sweep rates to asset managers for the client’s cash investments. • Custodians should provide asset managers with updates whenever a cut-off time changes as is currently done for holidays. • Custodians should provide a periodic or quarterly report to all asset managers of their complete STIF cut-off times including sub-custodians. 5. Asset Manager Cash Management Process 5.1 Cash Management Process Asset managers prepare cash projections by currency for each beneficial client account at the opening of the business day, which include the following: 8
    • A.M. Cash Projection report requirements: • Opening cash balance (Current day) o Current Settlement Date Activity (Including security ID and security description) o Buys o Sells o Corporate Actions o Maturities o Dividends o Principal and Interest payments o Expenses o Cash Flows (Client deposits / withdrawals or fund sub / reds) o Holdings in STIF o Less-Target Balance in STIF (optional)Equals Projected Investable Cash Balance for current day P.M. (as additional information is needed intra-day) • Additional Intra-day activity posted not in the AM projections NB: The Working Group is aware of a Cash Reporting draft paper in progress by ISITC’s Reconciliation Working Group to update the business requirements and best practices for ISO 20022 electronic messaging between custodians and asset managers. The Working Group recommends that asset managers review the ISITC business requirements to ensure that their internal cash management system incorporates all these elements. The asset manager would then obtain the custodian’s cash projections and validate the projection with the custodians by comparing the documents and identifying material differences, which should be researched internally and with the custodian. The asset manager’s cash projection would be adjusted for the material differences (as would the custodian’s in order to provide intra-day updates). The asset manager would communicate the projected cash position to the portfolio manager so they can start the trading day and invest the cash as per the client’s mandate in a custodian STIF vehicle, or in another investment type such as repo, time deposit, commercial paper or other short term instrument. Repo indications are given between 11AM and Noon ET. The asset manager should monitor the custodian’s updated cash projections throughout the business day. Differences might occur because of corporate actions, un-posted P&I credits or adjustments, client deposits and withdrawals, turnarounds, foreign dividends paid in a currency other than US dollars and cash practices of custodians on certain transaction types such as turnarounds. Cash management processing supports both short term investment mandates and investment of excess cash in long term portfolios. Recommended guidelines: • Asset Managers should encourage their clients to select STIF vehicles appropriate for their investment parameters. • Asset Managers should understand the STIF choices made by their clients as it will impact their cash management process. 9
    • • Asset Managers should incorporate STIF cut-off times and rates (including sub-custodians) into the asset manager’s cash management projection tools. • Asset Managers should incorporate the client’s STIF cut-offs into the investment management system including procedures to review the current cut-off times at least quarterly. • Asset Managers should educate the Portfolio Managers on STIF rates and cut- off times. 5.2 Errors and Corrections Whenever the asset manager or custodian recognizes an error requiring a monetary correction, this information should be incorporated in the cash projections and communicated to the other party especially if the amounts are material. Materiality (and tolerance levels) should be defined by the asset manager and custodian based on the client mandates. The custodian should send to the asset manager a notice of material monetary correction, automated if possible, so that the adjustment can be included in the cash projection. Timely communication between the asset manager and custodian of errors and corrections is extremely important to minimize overdrafts. • A recommended guideline is for the custodian to send to the asset manager a notice of any material monetary correction, automated if possible. 5.3 Improved Tracking of Overdrafts Asset managers should track overdrafts and research debits daily by assigning operations personnel to the task. Many custodians provide daily reports throughout the month listing the overdrafts enabling research to commence immediately. Asset managers should not wait until the custodian posts the monthly charges usually in the first few business days of the following month because the overdraft condition could be 30+ days old making research difficult. Timely research will enable the asset managers to take appropriate action to resolve the cause and determine the responsible party for the charges. If the overdraft occurred because of asset manager’s mistake such as sending the trade in late, or trade error, the asset manager would typically reimburse the client for the charge. If the overdraft occurred because of a client activity, the client would be responsible for the charge. If the overdraft occurred due to bank activity such as a fail resulting from securities lending, the bank would be responsible for the charge. Asset managers need to ensure that the report distribution has coverage in case of sick days and holidays. If the asset manager does not handle the overdraft research daily, they will have problems when trying to research the reasons of the overdraft. Custodians typically debit the client accounts in the first few business days of the following month for the accumulated monthly charges. The recovery (compensation) of the charges would also take place at month-end.. The overdraft tracking and research process should be a part of the asset manager’s daily cash reconciliation system or process. Focusing on overdrafts daily will ease the resolution and possibly reduce the charges as items (overdrafts) are being addressed in a timely manner. The Working Group feels that the resolution of the overdraft should also be achieved during a certain timeframe, at most within 30 days. A speedy resolution may depend on several factors including the responsiveness of counterparty, trading volumes and other competing responsibilities. • A recommended guideline is to encourage asset managers and custodians to research overdraft conditions daily and to request daily reporting from their custodians. 10
    • • Asset managers should reconcile cash daily at end of the business day with their custodians on a transaction level basis for each currency. 6. Industry Opportunities The AMF and other industry groups are focusing on improving STP, reducing fails and standardizing messaging between asset managers and custodians all of which seek to reduce post trade processing errors, which can cause overdrafts. In this section, the paper highlights several industry-wide issues causing overdrafts. 6.1 Foreign Exchange Trades Many of the overdrafts are caused by international trades/FX. The FX related overdrafts are usually fueled by incorrect standing settlement instructions or SSIs and time differences. The monetary impact is high as different currencies have different borrowing rates hence cost of funds can vary widely. When the client executes a sub-custodian agreement overseas, they may not understand the actual costs involved trading in these overseas markets or the overdraft rates charged by the sub-custodian. In addition, overdrafts are caused by incorrect or late notification of gross versus net settlements (pre-advisement may be sent that trade is to settle gross when it actually settles net), sub- custodian cut-off time requirements, time differences in overseas markets and lack of pre- matching FX trades. The cancel and correct process for FX trades may also cause problems as adjusting trades may be difficult due to time differences. One solution is the use of the CLS utility for settlement of third party foreign exchange transactions. The CLS platform allows for pre-matching of FX transactions and provides for settlement certainty. All transactions settle on a gross basis, which simplifies the trade communication and settlement process. This largely takes out the settlement risk, and will eliminate most FX related overdrafts. It should be noted that CLS settles in 15 currencies to date with 2 more slated for the second quarter of 2008. (http://www.cls-group.com/index.cfm). Asset managers should exercise care when trading FX given that many counterparties may not be on the CLS platform. (Appendix A-lists the current dealer and custodian members on CLS). While the roll-out of the platform is taking place, asset mangers and custodians should be more diligent about having the correct SSIs related to international foreign exchange trades. Asset managers could also monitor their counterparties as some are better than others in processing FX trades. Timely notification of non-receipts from custodians on pre-advised money is critical and would also reduce the number of overdrafts. Another helpful development is that a variety of vendors are working to provide a pre-match for FX trades, which might alleviate asset manager problems with failed trades. Recommended guidelines: • Encourage asset managers and custodians to work together to on-board beneficial clients trading in multi-currencies to the CLS settlement service. • Encourage a standard cut-off time of Settlement date-1 at 10 AM ET for submitting netting instructions on foreign exchange trades. • Asset managers should inform their portfolio managers of the CLS membership, cut-off times by overseas market/sub-custodians and other market nuances including regulatory issues. 11
    • 6.2 Trade Fails If a custodian is unable to deliver securities on settlement date the client’s cash account will not have funds available to settle incoming dealer trade deliveries. There are many causes of trade fails including security lending activities, dealer time, DK’s for money or quantity differences, too late to turn-around, dual listed securities, etc. It is in the best interest of asset managers, dealers and custodians to join with the AMF Fails Working Group and STP Committee to minimize the causes of fails through streamlined processing initiatives, fail reporting metrics and better communication. • Fails Due to Incorrect SSIs The AMF STP Committee is working to improve the quality of standing settlement instructions (SSI). Incorrect instructions continue to contribute to a large number of fails which could be avoided if the SSI information was accurate and timely. The STP Committee has requested Omgeo to come up with a process to improve the data quality in the ALERT database (which houses the SSI information), as well as establish an easier upload functionality of the SSI data into the database. Omgeo is currently working on both items. The STP Committee is also supporting the work of the ISITC Reference Data Working Group, which has documented the essential SSI data elements in the DRAFT Standing Settlement Instruction (SSI) Best Practice Guideline. The guideline will help industry participants agree on the standard minimum data elements that are required to populate the SSI databases in ALERT and AccountNet (SSI database operated by TradeWeb). The settlement instructions for an account may be incorrect for different reasons. When an institutional account changes its settlement instructions, the custodian sends an email message to the asset manager with the updated information. However, if this email gets lost or the information is not entered into the ALERT system by the asset manager, the ALERT database will not get updated. This happens particularly with clients where trading is infrequent, or with overseas clients. It is also possible that the counter-party, i.e. broker-dealer did not update its portion of the ALERT database. Asset managers trade across multiple desks at any given dealer. Each desk is responsible to maintain the SSI information for its asset class. • A recommended guideline of the AMF STP Working Group is to urge Omgeo and TradeWeb to adopt the ISITC Reference Data Working Group’s recommendations regarding minimum standard data elements for SSI • The AMF representing the asset management community encourages custodians and vendors to work on uploading changes to settlement instructions directly to the vendor SSI databases and will work together to resovle the legal liability issues. • A recommended guideline for asset managers should include the client internal account number when communicating with the custodian and should have correct payment instructions on file with the custodian to improve STP of cash credits. 6.3 Industry Metrics and Benchmarking Asset managers and custodians are encouraged to track overdrafts beginning in Jan 2008. The Overdrafts Working Group is hopeful for a material reduction in monthly overdrafts between January and December 2008. The Overdrafts Working Group will solicit anonymous overdrafts volume figures in the last quarter of 2008 for compilation and distribution to the wider audience. These are the suggested metrics: 12
    • Metrics Tracking (only for unintentional overdrafts) • Amount of overdraft as a percentage of market value of client portfolio • Number of overdraft occurrences • Currency code • Reason for overdraft o Trade fail o Unforecasted cashflow o FX related o Bank error o Overspending by PM o Corporate action Effort involved to resolve High Medium Low 6.4 Best Practices for Overdraft Resolutions The Working Group believes it would be helpful if there were consistent practices throughout the industry regarding overdraft charges and their causes, particularly relating to fails and claims related to overdrafts. While there is a common industry threshold of a $300.00 minimum claim amount between dealers and asset managers, there is no existing guideline or minimum claim amount for overdrafts. Asset managers noted that perhaps there should be a minimum charge, if practicalble. Small overdrafts may ultimately cost the asset manager and custodian more in resources than monetary credit realized for the beneficial client covered through the resolution process. A minimum threshold amount would reduce the overall costs associated with research and resolution of overdrafts for both custodians and asset managers. For those clients who have no tolerance for minimum overdrafts threshold, the asset manager may establish an error account to reimburse the client on small overdraft charges automatically in order to save on the research and claiming process. • The industry should work towards reducing the time and effort for clearing overdraft charges including agreeing to a minimum dollar amount for reimbursing clients for overdraft charges to simplify the research and attribution by asset managers and custodians. 6.5 Overdrafts with Dealers The Working Group believes that there would be much to gain by approaching the dealer community to discuss overdrafts in order to reduce the instances of overdraft conditions adversely affecting beneficial clients. This opportunity will be discussed in future meeting of the Working Group and dealers will be invited to participate. 7. Communications Plan After the Overdraft White Paper is reviewed and approved by members of the Working Group, the communications plan will include: • Prepare a press release announcing that the white paper is being distributed by AMF to industry groups for public comment for a 60 day period and highlighting the recommended guidelines applicable to the industry (February 2008) • Arrange a Lunch and Learn to provide an explanation of the recommended guidelines embodied in the White Paper and answer questions (March 2008) 13
    • • Arrange an in-person meeting with representatives of the custodian community to discuss the recommended guidelines applicable to their peer group (March-April 2008) • Arrange a meeting with interested buy-side firms to discuss the recommended guidelines applicable to their peer group (March-April 2008) • Collect comments and respond as appropriate (March-April 2008) • Revise the white paper as appropriate (May 2008) 8. Implementation Plan: The Working Group will focus on several recommendations for implementation including input from custodians and industry groups, namely: • Develop a standardized overdraft report with the custodian community • Study the practicality of adopting an industry minimum for claims on overdrafts • Adopt a standard cut-off time of Settlement Date-1 at 10 AM ET for submitting netting instructions on foreign exchange trades. • Commence collecting metrics from volunteer asset managers and custodians. • Engage the dealer community in a study of the causes of overdrafts 9. Conclusion The AMF Overdrafts Working Group appreciates the time, effort and expertise by industry professionals at asset managers and custodians that contributed to this initiative. The Working Group will distribute this paper to industry participants to obtain feed-back on the recommended guidelines. At the same time the Working Group will strive to obtain consensus from the asset managers and custodians on the three items described above and move to implementation as soon as possible. After the public comment period is over, the Working Group will revise this document and circulate the recommended guidelines to other industry groups for information and support. The Overdrafts Working Group will continue to meet to implement the remaining recommendations. The Asset Managers Forum would like to thank all members for their contributions to this report (list on Appendix B) and express particular appreciation for the efforts of the Overdraft Working Group Co-Chairs, Thomas Dara of BlackRock, William Filonuk, Bank of New York Mellon and Jesse Robinson of Western Asset Management and Steering Committee Liaison Gary Nussenbaum of Lord Abbett. 14
    • Overdrafts Initiative Appendix A CLS: FundFX service – participants as of February 2008 Custodians live: ABN AMRO Mellon IBT (via Citi) Bank of Ireland (via UBS) Intesa San Paolo Bank of Sal Oppenheim (via Credit JPM Chase Suisse) Mellon (and CIBC Mellon) (* Bank of New York (* Nordea BHF Bank AG (via Citi) Northern Trust Brown Brothers Harriman (via Credit Pictet & Cie (via UBS) Suisse) State Street Citi UBS HSBC In planning: National Australia Bank Counterparty banks (Broker/dealers) live: ABN AMRO Bank NL and US ING Bank NL AIG International Inc US J Aron and Company US Bank Julius Baer CH JPM Chase GB and US Bank of America GB and US Jyske Bank, Silkeborg DK Bank of New York GB (* Landesbank Baden-Wuerttemberg DE Barclays Bank GB Lehman Brothers GB and US BNP-Paribas FR Mellon Bank US (* Brown Brothers Harriman US Merrill Lynch GB and US Calyon GB Morgan Stanley GB and US Citi GB and US Nordea Bank DK and FI Commerzbank DE Rabobank NL Commonwealth Bank of Australia AU Royal Bank of Canada CA and GB Credit Suisse GB Royal Bank of Scotland GB Danske Bank DK Skandinaviska Enskilda Banken SE Deutsche Bank GB State Street GB and US Dresdner Bank DE WestLB GB Goldman Sachs GB and US Westpac AU HSBC GB and US Zuercher Kantonalbank CH Trialed but not yet live: Northern Trust GB NAB Westpac Europe Ltd GB ANZ (* - Bank of New York and Mellon Bank are in the process of merging. Until the completion of the merger, the two institutions operate as separate entities in the CLS system) 15
    • Overdrafts Initiative Working Group Members Appendix B Jon Ambos Daniel Bozzo Industry Participant New York Life Investment Management Jason Cirrito Kerry Cocca Goldman, Sachs & Co. Deutsche Asset Management Sue Collazo Jeannine Cupen State Street IMS Deutsche Asset Management Michael Daley Thomas Dara Loomis, Sayles & Company, L.P. BlackRock Tina Davis Jean Ebbott Mellon Global Securities Services Morgan Stanley Investment Management William Filonuk Paul Fitzgibbon The Bank of New York Mellon State Street Global Advisors Janet Freed Thomas Gevas Northern Trust Harborside Financial Center Northern Trust Harborside Financial Center Robert Good Svetlana Grutman Goldman, Sachs & Co. Lord, Abbett & Co. LLC Lisa Hoffman Lisa Ilaria State Street IMS New York Life Investment Managment Thomas Kopkash Andrew Kornegay State Street IMS Prudential Investment Management Inc. John Ladd James Lignos The Hartford Investment Management Co. State Street Lena Loha Frank Lupica State Street IMS Lord, Abbett & Co. LLC Christopher Marzullo Michael McCarthy Lord, Abbett & Co. LLC Lord, Abbett & Co. LLC Omar Medina Joseph Ng Goldman Sachs Asset Management The Northern Trust Company Gary Nussenbaum Karisha Palma Lord, Abbett & Co. LLC State Street IMS Paul Parseghian Joseph Pomo Prudential Investment Management Inc. Goldman Sachs Asset Management Barbara Reda Jesse Robinson Fischer Francis Trees & Watts Western Asset Management Lisa Seibold Russell Stamey State Street The Northern Trust Company 16
    • Mary Stone Catherine Tantillo General Electric Investment Corporation Lord, Abbett & Co. LLC Kevin Taylor Alex Woller Lord, Abbett & Co. LLC Fischer Francis Trees & Watts 17