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June 14, 2002

SIC® Straight Through Processing (STP) Initiative


Currently the securities industry is preparing for its biggest challenge in years, STP (Straight Through Processing). There are a lot of different issues that will need to be overcome before June 2005. One of those issues is how to deal with physical certificates in this new environment. From an operations perspective, processing physical certificates is indeed cumbersome, however the number of certificates that are rejected, and the subsequent paperwork and associated delay, causes the greatest problem. The rejected securities consume an exponential amount of time and resources for all involved. Having an early warning system such as the SIC® database with all stop categories highlighting the potential rejects, will dramatically improve processing time for physical certificates. Having Transfer Agents report all stop categories to the SIC® database will greatly help the STP effort.

The SIC® team has been working with the Transfer Agent community to help facilitate the submission of all categories of stops to the SIC® database. It appears with Y2K out of the way and the advancement of technology, the problems of reporting other stops to the database has been greatly reduced. These and numerous other factors including risk reduction, and the SEC's proposed cancelled certificate processing rule, have led various Transfer Agents to report large numbers of cancelled certificates to the SIC® database.

Section 17(f)(1) of the Exchange Act and Rule 17f-1 (e) thereunder allows every reporting institution to report to the Commission or its designee with respect to any securities certificate not otherwise required by this section to be the subject of a report. This section allows Transfer Agent's to report all categories of stops (Restricted, Cancelled, Escheated, etc.) to the SIC® database.

For years the SIC® database has been serving one purpose, to fulfill its regulatory function with respect to Lost, Stolen and Counterfeit securities. An ancillary benefit to the entire industry has been cost and time savings by reducing the number of rejects by alerting Brokers to contact the Transfer Agent before delivering these 'problem' certificates. It is this second role that the industry has been pressuring SIC® to expand over the years in regards to Restricted, Escheated, Cancelled and other stop categories. Having all of these stop categories on the SIC® database would prevent the cumbersome reject process from monopolizing the DTCC's and Transfer Agent's time. It would also help to dramatically reduce risk and cost for the Broker/Dealers. If all stop categories are added to the database, the number of "HITS" we provide to the industry will increase and the time and cost involved in processing physical certificates, especially during a Corporate Action event, will be greatly reduced.

SIC®'s goal is to add as many stop categories to the database before STP becomes a reality in 2005. We ask all Transfer Agent's to help us with this objective. The ultimate goal is to avoid all rejects and have every physical trade flow straight through the processing system without a problem. By maximizing the number of stops on the SIC® database, that ultimate goal can be reached.

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