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NSCC Fund Profile serves up enhancements

The National Securities Clearing Corporation is set to begin testing Phase 2 of its Mutual Fund Profile System next month.

The system will provide the link for broker/dealers and other firms to access specific data relating to individual mutual funds. The data will include current and projected dividends and distributions, the funds' objectives, investment restrictions and processing requirements, and the name, address and phone number for key fund contacts, said Ann Bergin, managing director.

The Mutual Fund Profile system was initially introduced in 1996. That allowed, for the first time, those firms that sell mutual funds to easily obtain daily fund share prices and daily dividend rates. The seven firms testing the system in Phase 2 include: Colonial Investment Services, Liberty Securities, Merrill Lynch, Putnam Investments, Smith Barney, transfer agent First Data and Securities Industry Services, a subsidiary of ADP. The December trial period was chosen so that testing firms could use the system for year-end tax reporting.

NSCC, the non-profit, wholly owned central depository and clearing firm which is co-owned by the New York and American Stock Exchanges and the National Association of Securities Dealers, originally launched its Mutual Fund Profile system in 1996, then made improvements in 1997. The impetus was to put all fund-specific mutual fund information into one centralized location for brokers, insurance agents, bank investment representatives and others who sell mutual funds. The NSCC's focus now is to service mutual funds that want to make their funds available through different distribution channels, said Bergin.

Overall NSCC clears and settles 99 percent of the U.S. equity and corporate and municipal bond transactions.

Centralization has always been a goal of the NSCC. Since 1986, NSCC has been helping mutual funds tackle daily clearance and settlements of transactions with its Fund/SERV automated system of processing purchase and sales orders and exchanges and commissions paid by funds to broker/dealers.

In 1993, only 13 fund groups were using the Fund/SERV system. And most of those were load fund families. Those who sold direct to investors saw no need for NSCC to intervene as a third party. Now, increasing numbers of no-load funds are seizing the opportunity to sell in alternate distribution channels. According to Bergin, more than 456 fund companies and over 300 selling financial intermediaries are currently using Fund/SERV. Roughly half of these fund firms are no-load, she said.

For both fund companies and financial intermediaries, the more of them using the system, the better. Because NSCC has successfully taken advantage of economies of scale, the firm has cut several times its per transaction rate which is charged equally to both fund advisers and selling firms. The current charge is 30 cents per trade. In May of 1996 rates were slashed to 35 cents per trade from 40 cents. Future cuts are anticipated.

The addition of new funds and new sellers means Fund/SERV transactions have increased. (see chart) At the beginning of 1997, NSCC was processing 103,000 trades per day. That figure is now approaching 150,000.

But NSCC's ambitions do not stop with the Mutual Fund Profile System. In 1999 it is set to introduce the next generation of its Annuity Processing Service (APS) Release 2.0. The annuity clearing system first launched last November.

"APS was born out of insurance carriers selling through broker/dealers more than through proprietary agents," said Walter F. Siebecker, NSCC managing director. Links between annuity sponsors and individual selling intermediaries were inefficient. NSCC's goal is to provide one central annuity clearinghouse that would allow insurance companies to cut their ties with selling firms.

Both Bergin and Siebecker say the next frontier for their respective systems will be the Internet. But they are not yet discussing details.