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Ending the Paper Chase


Only one mutual fund company (name not known) has signed up so far for the cost-basis reporting service of the Depository Trust & Clearing Corporation.

But mutual funds are not expected to seek automated means of transferring information on the original cost basis of stocks purchased by investors until fall of this year.

In the meantime, brokers are not waiting for funds to act. Automation is taking hold.

Information on the original cost of securities that investors paid for the investments can now be transferred automatically in roughly 97% of cases. That's due to adoption of or commitment this year to electronic services offered through DTCC, operations managers were told Monday at the 2011 Securities Industry and Financial Markets Operations Conference & Exhibit in Boca Raton, Fla.

There's been a "big uptick" in adoption of the DTCC's Cost Basis Reporting Service, according to Kevin McCosker, a director at Pershing, speaking at a session on lessons learned on new cost-basis reporting requirements of the Internal Revenue Service.

At the end of 2010, roughly 60 member SIFMA firms had adopted use of the electronic means of distributing information in a consistent fashion on what investors had first paid for securities, McCosker said.

The DTCC, though, broadened the use of the service by moving its operation from the National Securities Clearing Corporation, which serves brokers, to a new entity called DTCC Solutions, which could provide the service to transfer agents and other parties.

The result: 201 firms had signed up to use the service. That included 98 brokers, 31 banks, 71 transfer agents and one mutual fund.

Of those, 105 firms are in production with the use of the service. These include 67 brokers, 16 banks and 22 transfer agents, according to McCosker and Ellen Bocina, vice president of product development at Fidelity Investments.

Among the transfer agents signing up are the two biggest: Computershare and BNY Mellon. This has helped push up usage to cover 97% of all transfers of customer account information, electronically, from 95%, McCosker said.

Here's the point: Transfers of information on paper almost never work, he said. The information on the receiving account or the customer rarely matches up. Which means, at this point, he rejects almost everything at Pershing that is not transferred electronically.