From: Fung, Nicholas
Sent: Wednesday, April 21, 2004 4:29 PM
Subject: S7-13-04:

The STP initiative for T+0 RVP/DVP confirmation processing overlooks some of the issues faced by small to mid sized Broker/Dealers and Investment Managers that do not wish to incur the added costs of subscribing to &/or interfacing with such services at Thomson AUTEX & ALERT for customer N&A information and customer trade allocation processing. By nature, a great deal of the RVP/DVP orders are considered to be Block transactions and are worked by an institutional desk, sometimes throughout the day, before full &/or partial execution status is achieved. The execution must then be conveyed by e-mail, fax &/or phone to the Investment Manager for him to determine the customer allocation that is then submitted in a similar fashion to the Broker/Dealer for processing. In many instances, the customer breakdown may include several new accounts, the information for which must then be obtained from the Investment Manager and the account established in the Broker's system prior to the billing for generation of the ID Confirm. The timing and volume processing requirements may in many instances, delay the Broker customer billing until T+1.

Free Funds letters are in most cases, not sent until T+1.
An alternative processing suggestion, assuming participation of both parties &/or their agents in the Omgeo Confirmation facility is to:

• Allow Broker Dealers to establish a single account for the Investment Manager relationship, whereby the Investment Manager becomes the customer of record on the B/D' books.
• Trade date processing thus becomes a simple single account billing for the B/D with the party whom in fact is his  customer regarding order origination.
• The B/D trade is submitted for confirmation processing on T to Omgeo.
• The Investment Manager Affirms the single transaction on T with the B/D thus reducing B/D comparison risk.
• The confirmation process be enhanced to allow the Investment Manager to submit/attach his customer BALANCED breakdown to the Affirmed Block Transaction and since this facility allows the pre establishment of set up & maintenance of Customer level N&A information by Investment Mangers & Custodians, there would be no added N&A processing requirement.
• The breakdown confirmations are made available same day to the Custodians for individual Affirmation.
• The Broker/Dealer receives back ID Confirmations & Affirmations for the breakdown transactions which can be used internally to establish the multiple settlement deliveries, much as done in many Prime Broker systems developed for transactions executed away.
• Omgeo passes on the Block Transaction & Breakdown to DTCC for settlement processing.
• I would also suggest that the DTC Free Funds Letter process, or similar automated process if available, become a mandate and be linked to the ID process to systemically produce Free Funds Letters to Custodians with a response requirement of no later that T+1 in order to reduce Credit Risk. The reason I believe this to be required is to mitigate the practice of some Custodians of Affirming all incoming confirmations for statistic purposes and then returning the settlement when it occurs.

Sender: Nicholas Fung, Independent Brokerage Consultant