SECURITIES FINANCING TRANSACTION (SFT) CLEARING GENERAL SERVICE GUIDE JUNE 28, 2021 © 2021 DTCC. All rights reserved. DTCC, DTCC (Stylized), ADVANCING FINANCIAL MARKETS. TOGETHER, and the Interlocker graphic are registered and unregistered trademarks of The Depository Trust & Clearing Corporation. The services described herein are provided under the “DTCC” brand name by certain affiliates of The Depository Trust & Clearing Corporation (“DTCC”). DTCC itself does not provide such services. Each of these affiliates is a separate legal entity, subject to the laws and regulations of the particular country or countries in which such entity operates. Please see www.dtcc.com for more information on DTCC, its affiliates and the services they offer. Doc Info: June 28, 2021 Publication Code: SFT120 Service: Securities Financing Transaction (SFT) Clearing Title: General Service Guide TABLE OF CONTENTS 1. ABOUT THIS GUIDE 7 1.1 Contact Us 7 1.2 Extension Guidelines 8 2. ABOUT THE SFT CLEARING SERVICE 9 2.1 Key Design Elements of the SFT Clearing Service 9 2.2 Sponsorship at NSCC 10 3. SFT CLEARING SERVICE ROLES AND RESPONSIBILITIES 11 3.1 Approved SFT Submitter 11 3.2 NSCC Full-Service Member 11 3.3 Sponsoring Member 11 3.4 Sponsored Member 11 3.5 Agent Clearing Member 12 3.6 Agent Client 12 3.7 Separation of Accounts 13 4. GENERAL SYSTEM FLOW 14 5. GENERAL OPERATIONAL FLOW 16 5.1 Processing a New SFT On-leg 16 5.1.1 Key Business Validations for On-leg Transactions 17 5.1.2 Post-Validation Processing 19 5.1.3 Identifying a Settlement Account 19 5.1.4 DVP/RVP Settlement 20 5.1.5 Reason Codes 20 5.1.6 DTC Reject 21 5.1.7 SAS Drop Message 21 5.2 Pre-established Bilaterally Settled SFTs 21 5.3 Other Actions on an Active SFT Transaction 21 5.3.1 Roll 21 5.3.2 Send-to-Settle Messages 24 5.3.3 Cancel 24 5.3.4 Terminate 24 5.3.5 Rate Modification 25 5.3.6 Recall 26 5.3.7 Buy-in Process 30 5.3.8 Buy-in Execution Applied to an Outstanding SFT Position 31 5.3.9 Cancel Recall 32 5.3.10 Cancel Buy-in Execution 32 5.4 Calculating the Settlement Value of an SFT 33 5.5 Calculating and Processing Rate Payments 34 5.6 Corporate Actions Processing 34 5.7 Miscellaneous Activity Journal Entries for SFT Processing 36 5.8 Additional Reference IDs on SFT Submission to UTC 43 5.8.1 Execution ID Field (Tag 66) and its use in Cancel Messages 43 5.8.2 Buy Client Order ID (Tag 11) and Sell Client Order ID (Tag 11) 44 5.9 Broker Reorg 45 5.10 SFT Tax Implications on Participating Entities 45 5.11 Sponsoring and Sponsored Member Process 45 5.12 End of Day Activity Files 46 5.12.1 EOD Mark-to-Market MRO 46 5.12.2 Outstanding Loans at EOD 46 5.13 Closures 46 5.13.1 Bank holiday 46 5.13.2 Good Friday 46 5.13.3 Unexpected Close 46 5.14 Settlement Reason Codes 47 5.15 SFT Money Settlement Codes on the NSCC Participant Account Statement 47 5.15.1 FFS Money Settlement Code 130 – SFT Rebate Interest (Rate) on the NSCC Participant Account Statement 47 5.15.2 FFS Money Settlement Code 131 – SFT EOD Mark-to-Market on the NSCC Participant Account Statement 47 5.15.3 FFS Money Settlement Code 132 – Buy-In Exit & Reorg on the NSCC Participant Account Statement 48 5.15.4 FFS Money Settlement Code 133 – Cash Dividends on the NSCC Participant Account Statement 48 6. MESSAGING FLOWS 49 6.1 New SFT/On-leg Made 49 6.2 New SFT/On-leg Dropped 51 6.2.1 Scenario 1 51 6.2.2 Scenario 2 52 6.3 New SFT/On-leg Canceled 53 6.3.1 Scenario 1 53 6.3.2 Scenario 2 55 6.4 Pre-established Bilateral SFT/On-leg Made 56 6.5 Roll/On-leg Made 57 6.6 Roll/On-leg Dropped 59 6.7 Roll/On-leg Canceled and Original Off-leg Made 61 6.8 Roll/On-leg Canceled and Original Off-leg Return Dropped 63 6.9 No Roll/Original Off-leg Return Made 65 6.10 No Roll/Original Off-leg Return Dropped 66 6.11 Partial Roll/On-leg Made and Remainder Off-leg Made 67 6.12 Partial Roll/On-leg Made and Remainder Off-leg Dropped 69 6.13 Partial Roll/On-leg Dropped and Remainder Off-leg Made 71 6.14 Partial Roll/On-leg Dropped and Remainder Off-leg Dropped 73 6.15 No Roll on Term Date/Send-to-Settle Received and Original Off-leg Return Made 75 6.16 No Roll on Term Date/Send-to-Settle Received and Original Off-leg Return Dropped 77 6.17 Send-to-Settle (Accelerated Return From the Next Business Day to Current Business Day)/Off-leg Return Made 78 6.18 Send-to-Settle (Accelerated Return From the Next Business Day to Current Business Day)/Off-leg Return Dropped 80 6.19 Rate Modification 82 6.20 SFT Loan Termination 84 6.21 NSCC Exit 86 6.22 Reject/Cancel of a New Loan On-leg Message 87 6.23 Reject/Cancel of a Roll Message 89 6.24 Cancel a DO Off-leg Return From the Previously Submitted Send-to-Settle (Accelerated) 91 6.25 Reject of a Cancel of DO Off-leg Return From the Previously Submitted Send-to-Settle (Accelerated) 93 6.26 NSCC Initiated Price Differential 95 6.27 Corporate Actions 97 6.27.1 Forward Stock Split 97 6.27.2 Reverse Stock Split 99 6.27.3 Cash Merger 100 6.27.4 Stock Merger 102 6.27.5 Cash & Stock Merger 104 6.27.6 Name Change 106 6.28 Broker Reorg 107 A. MESSAGE LAYOUTS 109 A.1 Messaging and File Types 109 A.2 UTC Message Types 110 A.3 UTC Input and Output Formats 113 UTC Input FIX/MQ Format 114 UTC Input EOD Totals FIX/MQ Format 123 UTC Output FIX/MQ Format 124 UTC Outbound Gap Fill Request FIX/MQ Format 133 UTC Outbound Buy-Side Cutoff FIX/MQ Format (3:00 P.M. ET) 135 UTC Outbound EOD by Market FIX/MQ Format 136 UTC Reject Codes 138 A.4 SAS ISO Message Output 141 A.5 DTC Input and Output Messages 146 A.6 MT548 Message Format 148 A.7 MT547/MT545 (Inclusive of Rate Modification) Message Format 154 A.8 MT542: Recall and Buy-In Input Message Formats 160 A.9 Recall and Buy-In Execution Output Message Formats 165 B. FILE AND REPORT LAYOUTS 170 B.1 Outstanding Loan MRO AutoRoute ID: Production 02043624 / PSE 02983624 170 Header Record 170 Loan Detail Record 171 Recall Detail Record 173 B.2 End of Day (EOD) Mark-to-Market MRO AutoRoute ID: Production 02043623 / PSE 02983623 174 Header Record 174 Detail Record 174 B.3 Eligible Security MRO: AutoRoute ID 02043626 / PSE 02983626 176 B.4 Record Date Report 176 B.5 Dividend Activity MRO: AutoRoute ID 02043700/PSE 02983700 177 Header Record 177 Detail Record 177 Trailer Record 179 B.6 Dividend With Due Bill Activity MRO: AutoRoute ID 02043701 / PSE 02983701 179 Header Record 179 Detail Record 180 Trailer Record 181 B.7 Miscellaneous Activity (Extended) MRO: AutoRoute ID 02040343 (Night) and 02040331 (Day) 182 Header Record 182 Detail Record 183 Sub-Total Detail Record 186 Trailer Record 187 C. TIME FRAMES 188 SFT Clearing: General Service Guide 1. ABOUT THIS GUIDE This general service guide is not legally binding and is only for information purposes. It is designed to provide you with a detailed understanding of the roles and responsibilities of the various parties and Approved SFT Submitters involved in the clearance and settlement of an SFT. It contains the Securities Financing Transaction (SFT) Clearing service operational flow, including management of life cycle events, and messaging inputs and outputs necessary to support SFT Clearing activity, including related message and file layouts. For ease of reference, the terms SFT and loan are used interchangeably in this document. Important Note l This document should not be regarded as a substitute for the NSCC rules and procedures. In all cases, Members should refer to the NSCC rules and procedures for a complete statement of NSCC’s rules, procedures, obligations, and requirements. Nothing in this document shall be deemed to impose any obligations on NSCC that are not set forth in the NSCC rules and procedures, and in the case of any discrepancy between this document and the NSCC rules and procedures, the NSCC rules and procedures shall govern. The NSCC Rules and Procedures are available at http://www.dtcc.com/legal/rules-and-prodcedures.aspx. l This document is still in draft form and is subject to further review and changes by DTCC. 1.1 Contact Us Use the following NSCC contacts for information about the SFT Clearing service. You can also contact your DTCC Relationship Manager or obtain general assistance by visiting the DTCC Client Center. For... Contact... General questions and Email NSCC Support at NSCCSupport@dtcc.com. product support Setup and testing Email NSCC Integration at NSCCIntegration@dtcc.com. Issues with logging on to the Contact DTCC Client Support. Call the following number, and then follow the system prompt for product support. o For US and Canada, call 1 888–382–2721. o For the UK, Europe, and Asia, call +1 212–855–8099. About This Guide 7 SFT Clearing: General Service Guide 1.2 Extension Guidelines If an extension is needed for any input submission, firms should use one of the following methods to obtain support: l Email NSCC Support at NSCCSupport@dtcc.com. l Telephone DTCC Client Support at 1-888-382-2721 and follow the prompt for production support. If DTCC, at its sole discretion, extends a deadline that would significantly impact reporting times, a communication is sent out. About This Guide 8 SFT Clearing: General Service Guide 2. ABOUT THE SFT CLEARING SERVICE National Securities Clearing Corporation (NSCC) plans to provide a central clearing service for overnight borrowing, lending, and REPO transactions, collectively, Securities Financing Transaction (SFT) Clearing, for its full service members and institutional clients who are sponsored into NSCC by Sponsoring Members. The decision to provide the DTCC SFT Clearing service was based on: l Informed discussions with various market participants. l Gathering experiences and knowledge of other Central Counterparties (CCPs) in the space. l Leveraging FICC's recent experiences expanding its suite of institutional client fixed income repo clearing services l Consulting with accounting and regulatory experts. Consistent with the manner in which NSCC accepts cash market transactions, the SFT Clearing service would be required to be submitted to NSCC on a locked-in/matched basis by an approved SFT submitter. Securities eligible to be the subject of an SFT are certain NSCC CNS® eligible equity securities and cash. 2.1 Key Design Elements of the SFT Clearing Service The SFT Clearing service enables access to the following key design elements: l Ability to settle DVP/RVP at DTC. SFT Deliver Orders are processed in accordance with the Depository Trust Company (DTC) rules and procedures, including provisions relating to risk controls. l Settlements would be allowed to pair off daily against new activity to minimize the operational burden of settling overnight obligations. NSCC would calculate and process price differences/mark-to-market that are created by the daily pair off. l Upon the initial settlement of the SFT, its final settlement would novate to NSCC. l SFT activity would be risk managed by NSCC in a manner consistent with Members’ cash CNS positions, but would be separately margined. A separate Clearing Fund deposit would also be collected by NSCC for the Member's SFT activity. l SFTs remain in the system, as long as they are rolled forward by the Approved SFT Submitter. l SFT-eligible security universe would extend to the majority of CNS-eligible equities securities. NSCC would impose a $5 per share price minimum on SFT-eligible securities such that 100% margin would be charged for novated SFT transactions in which the per share price of the underlying equity security falls below $5. l NSCC would process certain mandatory corporate actions and cash dividends for novated SFT transactions. About the SFT Clearing Service 9 SFT Clearing: General Service Guide 2.2 Sponsorship at NSCC Agent lender banks and prime brokers actively transact equity SFT transactions on behalf of their institutional clients. Several of these firms are already established clients of NSCC’s clearing services. A growing number of firms are developing businesses to clear institutional client SFT activity as part of FICC’s Sponsoring Member/Sponsored Member Service. The NSCC sponsorship model is designed to allow agent lender banks and prime brokers to play the role of credit intermediaries for their institutional clients in clearing in a capital efficient manner. All full service NSCC members are eligible to apply to become Sponsoring Members or Agent Clearing Members in NSCC, subject to comparable credit criteria as are applicable to Sponsoring Members in FICC’s Sponsoring Member/Sponsored Member Service. l A Sponsoring Member would be permitted to facilitate its institutional clients’ cleared SFT activity through two back-to-back principal transactions, such as Client-to-Sponsoring Member and Sponsoring Member-to- Broker or to another institutional client. l An Agent Clearing Member would be permitted to facilitate a transaction directly between its institutional clients and another full service NSCC member through an Agent Clearing Member Customer Omnibus Account structure. About the SFT Clearing Service 10 SFT Clearing: General Service Guide 3. SFT CLEARING SERVICE ROLES AND RESPONSIBILITIES Processing an SFT through central clearing involves a number of parties. The following table outlines the roles and responsibilities of each of the involved parties: SFT Clearing Service Roles and Responsibilities Role Description 3.1 Submits a matched SFT to NSCC on a locked-in basis. May be an NSCC member or a third- party vendor. All data submitted into the SFT Clearing service must come through an Approved Approved SFT Submitter who has been authorized to submit SFTs to NSCC on behalf of one or more SFT NSCC members. Submitter Prior to submitting an SFT to NSCC, the Approved SFT Submitter is expected to: l Perform matching functions. l Determine eligibility for central clearing services. l Submit the data to NSCC in near real-time and support subsequent actions on novated SFTs. All Approved SFT Submitters, regardless of whether or not they are an NSCC member, are expected to adhere to specific participation requirements, such as proven operational capabilities and other requirements as outlined in the NSCC Rules & Procedures and the Approved SFT Submitter Agreement. 3.2 NSCC Any NSCC full-service member that files a W-9 with the IRS can apply to participate in the SFT Clearing service. As described above, participation requires opening a separate SFT Clearing Full-Service account at NSCC that will be eligible only for the clearance of SFT activities. The SFT Clearing Member account must be linked to a DTC settling account. 3.3 An NSCC full-service member permitted to novate to NSCC its principal SFTs with its Sponsored Members. The Sponsoring Member is responsible to NSCC for: Sponsoring l Posting all Clearing Funds associated with the SFT activity of its Sponsored Members. Member l Providing a backup guaranty to NSCC for its Sponsored Members’ settlement obligations. This means that in the event that one or more of its Sponsored Members default and do not satisfy their settlement obligations to NSCC, the Sponsoring Member is required to satisfy those obligations. l Responsible for any default loss allocated to its Sponsored Members and its own loss allocation as an NSCC full-service member. 3.4 Eligible institutional client of a Sponsoring Member. A Sponsored Member is permitted to engage in two-directional SFT activities, meaning it can borrow or lend securities through a Sponsored linked account of its Sponsoring Member on the books of NSCC. Member SFT Clearing Service Roles and Responsibilities 11 SFT Clearing: General Service Guide SFT Clearing Service Roles and Responsibilities (Continued) Role Description 3.5 Agent An NSCC full-service member permitted to novate to NSCC SFTs that it has executed as agent of behalf of its customers with a third-party NSCC member. The Agent Clearing Member Clearing is responsible to NSCC for: Member l Posting all Clearing Funds associated with the activity of its customers. l Covering any default loss allocatable to its customers, as well as its own default loss allocation as an NSCC full-service member. However, unlike a Sponsoring Member, an Agent Clearing Member is not required to provide a backup guaranty to NSCC for its customers’ obligations. This is because the Agent Clearing Member is liable as a principal on all activities the Agent Clearing Member submits to NSCC on behalf of its customers. 3.6 Agent An institutional client of an Agent Clearing Member that is eligible to participate in lending-only or borrowing-only activity through an omnibus account of its Agent Clearing Member on the Client books of NSCC (Agent Clearing Member Customer Omnibus Account). Agent Clients are not members of NSCC, and NSCC shall not have any liability or obligation to any Agent Client. SFT Clearing Service Roles and Responsibilities 12 SFT Clearing: General Service Guide 3.7 Separation of Accounts All SFT activity, including all proprietary activity and institutional client activity, is cleared through an account designated for only SFT activity. You cannot use this account to clear and settle cash market activity, such as CNS activity. For example, if an NSCC cash market clearing account is #123, the activity for the SFT account must be booked into a different account, such as #124, that only supports SFT activity. Moreover, Agent Clearing Member Customer Omnibus Account activity would need to be conducted in an account separate from any Sponsored Member activity. In addition, as described in the table in SFT Clearing Service Roles and Responsibilities, Agent Clearing Member Customer Omnibus Accounts may contain lending-only or borrowing-only client activities to ensure the gross margining of the SFT activity. To summarize, if an SFT participant is engaged in proprietary and institutional client SFT activity, it may have as many as the following four different types of SFT Clearing accounts: l Proprietary Account for Principal Activity l Sponsored Member accounts for individual Sponsored Members l Agent Clearing Member Customer Omnibus Lending Account l Agent Clearing Member Customer Omnibus Borrowing Account SFT Clearing Service Roles and Responsibilities 13 SFT Clearing: General Service Guide 4. GENERAL SYSTEM FLOW Where possible, the SFT Clearing service leverages NSCC’s and DTC’s existing systems and makes modifications, where needed, to support the SFT business. This section provides a general flow of activity through the service. This document also contains specific details for each of the components. Note All times listed in this guide are shown in Eastern Time. NSCC’s trade capture application is its Universal Trade Capture (UTC) system. UTC accepts trades in near real-time from approved submitting entities. UTC is designed to capture the large volumes associated with cash market trading activity and receives in activity from over 50 trading venues. UTC will be modified and extended to receive and validate activity for the SFT Clearing service. It processes activity using a standard FIX format input message, submitted through MQ or FIX engine. UTC’s primary role in clearing is to capture and validate activity. Validations are done in near real-time. UTC then hands off the activity to multiple other systems involved in the clearing life cycle, namely the risk systems and the NSCC accounting systems (CNS for cash trades and Securities Financing Accounting System (SAS) for SFT trades). SAS is responsible for maintaining the settlement status of an SFT and acts as a hub between UTC and DTC. It determines what to send to DTC for settlement and when to send it. It also updates NSCC’s risk systems of settlement events to make sure the most current status of an obligation is provided to the risk systems for risk management. For the SAS process only, NSCC will have a new central counterparty clearing account at DTC, which is the 881 account. SAS passes SFTs to DTC for settlement through the NSCC SFT account (881) at DTC Global. SFTs are settled on a receive-versus-payment (RVP) and deliver-versus-payment (DVP) basis. As such, all SFTs are subject to DTC controls and DTC rules and procedures. NSCC’s account at DTC acts as a pass-through account and does not hold securities or money. To make sure that this condition is met, DTC employs the Look Ahead function to ensure the borrower’s and lender’s collateral controls support settlement of the transaction. If they cannot support settlement of the transaction, the transaction does not complete, meaning that securities and associated credits of cash will not move. UTC, SAS, and DTC are all part of a single workflow that manages the clearance and settlement of SFTs. NSCC provides message and file outputs to users of the system that offer information on the status of the SFT within our environment. SFT information is also available on a web enabled tool that users can access through NSCC’s Clearing Dashboard. In addition, DTC will also provide settlement status messages to clients who have a subscription set-up with DTC to receive this output. NSCC’s risk systems are responsible for ensuring that the trading ecosystem as a whole is protected and that activity in the ecosystem is appropriately risk managed. At a high level, the risk systems assess each transaction in a portfolio against market moves, review the portfolio as a whole against predicted market moves and observe and react to changes in the portfolio outside the norm. NSCC processes a standard risk requirement once a day, made available to Members at approximately 7 A.M. ET with debits due for collection prior to 10 A.M. ET. The risk systems receive up-to-date information on the status of street-side SFTs from UTC and SAS and the risk calculations are refreshed every 15 minutes throughout the day. SFT activity is managed separately from cash activity with no offsets given between the two portfolios. Additionally, Sponsored Member sub-accounts and Agent Clearing Member Customer Omnibus Accounts are each managed on a gross basis, meaning that no offset is given between such accounts. General System Flow 14 SFT Clearing: General Service Guide The following figure represents a typical message flow between the DTCC systems to process a new SFT. These systems are UTC (for accepting a new trade), SAS (for maintaining the SFT status), and DTC (for moving positions between two counterparties). For more information about specific-situation message flows, see Message Layouts. General System Flow 15 SFT Clearing: General Service Guide 5. GENERAL OPERATIONAL FLOW To process SFT activity through a centrally cleared model, several life cycle event types need to be supported. Broadly, an SFT is made up of the following main settlement events: l Initial movement of securities versus cash from the lender to the borrower. This is referred to as on-leg throughout this document. l Return of the securities versus cash from the borrower to the lender. This is referred to as off-leg throughout this document. l Price Differential, which is a payment order that results in a movement of cash among NSCC, the lender, and the borrower. Typically, it is done as part of a daily roll by counterparties to the SFT. In some instances, however, it may also be an NSCC Initiated Price Differential that is processed on specific off- leg returns, such as those where a recall has been submitted against the DTCC Reference ID or where NSCC is processing a corporate action against the DTCC Reference ID. Members and Approved Trade Submitters should keep in mind that during the life of an SFT transaction, they will interact with different NSCC systems. The following naming conventions are used to differentiate various message product numbers: 1 UTCI SFT INPUT of new SFTs into the UTC system. 2 SFTO SFT OUTPUT from the UTC system. 3 CNSESFTO SFT SAS updates and MADE messages. This set of messages is depicted in the scenarios below. 4 CNSISOI SFT Recall and Buy-in ISO Input. 5 CNSISOO SFT Recall and Buy-in ISO Output. The role of the SFT account number remains the same throughout the transaction. For example, if 1103 is the original lender and 1185 is the original borrower, they remain the Lender or Borrower on the transaction; however, the processing side changes. If the Lender is the deliverer for the on-leg transaction, they are the receiver for the off-leg transaction. 5.1 Processing a New SFT On-leg The first step in centrally clearing an SFT activity is for NSCC to receive and validate a transaction into the SFT Clearing service. As part of this first step, NSCC reviews each field in the input record for conformity to the system requirements, any other criteria that are specified by NSCC, or both. For the general format edits, see A.1, Messaging and File Types. Some key business edits that are applied to a received SFT activity are outlined in 5.1.1, Key Business Validations for On-leg Transactions. For street-side activity, NSCC’s UTC system is available for new SFT on-leg input from its open at approximately 4:30 A.M. Eastern Time through to close of settlement at approximately 3:00 P.M. Eastern Time. After that time, it rejects the activity until the system reopens the next business day. General Operational Flow 16 SFT Clearing: General Service Guide 5.1.1 Key Business Validations for On-leg Transactions The following table shows the key business validations for on-leg transactions: Business Description Validation Approved SFT NSCC supports receipt of locked-in transactions through its UTC system. This means that Submitter an Approved SFT Submitter names the borrower and lender to the transaction, and those counterparties who agreed to the trade terms through a matching facility offered by the Approved SFT Submitter. NSCC maintains relationship tables between the Approved SFT Submitters and counterparties to the SFT transactions. NSCC performs the following checks on all SFT activities: l Validates that the Approved SFT Submitter is eligible to submit SFT activity. l Validates that the counterparties named on the trade are eligible to participate in SFT activity. l Validates that the Approved SFT Submitter is eligible to submit on behalf of the counterparties to the SFT activity. If any condition is not met, NSCC rejects the submission and notifies the Approved SFT Submitter. Security ID NSCC validates that a security is eligible for the SFT Clearing service. Generally, all securities, excluding rights, warrants, and unit investment trusts (UITs), are eligible for new SFT activity, if the following criteria are met: l CNS-eligible l DTC book-entry eligible for deliver order processing l Contain an end-of-day closing price that equals or is greater than USD $5.00. If a security’s end-of-day price has dropped below USD $5.00, it is ineligible for on-leg SFT submission, but may still be eligible for the Roll process with an additional risk charge applied to the position. Securities may fall in/out of SFT eligibility. These could be due to circumstances outside of NSCC’s control. For example, if a security is undergoing a corporate action that NSCC cannot support, NSCC may mark it as SFT Ineligible. It could also result from an NSCC decision to make a particular security no longer CNS-eligible, such as trade-for-trades. For more information about such an event, see 5.6, Corporate Actions Processing. Additionally, the SFT Clearing service is currently offered only for equities securities. Any SFT activity in a CNS eligible corporate bonds, municipal bonds, or unit investment trusts will be rejected. Trade Date Implied settlement date of the SFT activity calculated off the trade date. To realize the capital benefits of this service, all SFT transactions in this service must be executed as term trades. NSCC is offering the SFT Clearing service for overnight term SFT transaction. This means that the settlement date of the off-leg of the SFT will be the Trade Date plus one business day. For example, if the trade date submitted is Wednesday, January 2, 2019, the settlement date on the off-leg is calculated as Thursday, January 3, 2019. If the trade date submitted is Friday, February 22, 2019, the settlement date of the off-leg is calculated as Monday, February 25, 2019. General Operational Flow 17 SFT Clearing: General Service Guide Business Description Validation Reference IDs NSCC supports including several reference IDs to help identify SFT activity. In most cases, the reference ID is only for information purposes. However, one critical reference ID is the DTCC Reference ID, which is a 14-byte ID applied to each transaction processed in the UTC system. This ID is required whenever a counterparty wants to take an action on an SFT. For example, initial on-leg deliver order at DTC, roll, recall, buy-in execution, or cancel. Note: Other reference IDs can also be included on an SFT, allowing the lender, borrower, and Approved SFT Submitter to include their transaction IDs to support reconciliation. NSCC will not do any processing on these other reference IDs, but instead will just carry them and pass them through on the output. Independent Due to certain laws and conventions in the marketplace, NSCC supports over Amount (IA) collateralizing an SFT. As part of the input, Approved SFT Submitters provide NSCC the rate of the independent amount (IA). NSCC uses this rate to calculate the IA amount and settlement value on the trade. For Roll transactions, the IA rate must match the referenced SFT IA rate. The IA is settled as part of settlement value of the trade, credited intraday to the lender account, and settled as part of end of day settlement. Rounding The SFT market assumes rounding rules as part of the settlement value. NSCC Rules accommodates the rounding of the settlement price in increments of 1 cent, five cents, 10 cents, 25 cents, and dollar. Otherwise, if applicable, it can be submitted with no rounding flagged. NSCC always round up; it never rounds down. For example, if an Approved SFT Submitter indicated that rounding should be to the nearest $0.25 and an original price of $9.09, NSCC rounds the settlement price to $9.25. For more information about rounding, see 5.4, Calculating the Settlement Value of an SFT . Market Price If the price is excluded from an input transaction to the UTC system or Securities Financing Accounting System (SAS) has to process a mark-to-market for an SFT (such as in the case of a non-returned SFT), NSCC always uses the prior day’s closing price from its risk system that is six digits to the right of the decimal as the price. On-Leg Only activity between two NSCC Full Service Members will be sent for settlement at DTC. Settlement This can be: l A Sponsoring Member or Agent Clearing Member versus a broker’s proprietary account. l A Sponsoring Member or Agent Clearing Member versus another Sponsoring Member or Agent Clearing Member. l Two brokers. Any validated submissions between a Sponsoring Member and its Sponsored Member does not require settlement at DTC (as it is an accounting movement on the Sponsoring Member’s books) and the off-leg will be novated to NSCC after the off-leg return message is sent to the Sponsoring Member, which will be at approximately 3:00 P.M. ET daily. For more information, see 5.11, Sponsoring and Sponsored Member Process. General Operational Flow 18 SFT Clearing: General Service Guide 5.1.2 Post-Validation Processing After passing UTC’s edits and validations, NSCC responds in real-time to parties subscribed to real-time UTC output. This can include the borrower and the lender to the SFT, the Approved SFT Submitter, and any other service bureau destinations that may need to receive a copy of the receipt (as defined by the borrower or lender). The output message is enriched with certain data (see A.4, SAS ISO Message Output), most notably the DTCC Reference ID, which is the key identifier on the SFT from this point onwards, and the calculated settlement value of the SFT (see 5.4, Calculating the Settlement Value of an SFT ). After passing UTC's edit and validation, the on-leg is set up for settlement at DTC. The SFT activity is housed in NSCC’s SAS system in anticipation of settlement and SAS interacts with DTC to get real-time updates of the settlement status. For availability and cut-off times for all actions described in this section, see C, Time Frames. 5.1.3 Identifying a Settlement Account To support settlement of the activity, each NSCC Full Service Member is required to identify a settlement account associated with its SFT activity. The following two options will be supported: 1. Members can settle SFT activity using its primary DTC account number, which is its Main Account (or Legal Entity Account) only. The Member cannot use another subaccount under their Main Account to settle SFT activity. In this case, any SFT activity of a Member would be commingled with the Member’s DTC activity for settlement purposes. 2. Members can settle SFT activity using a DTC account number specific for the SFT. l The lender can move (or hold) inventory into that account for use for only SFT activity. l This account would be subject to its own DTC risk controls. l End of day cash settlement would be rolled up into one single credit or debit at the legal entity level (for example, one settlement credit/debit across all the member accounts). It is up to the member to define the set up during their onboarding process. General Operational Flow 19 SFT Clearing: General Service Guide 5.1.4 DVP/RVP Settlement DTCC supports lenders’ ability to determine when securities should leave DTC accounts to be delivered to a borrower. Through this process, lenders push securities to NSCC to kick-off the settlement of the on-leg of a new SFT. However, prior to kicking off settlement, NSCC must first receive and validate the on-leg as described in the 5.1.1, Key Business Validations for On-leg Transactions. The output of that validation to the lender/borrower/Approved SFT Submitter will contain the DTCC Reference ID. The lender must process and include this reference ID on any deliver orders that are pushed to the NSCC SFT account (881). Therefore, this is a field that must be consumed by the lender. After they have the DTCC Reference ID, the lender instructs DTC to deliver securities from its DTC account to the NSCC SFT account (881) versus the settlement value provided on the output from UTC. The lender must use DTC Settlement Reason Code 200, and the comments field on the deliver order must include the DTCC Reference ID that was passed on to the UTC output with a leader of SFT followed by the DTCC Reference ID. DTC validates that SAS knows the DTCC Reference ID, CUSIP, settlement amount, and share value. Upon confirmation, DTC accepts that transaction, and the SAS system sends to DTC the deliver order instruction to deliver from the 881 account to the borrower for the same shares, settlement, reason code, and DTCC Reference ID. From there, DTC continues with its normal processing. For example, DTC confirms that the borrower’s collateral controls can support the receive and, if it can, it credits the borrower the shares and credits the lender the settlement value (and simultaneously debit the borrower the settlement value and debit the lender the shares). If the borrower’s collateral controls cannot support the receive of the shares, DTC will Pend the item, and the item recycles throughout the day. DTC also performs a collateral check on the lender’s account to ensure that there is satisfactory collateral to allow the transaction to be processed. If not, DTC will Pend the item and the item recycles throughout the day. For more information about this DTC settlement process, see the DTC Settlement Service Guide. You can also view the Settlement section available in the DTCC Learning Center at https://dtcclearning.com/products-and-services/settlement.html. DTC must ensure that it is 100% collateralized to support settlement of the SFT obligation. This means that DTC looks through the NSCC SFT account (881) through its Look Ahead. It only moves securities if the borrower and the lender are sufficiently collateralized to support the on-leg settlement movement. If the borrower and lender are not sufficiently collateralized to support on-leg settlement, no movement of the securities occurs. The SFT activity continues to be recycled until either sufficient collateral is available or until the EOD Drops process at DTC completes. Note The on-leg of an SFT must settle in whole. No partial settlements are allowed. Movement of shares/credit of settlement value also notifies SAS to set up a pending settlement off-leg item for next day settlement. Members can use this message as notification that the off-leg of the SFT is now novated to NSCC. At this point, NSCC will also calculate and store the rate amount associated with the SFT, which will be novated to NSCC and will settle the following business day as part of end of day NSCC cash settlement. 5.1.5 Reason Codes SFT activity is identified through the use of specific reason codes at DTC. For more information, see 5.14, Settlement Reason Codes. General Operational Flow 20 SFT Clearing: General Service Guide 5.1.6 DTC Reject As noted in 5.1.4, DVP/RVP Settlement, to push the securities for settlement, the deliver order (DO) must include the DTCC Reference ID, CUSIP, and shares equal to a pending settlement on-leg in SAS. If the DO does not match a pending settlement on-leg in SAS, DTC immediately rejects the obligation. 5.1.7 SAS Drop Message At the end of the day, approximately 3:10 P.M. Eastern Time, DTC notifies clients of deliver orders that have dropped. A situation may occur where SAS has a pending settlement on-leg instruction; however, DTC never received the DO instruction from the lender. In this case, the end of day message informs firms that DTC never received the DO and it is dropped from SAS. As with a DTC drop, NSCC has no obligation with respect to the SFT if the on-leg is not processed at the end of day. 5.2 Pre-established Bilaterally Settled SFTs Prior to the introduction of central clearing, the SFT market participants settled on a bilateral basis with borrowers facing lenders directly or through an agent. Rather than require a lender and borrower to unwind an active SFT just to move it into clearing, NSCC allows lenders and borrowers to submit a pre-established bilaterally settled SFT to the system. When NSCC receives this type of message from an Approved SFT Submitter, it immediately generates an off-leg position that novates to NSCC (no shares need to move because they are already with the borrower). Members receive acceptance of the submitted on-leg instruction by UTC and receive the PEND of the off-leg instruction from the SAS system after the SAS system receives the on-leg instruction from UTC. It is important that any memo positions related to a bilaterally settled SFT (from Stock Loan DO reason codes 10s and 20s) need to be updated or deleted from tracking at DTC by the two counterparties directly using the SLRM function. 5.3 Other Actions on an Active SFT Transaction This section explains the different types of messages in the SFT Clearing service. 5.3.1 Roll On the term date of an SFT, NSCC permits the lender and the borrower to agree to keep the shares out on loan and pair off their settlement obligations to each other on the termed SFT with their on-leg settlement obligations to each other on a new SFT. This is accomplished by the Approved SFT Submitter processing a Roll transaction. Note Based on market convention, NSCC anticipates that most Roll transactions will be submitted by the Approved SFT Submitters early in the morning on a given business day. General Operational Flow 21 SFT Clearing: General Service Guide In connection with a Roll, the Approved SFT Submitter matches the new SFT trade between the two original counterparties. It then submits the new on-leg details to NSCC through a Roll message. However, it also includes the DTCC Reference ID for the SFT that has reached term date. NSCC performs its standard validation process on the new SFT and passes validated activity to SAS for further processing. In this case, no shares need to move because the shares are still with the borrower. However, the market price of the securities may have changed, and that difference needs to be credited or debited to the lender. SAS calculates the cash difference between the termed SFT and the new on-leg. This difference is known as the Price Differential. Price Differential = Termed SFT Settlement Value – New SFT Settlement Value SAS passes the calculated Price Differential on the SFT to DTC for processing through the NSCC SFT account (881) at DTC Global. As with settlement of securities, DTC employs its Look-Ahead feature and the Price Differential is subject to DTC risk controls. If settlement cannot be made because of DTC risk controls or any other reason, DTC continues to try to make the settlement throughout the day or until the EOD DTC Drops process at DTC completes. DTC provides output to appropriate parties once the Price Differential is made. After the Price Differential is made, the new SFT is novated, guaranteed, and risk managed by NSCC. Simultaneously, the termed SFT is marked as settled and released from NSCC’s guaranty obligation. Conversely, if the Price Differential (from a Roll transaction) does not settle at DTC before the EOD DTC Drops process completes, the termed SFT remains novated to, and risk managed by, NSCC, while the new SFT will be dropped from the system and consequently not novated to, or risk managed by, NSCC. For any SFT where the Price Differential is not made, NSCC will update it in the following ways: l Mark-to-market the termed SFT and process the mark as part of the end of day process. Members are provided output from SAS to inform them that this has occurred. l Refreshes the settlement date of the termed SFT to the next business day, while keeping the DTCC Reference ID unchanged. NSCC’s UTC system will be available for Roll input from its open at approximately 4:00 A.M. ET through Roll Cut-Off at 11:30 A.M. ET. After 11:30 A.M. ET, any Roll submission is rejected. DTC begins processing Price Differentials in real time as they are sent from SAS. As noted elsewhere, it continues to recycle them through the EOD DTC Drops process. A Roll message can be submitted for full or partial shares on an active SFT. If such a Roll message is not received by 11:30 A.M. ET, the SAS system automatically sends a DO return instruction to DTC to deliver the full shares from borrower’s account at DTC versus the original SFT settlement value to the NSCC SFT account (881) at DTC Global, and from the NSCC SFT account (881) at DTC Global to the lender’s account at DTC for the same shares and settlement value. A Roll message received for partial shares results in the SAS system immediately instructing DTC to deliver the remainder of shares (not rolled) and the equivalent settlement value from borrower’s account at DTC versus the original SFT settlement value to the NSCC SFT account (881) at DTC Global, and from the 881 account at DTC to the lender’s account at DTC. General Operational Flow 22 SFT Clearing: General Service Guide The following examples help to show the process regarding rolls MADE versus those that DROP: Example 1 Event Day Event Outcome Monday l New on-leg is received, validated, and the on- The off-leg of the SFT is novated to leg DO is Made at DTC. NSCC. Members are advised of the l DTCC Reference ID = 05131901234567 PEND off -leg set to be returned the next (New SFT Reference ID) business day. Tuesday l New Roll (on-leg) is received and validated. l 05131901234567 (Original SFT l DTCC Reference ID = 05131901234567 Reference ID) is marked closed. (Original SFT Reference ID) Members receive a MADE message. DTCC Reference ID =05141989101112 l 05141989101112 (Roll Reference ID) l is novated to NSCC. Members receive (Roll Reference ID) a PEND message for the new off -leg l SAS calculates a Price Differential of $27.25 return. l Price Differential is MADE at DTC. Example 2 Event Day Event Outcome Monday l New on-leg is received, validated, and Made at The off-leg of the SFT is novated to DTC. NSCC. Members are advised of the l DTCC Reference ID = 05131901234567 PEND off -leg set to be returned the next (New SFT Reference ID) business day. Tuesday l New on-leg is received and validated. l 05131901234567 (Original SFT l DTCC Reference ID = 05131901234567 Reference ID) remains novated to (Original SFT Reference ID) NSCC. Members receive a Non Return Fail message from SAS. l DTCC Reference ID = 05141989101112 l NSCC processes a mark-to-market on (Roll Reference ID) 05131901234567 (Original SFT l SAS calculates a Price Differential of $27.25 Reference ID) as part of its end of day l Price Differential is dropped at 3:10 P.M. process. Eastern Time. l Mark-to-market will be for $27.25. The SAS system sets the new settlement date to the next business day for 05131901234567 (Original SFT Reference ID). General Operational Flow 23 SFT Clearing: General Service Guide 5.3.2 Send-to-Settle Messages The Send-to-Settle message is used by the borrower to notify NSCC that it wants to return shares on an active SFT. It can be used to accelerate the full return of shares on the term date of an active SFT if received before the Roll cutoff time of 11:30 A.M. Eastern Time. It can also be used on an SFT with a term date in the future (for example, the next business day), thus resulting in an accelerated return of those instructed shares on the current business day. For the latter only, a Send-to-Settle message can be for the full amount of open shares or for a partial amount of the open shares of an active SFT. A maximum of 99 Send-to-Settle messages can be received per active SFT on a given business day. Given that the borrower is instructing NSCC to settle the shares, NSCC expects that every Send-to-Settle message results in a MADE delivery. If the borrower fails to make settlement on the instructed position (which becomes a Non-Returned Fail), NSCC assesses an additional risk charge on the position (both to the borrower and the lender) to address potential risk management concerns for NSCC related to such settlement failure. The Send-to Settle message must be submitted by 3:00 P.M. Eastern Time. 5.3.3 Cancel An Approved SFT Submitter instruction can be submitted to instruct NSCC to cancel certain pending transactions. For example, it can be used to cancel an on-leg that has not yet made at DTC (new SFT or Price Differential) or to cancel a DO instruction for an off-leg return that was sent to DTC and is still Pending after a Send-to-Settle message was submitted that accelerated the return of shares from the next business day to the current business day. A Cancel message cannot be used to cancel a DO off-leg return that is still Pending at DTC if the DO off-leg return was generated because there was no roll before 11:30 A.M. ET on the original off-leg return settlement date or if a Send-to-Settle was received before 11:30 A.M. ET on the original off-leg return settlement date. Note UTC rejects a Cancel message upon submission if the SFT is in a status where it cannot be canceled; however, the reject could also come from the SAS system if the Cancel message is accepted by UTC but the DTCC Reference ID of the SFT attempting to be canceled settles before SAS is able to cancel the Pending transaction at DTC. 5.3.4 Terminate An active SFT can be terminated either by the counterparties or, in certain circumstances, by NSCC. Member Initiated SFT Termination At times, the borrower and lender may choose, upon mutual agreement, to remove an active SFT from the SFT Clearing service. If they match such an instruction, an Approved SFT Submitter can instruct NSCC to terminate the SFT. NSCC removes the SFT from clearing and removes any obligations that the NSCC has to the SFT. SFT terminations can only be processed against an off-leg return and only according to one of the following scenarios: General Operational Flow 24 SFT Clearing: General Service Guide Scenario 1: The SFT Termination Message is received on an active off-leg with settlement date in the future, such as the next business day, and there is no pending DO return at DTC due to the processing of a submitted Send-to-Settle instruction. l In this scenario, the off-leg is terminated immediately. NSCC does not mark the off-leg return before processing the SFT termination because the SFT should already have the most recent settlement value as the on-leg settled earlier on the current business day. Scenario 2: The SFT Termination Message is received on the settlement date of an off-leg, on or before 11:30 A.M. ET, and NSCC did not receive a Roll or Send-to-Settle instruction from the Approved SFT Submitter. Given that the SFT Termination Message is received prior to 11:30 A.M. ET, NSCC will not have instructed DTC to settle the obligation. l In this scenario, before processing the SFT termination, the off-leg return is marked-to-market by NSCC and the mark is passed as part of the end-of-day (EOD) money settlement value. Scenario 3: The SFT Termination Message is received on the Non-Returned SFT after the EOD DTC DROP process occurs, but before the Loan Termination cutoff time. See Time Frames. l In this scenario, SAS processes the SFT termination immediately. Given that the mark-to-market is processed on a Non-Returned SFT as part of the EOD money settlement process, no further processing is needed by NSCC on this obligation. In all of these cases, the SFT Termination Message must be submitted by 4:30 P.M. Eastern Time. NSCC Initiated SFT Termination (NSCC Exit) At times, a security may for reasons outside of NSCC’s control become ineligible for processing at NSCC. An example is if the security is undergoing a corporate action that cannot be supported through central clearing processing. In these circumstances, NSCC may need to terminate the obligation in its systems. NSCC will provide clients with as much notice as possible that such a termination is anticipated to allow clients to attempt to close out the SFT, recall the position, terminate the SFT themselves, or all actions. Typically, NSCC-Initiated SFT Terminations occur before the start-of-day settlement processing on the current business day. When an NSCC-Initiated SFT Termination occurs, NSCC will mark-to-market the position to the end of day price from the prior business day (collect/pay the difference in end-of-day settlement) and update the SFT as settled on NSCC’s books. 5.3.5 Rate Modification From time-to-time, the lender may need to reset the rate for an SFT. Any Rate Modification message causes NSCC to update its calculations for the rate payment due on the targeted SFT, which is paid out the next business day. A Rate Modification message can be submitted anytime throughout the business day, but will only be processed after both the DTC EOD drops process and the Rate Modification cutoff time (which is 3:45 P.M. Eastern Time) have occurred on a given business day. In addition, NSCC only processes the latest Rate Modification message received for that SFT. The updated rate will only be guaranteed by NSCC after it is received by the risk system. The Rate Modification message follows the standard flow whereby the DTCC Reference ID identifies which SFT to update for the new rate. The Rate Modification message must be submitted by 3:45 P.M. Eastern Time. Note A Rate Modification message can also be used to update which counterparty to the SFT is expected to receive the overnight rate. General Operational Flow 25 SFT Clearing: General Service Guide 5.3.6 Recall A Recall message can be submitted by the lender at any time during the business day between 8:00 A.M. and 5:30 P.M. Eastern Time for any outstanding off-leg return. A Recall can be for full or partial shares of a DTCC Reference ID. If a Recall message exceeds the number of shares already recalled for a DTCC Reference ID, it is rejected. When a Recall message is submitted, NSCC generates a unique Recall ID that is used to track the Recall. l If a Recall message is received before 3:00 P.M. Eastern Time, the Recall Process Date equals the current business day and the Allowed Buy-In Execution Date is two business days later after the DTC Drop cutoff time on such day. l If a Recall message is received on or after 3:00 P.M. Eastern Time, the Recall Process Date equals the current business day, but the Allowed Buy-In Execution Date is three business days later after the DTC Drops cutoff time on such day. For example: l NSCC receives a Recall message at 2:59:59 P.M. Eastern Time on Monday. The borrower has until the end of settlement at approximately 3:10 P.M. Eastern Time on Wednesday to deliver the shares. If they are not received, the lender can execute the buy-in. l NSCC receives a recall at 3:00 P.M. Eastern Time on Monday. The borrower has until the end of settlement at approximately 3:10 P.M. Eastern Time on Thursday to deliver the shares. If they are not received, the lender can execute the buy-in. NSCC tracks the amount of shares in each SFT separately by DTCC Reference ID and sub-tracks those shares of such SFT in the Recall status by individual Recall message received. For example: l DTCC Reference ID A1 = 100 shares and there are two Recalls submitted – one for 20 shares and the other for 10 shares. The Recall share amounts is not combined. They are sub-tracked at 20 shares (Recall), 10 shares (Recall), and 70 shares (No Recall). To maintain the DTCC Reference ID of a loan with a full or partial Recall applied to it, NSCC (rather than the industry) initiates the Price Differential on the loan. In other words, a Roll message for that DTCC Reference ID that has a Recall is blocked. The Price Differential is performed by NSCC each business day that the Recall remains outstanding on the entire DTCC Reference ID by using prior business day’s closing risk price and other information from the most current on-leg message submission of the DTCC Reference ID (for example, IA Rate, Rounding Indicator). NSCC begins sending Price Differentials for loans that have Recalls on them to DTC at 5:00 A.M. Eastern Time. After NSCC receives a MADE message on the Price Differential from DTC, NSCC keeps the original DTCC Reference ID and move the off-leg return Settlement Date to the next business day. Note l Although a loan may have one or more Recalls applied to it that are being sub-tracked, when a Price Differential settles, NSCC sends only one message (for the entire amount of the DTCC Reference ID) to Approved SFT Submitters/Members with the status update of that Price Differential (for example, MADE). l For SFTs that have Recalls applied to them, NSCC will not automatically generate any DO off-leg return to DTC. General Operational Flow 26 SFT Clearing: General Service Guide Send-to-Settle Messages and Recalls An off-leg return is only processed by NSCC and sent to DTC when NSCC receives a full or partial Send-to- Settle message to return the shares. After receiving a MADE or DROP message from DTC as a result of processing a Send-to-Settle message, NSCC distributes the messages to Members and Approved SFT Submitter as follows: l If the Send-to-Settle is MADE and is for the full amount of the outstanding shares, which closes out the entire SFT: o An ISO Message (CNSESFTO) is distributed informing that the off-leg DO return for that SFT (from the Send-to-Settle message) was MADE. o Regardless of the number of Recalls outstanding for that SFT, there will be no Recall update messages distributed, as the entire SFT was closed. l If the Send-to-Settle is MADE and is for a partial amount of the outstanding SFT, which closes out part of the SFT: Note Since a MADE DO off-leg return will always be applied against the oldest outstanding Recall (based on date and time order), a partial MADE DO return (ISO message CNSESFTO) will be followed up with an additional ISO Message (CNSISOO) for each Recall that was updated. o An ISO Message (CNSESFTO) is distributed informing that the off-leg DO return (from the Send-to- Settle message) was MADE. o ISO message includes the number of Recall messages to follow plus the total Recall quantity of those messages. (Note: This is for balancing). o An ISO message (CNSISOO) for each impacted Recall ID is distributed informing that the outstanding position for that Recall ID was reduced or closed out. o The number of Recall messages and their total quantity must equal what was communicated in the ISO message regarding the MADE update of the SFT Note Since the updated SFT MADE message and the Recall update MADE messages are being distributed from separate systems, there is the remote possibility that a Recall update MADE message is received before the updated SFT MADE message. l If the Send-to-Settle is a DROP and is for the full or partial amount of the outstanding SFT: o An ISO message (CNSESFTO) is distributed to both Members and the Approved SFT Trade Submitter with a status of NRET - Non Return Fail. General Operational Flow 27 SFT Clearing: General Service Guide Corporate Actions and Recalls l If a Recall message is submitted on a security undergoing a mandatory corporate action or dividend distribution that NSCC does support, the following occurs: o If it is a forward stock split, SAS will block the submission of a buy-in execution on both the business day prior to due bill redemption date (which is ex-date of the forward split) and the due bill redemption date. The reason for this is that although the marketplace will adjust the price for the security on ex-date, both DTC and NSCC do not adjust the split shares and price until two days after the marketplace payable date. o If it is a name change, stock merger, cash merger, reverse split or cash and stock merger, SAS will accept the submission of a buy-in execution on the business day prior to payable date (or DTC Swing Date). l If SAS processes a mandatory corporate action event (name change, stock merger, cash & stock merger, reverse split) or forward stock split and the SFT has a Recall, the Recall ID will be updated proportionately to the new security and/or position after the corporate action was processed. The SAS system will distribute the following messages to Members and the Approved SFT Submitter: o An ISO Message (CNSESFTO) will be distributed informing that the current original off-leg return for that entire SFT was MADE o Regardless of the number of Recalls outstanding for that SFT, there will be no Recall messages that will be distributed as the entire SFT was closed o An ISO message (CNSESFTO) is distributed informing of the new CUSIP, quantity of the SFT, or both after processing the event. The ISO message is distributed with a status of PEND. This ISO message: o Does not apply to a cash merger as the entire SFT is being cashed out. o Includes the number of Recall messages to follow plus the total Recall quantity of those messages. (Note: This is for balancing). Note The DTCC Reference ID of the SFT remains the same. o An ISO message (CNSISOO) is distributed informing (for each impacted Recall) the number of outstanding shares for that Recall that was updated as a result of processing the event. o ISO message is distributed with a status of UPTD. o Number of Recall messages and their total quantity must equal what was communicated in the ISO message regarding the PEND status of the SFT. o Does not apply to a cash merger as the entire SFT was cashed out. Note Since the updated SFT PEND message (from processing event) and the Recall update UPTD messages are being distributed from separate systems, there is the remote possibility that a Recall update UPTD message is received before the updated SFT PEND message. General Operational Flow 28 SFT Clearing: General Service Guide Example – Forward Stock Split An SFT is outstanding for 1,000 shares and has one Recall of 100 shares on a security undergoing a 2 for 1 forward stock split where the Marketplace payable date = Monday, Ex-Date =Tuesday, SAS Position Capture Date (at Close of Business) = Wednesday, and SAS Payable Date = Thursday. l On Tuesday (Ex-Date) and Wednesday (due bill redemption date), a buy-in execution is blocked because SAS (like DTC) does not split the shares and value (price split) until the settlement date on Thursday, and the security is already trading in the marketplace at the post-split price on Tuesday. l When SAS updates the SFT position after paying the stock split on Thursday, the SFT will now be 2,000 and the Recall will be 200 shares. l An ISO message (CNSESFTO) is sent informing that SFT was updated from 1,000 shares to 2,000 shares. l An ISO message (CNSISOO) is sent informing that Recall was updated from 100 to 200 shares. Example – Stock Merger An SFT is outstanding for 1,000 shares and has one recall of 130 shares and another of 20 shares on a security undergoing a stock merger where for every 25 shares of the old security a payment is made to 1 share of the new security and where the industry effective date = Thursday and SAS Payable Date (DTC Swing Date) = Thursday. l When SAS updates the SFT position after paying the stock merger on Thursday, the SFT is updated to 40 shares of the new security and the first Recall is calculated at 5.2 shares (130 / 25) Note Fractional shares should be dropped so it will be updated to 5 shares. The second Recall will be 0 shares, as after processing proportionate the split, there are no remaining whole shares. l An ISO message (CNSESFTO) is sent informing that the SFT was updated to 40 shares (as a result of the stock merger), with a Recall counter of 2. l Two ISO messages (CNSISOO) are sent to informing that the: o First Recall was updated to 5 shares. o Second Recall was closed. SFT Termination or Exit Message (applied to an SFT that has outstanding recall positions) If an SFT Termination Message is received for an SFT that has been recalled, the SFT is terminated immediately even if it is received on the Allowed Buy-In Execution Date. After processing an SFT termination or exit, an ISO message (CNSESFTO) is distributed informing that the original off-leg return for the entire SFT was MADE. Regardless of the number of Recalls outstanding for that SFT, no Recall messages are distributed as the entire SFT was closed. General Operational Flow 29 SFT Clearing: General Service Guide 5.3.7 Buy-in Process When the Allowed Buy-In Execution Date has been reached, the lender is allowed to process a buy-in execution equal to or less than the total number of shares of all Recalls for that DTCC Reference ID which has reached the Allowed Buy-In Execution Date. A buy-in execution can be submitted between DTC Drop cutoff time and 5:00 P.M. ET on the Allowed Buy- In Execution Date and on any subsequent business day as long as a Recall remains open on that DTCC Reference ID. If an execution message is received before 4:30 P.M. ET, the output status of the buy-in execution message is marked as Received. After a buy-in execution is received, NSCC issues a buy-in execution ID. NSCC then sends a follow-up message before 5:00 P.M. ET with a marked status of accepted or rejected. If an execution message is received between 4:30 P.M. ET and 5:00 P.M. ET, NSCC sends an immediate message with a status of accepted or rejected. Between approximately 5:20 P.M. and 5:30 P.M. ET, NSCC processes the accepted buy-in execution message. However, although processed by the SAS system the day it was received, the entries that report the collection/payment of money resulting from the buy-in execution are reported on the next business day’s Night Miscellaneous Activity file, which gets distributed around 12:30 A.M. ET. These entries allow NSCC to calculate the money difference between the settlement amount and the execution amount for each Member. It is reported on the Night Miscellaneous Activity file with the following entries: l Borrower (deliverer) receives shares. l Borrower (deliverer) gets a credit of the Settlement Amount. l Borrower (deliverer) gets a debit of the Execution Amount. l Lender (receiver) gets a Deliver of shares. l Lender (receiver) gets a debit of the Settlement Amount. l Lender (receiver) gets a credit of the Execution Amount. The money difference (debit/credit) is included (along with other entries) in the Member’s overall Fed Funds settlement (FFS) code 132 (SFT Buy-in, Exit & Reorg) balance on their NSCC Participant Account Statement collected/paid at the end of the next settlement day. A buy-in execution that is submitted for more shares than the total number of shares of all Recalls outstanding in the database for a given DTCC Reference ID is rejected. A buy-in execution can be submitted in multiple partials or as one total of all Recalls outstanding for that DTCC Reference ID. The first buy-in execution, depending on the way it is submitted, should be applied to shares of the oldest Recall in the database. For any remaining shares of a Recall ID that have not been executed against, the Recall is still attached to such remaining shares. Input for buy-in execution messages are in the MT542 format. Unlike other SFT input messages, whose destination is the DTCC’s front-end UTC system, the buy-in messages are sent directly by clients to the core SAS system. The output messages back to clients are sent in the MT548 (modified) format from SAS. For more information about the layout fields of the input and the output buy-in messages, see Message Layouts. General Operational Flow 30 SFT Clearing: General Service Guide 5.3.8 Buy-in Execution Applied to an Outstanding SFT Position When a Buy-in Execution is received by the SAS system and closes out the ENTIRE SFT, an ISO message (CNSESFTO) is sent informing that as of the result of a Buy-in Execution, the SFT was MADE. Regardless of the number of recalls outstanding for that SFT, no recall update messages is distributed as the entire SFT is closed. When a Buy-in Execution is received by the SAS system and closes out PART of SFT, the Buy-in Execution is always applied against the oldest outstanding Recall based on date and time order. The buy-in execution results in the following messages to Members and the Approved SFT Submitter: Note This occurs even if the buy-in execution closes out all the outstanding recall positions that were eligible to be bought in. l An ISO message (CNSESFTO) is distributed informing of the partial shares of the off-leg that were executed. This ISO message is distributed with a status of MADE. o This ISO message includes the number of Recall messages to follow plus the total recalled quantity of those messages. (Note: This is for balancing). l An ISO message (CNSISOO) for each impacted Recall ID is distributed informing of the number of outstanding shares for that Recall ID that was reduced or closed out. This ISO message is distributed with a status of EXED. o The number of Recall messages and their total quantity must equal what was communicated in the ISO message (CNSESFTO) regarding the update of the SFT. Note Since the updated SFT MADE message (from execution) and the recall update EXED messages are being distributed from separate systems, there is the remote possibility that a recall update EXED message is received before the updated SFT MADE message. If an SFT Termination Message is received with respect to a given DTCC Reference ID on or after the Allowed Buy-In Execution Date (between DTC Drop cutoff time and 4:30 P.M. ET), it always supersede any buy-in execution message received by NSCC that same day. The buy-in execution will be rejected. General Operational Flow 31 SFT Clearing: General Service Guide 5.3.9 Cancel Recall A Cancel Recall message can only be submitted between 8:00 A.M. and 4:30 P.M. Eastern Time. A Cancel Recall message is immediately applied by NSCC. Note There can be no partial submission of a Cancel Recall message against a Recall ID for a DTCC Reference ID. A Cancel Recall message must always be for the full amount of recalled shares. If a DTCC Reference ID no longer has a Recall message attached to it, NSCC no longer applies the recall process to the DTCC Reference ID. NSCC also allows it to be rolled by the Members going forward. If on the Allowed Buy-in Execution Date, after Drops have occurred at DTC, both a Cancel Recall Message and a Buy-in Execution message are received, the Cancel Recall message is applied regardless of which message was submitted first. 5.3.10 Cancel Buy-in Execution A Cancel Buy-in Execution message can be submitted to cancel a previously submitted buy-in execution that was accepted on the same processing day. A Cancel Buy-In Execution message must be submitted with the buy-in execution ID. After being received and accepted by NSCC, it voids the previously submitted Buy-In Execution message. A Cancel Buy-in Execution message can be submitted any time after the Buy-In Execution message was submitted until 5:00 P.M. ET. General Operational Flow 32 SFT Clearing: General Service Guide 5.4 Calculating the Settlement Value of an SFT NSCC supports industry conventions around calculation of the settlement value of a transaction, namely, rounding conventions and over collateralizing an SFT, referred to as Independent Amount (IA), due to either regulatory requirements or standardized agreements. The following table outlines the formula NSCC will take in calculating the settlement value of an SFT. It also provides an example. Field Description Rounding DTCC Calculation Rule Example Rule Process Applied Original Price Security price agreed Receive, N/A 100.03 on the trade. required Quantity Share quantity agreed Receive, N/A 10 on the trade. required Independent Amount Percent of Receive, N/A 2% independent amount required included on the trade. Rate Rate paid on the Receive, N/A 5% trade. required Rounding Rule Rule requested by Receive, Round up to the nearest 4 = up to market for rounding required requested increment. For nearest calculation. increments, see $0.25 Rounding Rules. Settle Price Full price, inclusive of Yes Calculate Round [Original Price * 102.25 independent amount, (1+ IA Rate)] agreed to for settlement. Settlement Value Value of the trade Calculate Settle Price * Quantity 1,022.50 sent to settlement. Contract Value Calculated contract Calculate Share Quantity * Share 1,000.30 amount of loan Price transaction. Rate Amount Amount of rate paid Calculate Settlement value * 0.14 on trade. interest rate 360 Independent Amount Independent amount Calculate Settlement Value - 22.20 applied on the trade. (Quantity * Original Price) Notes DTCC rounds according to rules outlined in Key Business Validations for On-leg Transactions. General Operational Flow 33 SFT Clearing: General Service Guide 5.5 Calculating and Processing Rate Payments Each SFT is a term trade; therefore, NSCC calculates and pays the rate on a daily basis. NSCC applies standard rate payment calculations to the SFT and notifies all parties to the transaction of that calculation in the Outstanding Loan EOD MRO file on a daily basis. The rate is due on term date. On the date that the SFT is received, NSCC sets up and guarantees the payment of the rate on the next business day. The rate is based on the following calculation: Rate = Rate on SFT x Settlement Value x Number of Days 360 Any SFT that is opened and settles or is terminated the same day has no rate paid. For example, if the borrower loses purpose and returns shares to the lender on the same day that the SFT was opened, no rate is paid because the shares were returned on the same day that they were borrowed. Members see the net amount of a rate that was applied on their Fed Funds settlement (FFS) code 130 balance (SFT Rebate Interest) on their NSCC Participant Account Statement. Members have either a net debit, credit, or no balance. Each Member can reconcile what comprises their net rate amount by consuming the Outstanding Loan EOD MRO File that NSCC will distribute earlier around 5:45 P.M. Eastern Time. Each open SFT transaction for a Member is in that file and have the calculated rate for that specific DTCC Reference ID. Note Since NSCC pays out the rate on a daily basis and SFTs have an overnight term, NSCC’s guaranty of rate is complete once that rate payment is settled. If borrowers and lenders made errors to the rate on SFTs that have already settled, those errors must be corrected outside of NSCC. 5.6 Corporate Actions Processing NSCC supports the processing of certain corporate actions through its SFT Clearing service. To this end, the following table shows the supported mandatory dividends and corporate actions. Table 5.1 Supported Corporate Actions Dividends and Corporate Actions Code Cash Dividend 08 Forward Stock Split 02 Reverse Stock Split 73 Name Change 91 Cash Merger 72 Stock Merger 71 Cash and Stock Merger 90 All other corporate actions, either voluntary or mandatory, are not supported. Corporate actions where there is a conversion of one security into multiple securities or a convergence of multiple supported corporate actions on the same day are not supported. Moreover, proxy (assignment of proxy votes) are not supported in the SFT Clearing service. General Operational Flow 34 SFT Clearing: General Service Guide The following process applies for SFTs in securities undergoing a corporate action (either supported or not supported, including cash dividends): 1. Five days prior to the expiration date (for voluntary corporate actions)/payable date (for mandatory corporate actions)/due-bill redemption date (for forward stock split), the SFT Clearing service blocks new SFTs from being accepted into the system. Cash dividends do not have a new SFT-block threshold. 2. The SFT Clearing service allows existing SFTs to roll forward, following the new SFT-block threshold date. 3. Three days prior to the expiration date (for voluntary corporate actions)/payable date (for mandatory corporate actions)/due-bill or record date (for dividends), the SFT Clearing service exits SFTs in those securities undergoing a non-supported corporate action. SFTs are not in the system and cannot be rolled forward any more. 4. On the payable date (for mandatory corporate action)/due-bill redemption date (for forward stock split), the SFT Clearing service blocks rolls from taking place in securities undergoing a supported corporate action (except for cash dividends). SFTs affected by a supported corporate action, however, continue to remain in the system. NSCC initiates a Price Differential on such SFTs from that time through the day after payable date of the corporate action event. This occurs in the same manner as an SFT that is subject to a Recall. See 5.3.6, Recall. 5. SFT Clearing service does not block rolls from taking place in a security that pays a cash dividend before, after, and on the payable date. 6. Supported corporate action is processed accordingly on the payable date, including cash dividends. The receiver is credited shares and/or cash, and the deliverer is debited shares and/or cash. The same process takes place for cash-in-lieu monies on fractional shares, where applicable. 7. One day after the payable date in a supported corporate action (for example, reversal split only), SFT Clearing service reinstates new SFTs and subsequent rolls. Reinstatement pertains to Forward Stock Splits only. No other supported corporate actions are reinstated. 8. Two days after the end of protect day (for voluntary corporate actions), a security in a non-supported corporate action is reinstated for new SFTs and subsequent rolls. Note For American Depositary Receipts (ADRs) where the country of origin is not the United States, NSCC tracks the substitute payment at ONLY one rate, which is the most prevalent DTC rate. SFT Clearing service does not perform corrections to terms for supported corporate actions following the payable date. This, however, does not apply to cash dividends, whose pay rate can be changed and subsequently adjusted by the SFT Clearing service after the original payable date. Changes to all supported corporate actions that take place prior to the payable date are automatically adjusted and applied by the system. In support of the corporate action processing in SFT, DTCC makes the following output available to NSCC Member firms: l Miscellaneous Activity MRO (corporate action output is shown alongside with information relating to other activity) l Dividend Activity MRO l Dividend with Due Bill Activity MRO l Record Date MRO General Operational Flow 35 SFT Clearing: General Service Guide For more information relating to the corporate action output as well other SFT outputs, see File and Report Layouts. 5.7 Miscellaneous Activity Journal Entries for SFT Processing For SFT (Sub-Account T), the Miscellaneous Activity File should not be used by Members for updating the status of outstanding SFTs as a result of processing of a buy-in execution, corporate action event, termination or exit. As described above, SFT status updates from processing any of these events will be provided to both the Members and their Approved SFT Submitter via ISO message(s). The primary purpose of the Miscellaneous Activity file is to record Miscellaneous Journal entries that show updates to an outstanding SFT as a result of processing any buy-in execution, corporate action event, forward stock split, termination or exit that results in a collection/payment of money by NSCC against the counterparty to the SFT. However, in some cases, the recorded Miscellaneous Journal entries result in no payment (e.g. name change). In addition to Description, ISIN, and Code and Explanation, the Miscellaneous Activity file also has the following sections: Received/Delivered This section is used to communicate the quantity of the shares of the SFT that were impacted by the event. It follows traditional CNS logic: l Received shares to the Borrower (deliverer) represents that their pending off-leg return owed to NSCC was offset. l Delivered shares to the Borrower (deliverer) represent the new quantity of shares and/or CUSIP of that SFT that the Borrower owes to NSCC as a result of processing the entry. l Delivered shares to the Lender (receiver) represents that the pending off-leg return they are expecting to receive from NSCC was offset. l Received shares to the Lender (receiver) represents the new quantity of shares and/or CUSIP of that SFT that NSCC owes to them as a result of processing the entry. l Entries above are only for informational purposes and should not be used to process SFT updates. Debit/Credit This is the primary purpose of the Miscellaneous Journal entry. The posted entries should result in the collection/payment of money by NSCC for an SFT. The net money will be included in a Member’s new Fed Funds Settlement Code 132 on their NSCC Participant Account statement. Unlike the share entries above, the money entries recorded by NSCC are to effect the net cash that needs to be processed as a result of processing the updates. The logic is as follows: l Credit to the Borrower represents the settlement value of the SFT (or part of that SFT) being closed out. l Debit to the Borrower represents the execution value from a buy-in execution, corporate action payment value, or new settlement value after processing a mark for an SFT termination or exit. o Debit to the Borrower also represents, for corporate action payments, any cash-in lieu owed by them on fractional shares after processing the event. l Debit to the Lender represents the settlement value of the SFT (or part of the SFT) being closed out. l Credit to the Lender represents the execution value from a buy-in execution, corporate action payment value or new settlement value after processing a mark for an SFT termination. o Credit to the Lender also represents, for corporate action payments, any cash-in-lieu owed to them on fractional shares after processing the event. General Operational Flow 36 SFT Clearing: General Service Guide Examples of how Miscellaneous Activity is processed in MRO File 1. Member-Initiated SFT Termination (With Mark) or NSCC- Exit (With Mark). l There is an outstanding off-leg return (SFT ID A1) for 100 shares versus $1,000. o Borrower has a DVP obligation for (100) shares versus $1,000 against NSCC. o Lender has an RVP obligation for 100 shares versus ($1,000) against NSCC. l When SFT is terminated/exited, the market value is $1,100. l When processed, the Miscellaneous Journal entries appear as follows: Received Delivered Debit Credit Miscellaneous Code Deliverer 100 $1,100 $1,000 02 – Ineligible (Borrower) (SFT Value at (Original SFT Value) Security Termination) Total $1,100 $1,000 Net NSCC Fed Funds Settlement Code 132 = $100 DB Received Delivered Debit Credit Miscellaneous Code Receiver 100 $1,000 $1,100 02 – Ineligible (Lender) (Original SFT Value) (SFT Value at Security Termination) Total $1,000 $1,100 Net NSCC Fed Funds Settlement Code 132 = $100 CR 2. Member-Initiated SFT Termination (No Mark) or NSCC Exit (No Mark). l There is an outstanding off-leg return (SFT ID A1) for 100 shares versus $1,000. o Borrower has a DVP obligation for (100) shares versus $1,000 against NSCC. o Lender has an RVP obligation for 100 shares versus ($1,000) against NSCC. l When SFT is terminated/exited, the market value is still $1,000. l When processed, the Miscellaneous Journal entries appear as follows: Received Delivered Debit Credit Miscellaneous Code Deliverer 100 $1,000 $1,000 02 – Ineligible (Borrower) (SFT Value at (Original SFT Value) Security Termination) Total $1,000 $1,000 Net NSCC Fed Funds Settlement Code 132 = $0 Received Delivered Debit Credit Miscellaneous Code Receiver 100 $1,000 $1,000 02 – Ineligible (Lender) (Original SFT Value) (SFT Value at Security Termination) Total $1,000 $1,000 Net NSCC Fed Funds Settlement Code 132 = $0 General Operational Flow 37 SFT Clearing: General Service Guide 3. Buy-in Execution l There is an outstanding off-leg return (SFT ID A1) for 100 shares versus $1,000. o Borrower has a DVP obligation for (100) shares versus $1,000 against NSCC. o Lender has an RVP obligation for 100 shares versus ($1,000) against NSCC. l Buy-in execution submitted by the Lender on 100 shares is for $1,100 (Execution Value). l When processed, the Miscellaneous Journal entries appear as follows: Received Delivered Debit Credit Miscellaneous Code Deliverer 100 $1,100 $1,000 77 – Buy-in (Borrower) (Execution (Original SFT Execution Value) Value) Total $1,100 $1,000 Net NSCC Fed Funds Settlement Code 132 = $100 DB Received Delivered Debit Credit Miscellaneous Code Receiver (Lender) 100 $1,000 $1,100 77 – Buy-in (Original SFT (Execution Execution Value) Value) Total $1,000 $1,100 Net NSCC Fed Funds Settlement Code 132 = $100 CR 4. Cash Merger l There is an outstanding off-leg return (SFT ID A1) for 100 shares versus $1,000. o Borrower has a DVP obligation for (100) shares versus $1,000 against NSCC. o Lender has an RVP obligation for 100 shares versus ($1,000) against NSCC. l Cash merger value on 100 shares is for $1,100 (Cash Merger Value). l When processed, the Miscellaneous Journal entries will appear as follows: Received Delivered Debit Credit Miscellaneous Code Deliverer 100 $1,100 $1,000 51 Merger (Borrower) (Cash Merger (Original SFT Value) Value) Total $1,100 $1,000 Net NSCC Fed Funds Settlement Code 132 = $100 DB Received Delivered Debit Credit Miscellaneous Code Receiver (Lender) 100 $1,000 $1,100 51 Merger (Original SFT (Cash Merger Value) Value) Total $1,000 $1,100 Net NSCC Fed Funds Settlement Code 132 = $100 CR General Operational Flow 38 SFT Clearing: General Service Guide 5. Stock Merger l There is an outstanding off-leg return (SFT ID A1) for 100 shares versus $1,000. o Borrower has a DVP obligation for (100) shares vs $1,000 against NSCC o Lender has an RVP obligation for 100 shares vs ($1,000) against NSCC l Stock merger value on 100 shares vs. $1,000 for CUSIP 123456789 will become 30 shares versus $1,000 for CUSIP 987654321. l Cash in Lieu Value = $8. l When processed, the Miscellaneous Journal entries appear as follows: Received Delivered Debit Credit Miscellaneous Code Deliverer 100 $1,000 51 Merger (Borrower) CU (Original SFT 123456789 Value) Deliverer 30 $1,000 51 Merger (Borrower) CU (Original SFT 987654321 Value) Deliverer $8.00 51 Merger (Borrower) (Cash-in- Lieu) Total $1,008 $1,000 Net NSCC Fed Funds Settlement Code 132 = $8 DB Received Delivered Debit Credit Miscellaneous Code Receiver 100 $1,000 51 Merger (Lender) CU (Original SFT 123456789 Value) Receiver 30 $1,000 51 Merger (Lender) CU (Original SFT 987654321 Value) Receiver $8.00 51 Merger (Lender) (Cash-in- Lieu) Total $1,000 $1,008 Net NSCC Fed Funds Settlement Code 132 = $8 CR General Operational Flow 39 SFT Clearing: General Service Guide 6. Reverse Split l There is an outstanding off-leg return (SFT ID A1) for 90 shares versus $1,000. o Borrower has a DVP obligation for (90) shares versus $1,000 against NSCC o Lender has an RVP obligation for 90 shares versus ($1,000) against NSCC l Reverse split on 90 shares versus $1,000 for CUSIP 123456789 becomes 30 shares versus $1,000 for CUSIP 987654321. l When processed, the Miscellaneous Journal entries appear as follows: Received Delivered Debit Credit Miscellaneous Code Deliverer 90 $1,000 54 Reverse Split (Borrower) CU (Original SFT 123456789 Value) Deliverer 30 $1,000 54 Reverse Split (Borrower) CU (Original SFT 987654321 Value) Total $1,000 $1,000 Net NSCC Fed Funds Settlement Code 132 = $0 Received Delivered Debit Credit Miscellaneous Code Receiver 90 $1,000 54 Reverse Split (Lender) CU (Original SFT 123456789 Value) Receiver 30 $1,000 54 Reverse Split (Lender) CU (Original SFT 987654321 Value) Total $1,000 $1,000 Net NSCC Fed Funds Settlement Code 132 = $0 General Operational Flow 40
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