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January 1, 1998

DTC Will Lose Trade Confirmation Monopoly

By Staff Reports

Private vendors will be allowed to confirm and affirm trades between institutional customers and broker dealers under a plan announced by the National Association of Securities Dealers.

Rules approved in 1982 restrict confirmation and affirmation, or acknowledgment services, to Securities and Exchange Commission-registered clearing organizations, such as the New York's Depository Trust Company (DTC). The DTC currently has a monopoly in the confirmation and affirmation business.

The NASD said its plan recognizes the technical advances that have occurred in trade processing. The changes must be approved by the SEC.

Under the NASD plan, vendors would be allowed to confirm and affirm transactions once an independent auditor has certified that they have met specified financial and operational standards. The SEC also has authority to review all vendor applications.

Institutional Trades

The NASD said that every trade between an institution and a broker today must be affirmed and confirmed before the trade can be settled and the securities can change hands. At the moment, the NASD estimated that more than half of Nasdaq's average daily volume, 600 million shares, are institutional trades.

As previously reported, Boston-based Thomson Electronic Settlements Groups (ESG) has lobbied to bust open the DTC monopoly in the electronic confirmation and affirmation of institutional trades. Thomson ESG, whose position was supported by the Securities Industry Association, an industry trade group, petitioned the SEC to amend the 1982 rules.

Now, the rule change would seem to pave the way for Thomson's entry into this potentially lucrative business.

"This plan is designed to ensure the safety and soundness of the nation's clearance and settlement systems, while encouraging innovation and competition from the private sector," said NASD Chairman Frank Zarb in a prepared statement. "Working together with the government, industry and other self-regulators to develop this plan is self-regulation at its best."

(Thomson ESG is a subsidiary of Thomson Financial Services, the parent company of Securities Data Publishing, publisher of Traders Magazine.)