AMD Update
OVERVIEW
The policy positions and other recommendations of the Asset Managers Division ("AMD") of The Bond Market Association ("TBMA") are determined by the Division's Executive Committee. John R.Gidman of Loomis Sayles and Company and David L. Murphy of Fidelity Investments serve as Chair and Vice Chair, respectively, of the Executive Committee. David Weil of Goldman Sachs Asset Management serves as Treasurer of the Division. Assets under management of AMD member firms are in excess of $8 trillion.
The principal advocacy and regulatory-related activities of the Asset Managers Division are overseen by Subcommittees that report to the Executive Committee. In addition, the leaders of the Division are collectively responsible for initiatives being pursued jointly with TBMA. Divisional or networking initiatives are typically carried out by staff and members on a coordinated basis.
The following commentary provides an update regarding the current work of the Subcommittees as well as joint initiatives with TBMA and the status of the Division's networking initiatives. Finally, this update also includes a synopsis of the related operations/securities processing initiatives of The Asset Managers Forum ("AMF"), which is led by Julie Warren of New York Life Investment Management and Jason Jesner of Credit Suisse, who serve as Chair and Vice Chair, respectively, of the AMF. All AMD member firms are also members of the Forum.
AMD SUBCOMMITTEE INITIATIVES
Advocacy Subcommittee, chaired by Sean Flannery of State Street Global Advisors:
Pension Reform Legislation - Support changes in prohibited transactions, including permitting cross trading. On March 30th, Jim Febeo of Fidelity Investments, John Gidman of Loomis Sayles, Scott Lopez and Sara Lou Sherman of Wellington, and Joe Sack and Mike Williams of TBMA visited with Members of Congress to discuss the benefits to plan beneficiaries of cross trading. Letters are currently being sent to Senators and House Members who serve as conferees concerning this legislation.
Commodity Index Swaps - Working with ISDA to carve out commodity swaps from Treasury Ruling 2006-1. Documentation setting forth the features of a commodity index derivative that distinguish these instruments from an active commodity business and from other types of contracts that could be constructed by reference to a particular good or activity is being made available to appropriate officials at Treasury and on the Hill.
New York State Legislation Concerning Lobbying - Opposed to requiring registration as lobbyist when soliciting asset management business from the State.
Market Practices and Standards Subcommittee, chaired by Dick Weil of PIMCO:
Buy Side Fixed Income Securities Best Execution Guidelines - Developing industry-sponsored standards applicable to asset managers. Currently reaching out to the CFA group (and their counsel) which has developed generic best execution guidelines that cover all securities transactions in order to gain further insights relative to the fixed income markets. This initiative also includes developing an educational presentation regarding current market practices that could potentially be used as a basis for dialogue with regulators.
Coordination with Major Dealers on Credit Default Swaps - Participate with the Major Dealers and DTCC regarding development of longer term solutions. Several Subcommittee participants serve on the industry's Oversight Committee that is developing a proposed electronic warehouse that will contain basic CDS information which would be available to market participants. Joe Sack of the TBMA staff was invited by the Dealers to be an observer at meetings of the Oversight Committee. The AMD is charged with providing input to the development of the warehouse and with educating asset managers and custodians as progress is made. Several global call-ins have already been sponsored by AMD, in concert with the Major Dealers and the Managed Funds Association.
SAS 70/Audit Reports Concerning Financial Controls - Develop best practices with Big Four accounting firms to make the SAS 70 process efficient for investors. The staff is in the process of arranging additional meetings with the accounting firms to elicit updated views.
TRACE - The Subcommittee recently decided to question whether it is appropriate to designate trades being disseminated via TRACE as buy or sell / dealer or customer transactions.
Municipal Derivatives - Asked Standard & Poor's in a comment letter to continue with current criteria regarding ratings and "profile scores".
Servicing Fees in Connection with TBA Obligations - It was recently determined that the Association would not recommend amending its "good delivery" rules to permit inclusion of mortgages with below standard servicing fees in pools covered by industry clearance and settlement standards. It may nevertheless be useful to formulate an analytical approach to this issue if it arises again at a later time.
Nominating and Governance Subcommittee, chaired by Sara Lou Sherman of Wellington:
Operating Procedures - Pursuant to the written Operating Procedures of the AMD, this Subcommittee has approved the appointments of the Treasurer of the Division and the current Chairs of AMD's active Subcommittees.
Outreach Subcommittee, chaired by Seth Bernstein of JP Morgan Asset Management:
The Outreach Subcommittee recently recruited Prudential Investment Management and the investment component of Freddie Mac as AMD members. Discussions are being held with other prospective members. The intent of the AMD leadership was to establish a robust advocacy and market practices program in the first quarter of 2006 (as described above) and then to engage new members to be part of that program. In this regard, prospective members located on the west coast will be invited to the AMD's July Executive Committee meeting to be held in La Jolla, CA on July 26-27.
Technology Subcommittee, chaired by Will Gibson (nominated) of New York Life Investment Management:
Review of Securities Master Data ("SMD") and Pricing Standards Relating to the Activities of Asset Managers - The Subcommittee will be describing the lifecycle of buy side securities trading and processing in order to identify (with broker-dealers and others) possible enhancements regarding securities master data base facilities and price discovery services.
TBMA's Annual Technology Conference - The Subcommittee would be available as a resource in developing this major December, 2006 event.
FIX Protocols - The staff advisors to the AMD are also responsible for TBMA's relationship with FIX. This will afford greater opportunities for the Technology Subcommittee and asset management firms to address convergence involving FIX messaging standards, on the one hand, and protocols in related markets such as derivative instruments, on the other hand.
AMD / TBMA JOINT INITIATIVES
Avian Flu Preparedness - The Securities Industry Association ("SIA") and TBMA, upon the advice of their respective BCP groups, agreed on 3-27 to outline steps needed to develop a global directory of securities and investment industry employees for use if there is a flu pandemic. The idea is that traders and others will be forced to work from home or remote locations and the proposed directory would be a utility that will enable counterparties to communicate with each other during the kind of crisis that might be brought on by a pandemic. In turn, this would help keep the financial markets open. The participation of asset management firms in this initiative is critical to its success.
Business Continuity Testing - The 2006 industry-wide BCP test will be conducted on 10-14-06. SIA, TBMA, the Futures Industry Association and the Financial Information Forum are co-sponsors. The test will once again address back-up connectivity capabilities. The test will also include Street payment systems and money market activities. Regarding fixed income, TBMA is responsible for including the ATSs, the clearing banks and IDBs. Further, TBMA will reach out to SWIFT and the Fedwire system. In connection with buy side firms, the goal is to achieve participation by all major asset managers.
Mark-up Interpretations of NASD - Opposed to requirements that impose undue burdens on dealers that supply bonds to asset managers.
Hybrid Securities - Many AMD member firms have recently responded to requests of the Corporate Credit Markets Division to support TBMA efforts to seek more openness on the part of the National Association of Insurance Commissioners regarding decisions of the NAIC that distinguish between debt and equity securities characteristics. AMD involvement tends to reinforce the Association's advocacy strategy concerning this matter.
Litigation Advisory Committee - The AMD Executive Committee decided on 3-2-06 at its meeting in Boston, MA to join with other TBMA Divisions in the Kirchner v. Putnam matter to oppose (in an amicus brief) litigating a securities class action in state court.
NewBank - Members of the AMD Executive Committee will regularly review minutes of meetings of the NewBank Steering Committee. Important questions relate to the proposed scope of NewBank and which clearing-related functions would be supported.
Accounting Policy Matters - AMD's input was sought in connection with the AICPA's recently withdrawn proposals to change practices involving issuers and accounting firms. Further, AMD members will follow FASB's latest pension liability proposals and work with other areas of TBMA accordingly.
AMD DIVISIONAL / NETWORKING INITIATIVES
Schedule of AMD Executive Committee Meetings - The next Executive Committee meeting will be held on May 18th in New York City at TBMA's offices at 360 Madison Avenue, from 10:30 a.m. to 3:00 p.m. The above-referenced summer meeting of this Committee will be held in La Jolla, CA. There will be a reception and dinner on the evening of 7-26 and 7-27; business meeting will be held on the morning of the 27th; and golf and other recreation will be available on the afternoon of the 27th. Spouses or significant others are cordially invited to attend the social segments of this event. Finally, the Committee's fall meeting will be held on the afternoon of October 18th in New York City.
2006 TBMA Annual Meeting - Bill Gross of PIMCO is a keynote speaker. Conference Department and AMD staff are working with AMD member firms to arrange registrations for the 5-18 Dinner and the Annual Meeting event on 5-19 at the Waldorf-Astoria Hotel in NYC. In addition, as part of the program on the 19th, Dick Weil, COO of PIMCO, will serve as moderator of a general session panel of senior executives who will discuss trends relating to the automation of the swaps markets. The 30th anniversary of TBMA will be celebrated at this Annual Meeting.
Educational Events - These events, including this month's Lunch and Learn regarding the Major Dealers' proposed CDS information warehouse (see article and photos below), have thus far focused on pressing industry-wide issues. However, they have also been designed to reinforce advocacy goals, such as assuring that there is cohesiveness between dealers and buy side firms regarding industry-wide automation objectives. The AMD and its staff are also committed to supporting certain American Securitization Forum events as well as the efforts of the TBMA group that is organizing this year's risk-linked securities conference.
Press Relations - The AMD relies on the PR Department of TBMA for support in dealing with the press-a full day in NYC involving press interviews with the AMD Chair, Vice Chair and Principal Staff Advisor is in the works.
Hedge Funds - With SEC registration requirements now in effect vis-à-vis hedge funds, staff and the AMD leadership have already reached out to former COOs of asset management firms who now run significant hedge funds in order to facilitate discussions concerning potential membership in the AMD. A meeting is planned with these prospects before the 5-18 AMD Executive Committee meeting.
Publications - The AMD's "Weekly Report" will celebrate its 100th edition in May. (Note that the Weekly was previously published by the Senior Executives Group, which was the AMD's predecessor.) The Weekly has 3000 readers and describes new developments at the AMD as they occur each week.
Speaking Engagements - Senior staff is very much in demand on the speaking circuit on behalf of the AMD. These opportunities also enable the AMD to describe how its initiatives are designed to complement the activities of other groups such as ISDA, ICI, IAA and ISITC.
AMF OPERATIONS / SECURITIES PROCESSING INITIATIVES
Relationship with Custodians regarding Swaps Best Practices - In 2005, the AMF developed proposed best practices to automate the processing of interest rate swaps and related instruments. This year, remaining in sync with the AMD and the Major Dealers concerning the proposed DTCC DerivSERV electronic warehouse for credit default swaps, the AMF is concentrating its efforts concerning its own best practices initiative on working with the industry's major custodians in order to facilitate comprehensive CDS and IRS solutions in the longer term for all market participants, including dealers, custodians, asset managers, hedge funds and commercial vendors.
STP/Corporate Actions - In 2006, AMF members are working with vendors and custodians to apply STP technology such as standardized communication formats to the processing of corporate actions. To reduce overall industry-wide processing risk, notices of changes in the status of outstanding securities issues are now required to be processed in real time-this AMF initiative will help achieve that goal.
Relationship with LSTA - Operations professionals with AMF firms are volunteering, with the consent of LSTA, to work with loan syndication specialists regarding identifying mutual operations efficiencies in connection with bank loan transaction processing.
Liaison with Divisions regarding 2006 Fixed Income Operations Conference - Additional AMF representatives have been named to the TBMA planning committee for this November event in Florida. The structure of the panel presentations will be indicative of the level of buy side/sell side cooperation that is expected throughout the year on matters that relate to counterparty risk reduction, the ability to resolve any widespread fail situations in the marketplace and further attempts to eliminate hard copy communications in favor of STP transmissions.
AMF Events - The AMF will hold its spring Quarterly Meeting in NYC on May 23-24. Jeff Mooney of the SEC is an invited speaker and Tom Costa of FICC is confirmed. New developments in processing mortgage securities will be the focus of the workshop component of the program on 5-24 at the New York Sheraton Hotel. Also, additional AMF Lunch and Learn events have been scheduled into the fall by staff and members-these events already have sponsorship support.
AMF Publications - The AMF Newsletter is in its ninth year of publication and features the very popular "Ask the AMF" column which has traditionally given the Newsletter readers very pragmatic advice concerning common processing, custody and pricing/valuation concerns.
Golf Outing at Hollow Brook Golf Club in Westchester County - The Third Annual AMF Golf Outing, in cooperation with the AMD, will be held on July 25, 2006. Additional details will appear on the AMF and TBMA Web sites this spring.
The members of the Executive Committee of the AMD are as follows: John Gidman, Chair, Loomis Sayles and Company; Dave Murphy, Vice Chair, Fidelity Investments; David Weil, Treasurer, Goldman Sachs Asset Management; Seth Bernstein, JP Morgan Asset Management; Joan Binstock, Lord, Abbett & Co. LLC; Michael Cloherty, GM Asset Management; Sean Flannery, State Street Global Advisors; Will Gibson, New York Life Investment Management; Tim Hagerty, Western Asset Management Company; Mark Hemenetz, Schroders; Paul Quistberg, Putnam Investment Management; Michael Reinhold, Morgan Stanley Investment Managers; Steve Saperstein (nominated), Prudential Investment Management; Sara Lou Sherman, Wellington Management Company; Robin Stelmach, MFS Investment Management; Dick Tito, Federated Investors; Tim Trebilcock, Federated Investors; Sanjay Vatsa, Merrill Lynch Asset Management; James Wallin, Alliance Capital Management L.P.; Richard Weil, PIMCO; and Michael Wyne, Fischer Francis Trees and Watts.
The TBMA staff team consisting of Executive Vice President Joe Sack and Elisa Nuottajarvi and Douglas Taggart serve as principal staff advisors to the AMD and the AMF. Diane Trupia serves as Administrator of the AMF. George Reis is a consultant to the AMF and the AMD. Senior Vice President Jill Hershey and Vice President Mike Williams serve as principal staff advisors to the AMD concerning the activities of the Advocacy Subcommittee. Marjorie Gross, Esq., Senior Vice President and Senior Regulatory Counsel, serves as in house counsel to the AMD. Lee A. Pickard, Esq., of Pickard and Djinis, is outside counsel to the AMD. Mr. Sack's team reports to Randy Snook, Executive Vice president and Head of the New York Office. Mr. Snook and Senior Vice President and Associate General Counsel Lynnette Hotchkiss help facilitate continuity regarding AMD projects with the members of the market specific Divisions of TBMA. Ms. Hershey's team reports to John Vogt, Executive Vice President and Head of the Washington, D. C. Office.
Any suggestions or questions concerning this update would be most welcome and may be directed to Joe Sack at 646-637-9265 or jsack@bondmarkets.com.
The Bond Market Association's
DTCC Presentation on Swaps Warehouse
Today, nearly 100 members of the Asset Managers Division and The Asset Managers Forum participated in an educational event at which asset managers raised several salient questions relating to the function of the DTCC Swaps Warehouse. For example, asset managers asked:
- How will the proposed Warehouse provide a long term solution regarding processing transactions in credit default swaps?
- How are payments processed through the Warehouse?
- What should buy side firms do to prepare for this longer term solution?
- When / how will back-loading previously confirmed legacy trades be accomplished?
- How will the Warehouse process and maintain amendments to existing confirms (adds and subtracts) distinct from creating new confirms?
- Will DTCC provide (or acquire) daily pricing for each transaction in its Warehouse?
- Does "Open Architecture" work for the buy side? Are there security questions to be addressed?
- What about interest rate swaps and asset-backed CDS? Are longer term solutions in the works?
These questions will be addressed by the AMD Market Practices and Standards Subcommittee which will provide updates through future Weekly Reports.
The AMD would like to thank Peter Axilrod of DTCC, Jim Keller of PIMCO and James Wallin of Alliance Capital for their presentations and insights. Joseph Sack of The Bond Market Association served as moderator of the panel.
Below are photos from today's event.
