Fund/SERV

Rather than faxing orders to each fund family separately, Braylock Securities transmits its entire day of mutual fund purchases, redemptions and exchanges to the fund groups in one automated file through the National Securities Clearing Corporation, which then nets the money movement between Braylock and each fund. The service Braylock is using is:

1. A.The Direct Registration System (DRS)DRS lets an investor hold a position in book-entry form on the issuer records without a certificate. It is a registration method, not an order routing service.
2. B.Continuous Net SettlementContinuous Net Settlement nets broker-to-broker obligations in equities and corporate bonds. Fund orders travel through Fund/SERV.
3. C.The Automated Customer Account Transfer Service (ACATS)ACATS moves entire customer accounts from one broker-dealer to another. It does not route day-to-day fund orders.
4. D.Fund/SERV, operated by the National Securities Clearing CorporationCorrect. Fund/SERV standardises and automates mutual fund order entry, confirmation and settlement between intermediaries and fund groups, with the cash netted centrally.

Why: Fund/SERV is the NSCC platform through which broker-dealers, banks and retirement plan recordkeepers submit mutual fund orders and receive confirmations in a standard automated format, with the resulting cash obligations netted and settled centrally. It is the reason a firm can transact with dozens of fund families without a separate manual process for each.

On a single day Braylock Securities executes several hundred buy and sell orders in the same exchange-listed stock for different customers, and separately routes its mutual fund purchases and redemptions to thirty fund families. Which statement best describes how the National Securities Clearing Corporation reduces the number of deliveries Braylock must actually make in the listed stock?

1. A.Each individual trade is settled separately with the contra broker on a trade-for-trade basis.Trade-for-trade settlement is the opposite of what a netting system does.
2. B.Continuous net settlement nets the day buys and sells in that stock into one net long or short position, which Braylock settles against the clearing corporation.This is precisely the function of continuous net settlement.
3. C.Fund/SERV nets the equity trades, since it is the utility through which member firms clear exchange-listed securities.Fund/SERV is the NSCC service for mutual fund order routing and settlement, not for listed equities.
4. D.Settlement is guaranteed only after Braylock delivers physical certificates for every sale it executed.Listed equity settlement is book-entry at the depository; physical certificates are not delivered trade by trade.

Why: Continuous net settlement nets all of a member buys and sells in a given security for the day into one net long or net short position, which the member then settles against the clearing corporation rather than against each contra broker. Fund/SERV is a separate NSCC service used for mutual fund order routing and settlement, not for listed equities.