Charles Schwab & Co. is using the Depository Trust & Clearing Corp.'s centralized hub and enhancing its proprietary system to get in compliance with the Redemption Fee Rule. Mutual funds are required to get agreements requiring the firms that sell their investments to provide underlying data in omnibus accounts by October. Schwab, as one of the largest intermediaries, needs to send data to hundreds of fund companies. The requirement is part of the Securities and Exchange Commission‘s Rule 22c-2, known as the Redemption Fee Rule, which was enacted in part to help fund firms curb market timing.
Craig Kolzow, v.p. of Charles Schwab’s financial products operations, said the firm is now discussing whether to use the DTCC pipeline or whether it will enhance the Schwab Trade Activity Portal, which it launched in 2003. The portal was designed for fund companies to get details about activities such as large orders that may be hitting their funds. The portal could be enhanced to push data to firms. One fund executive at a top firm said Charles Schwab should be commended for making a significant investment in 22c-2 preparations. “For Schwab, 22c-2 will be a service differentiator, not just a sad compliance cost,” he said.
Schwab is also considering its options for third-party administrators whom they support. This includes the option of being the conduit between the administrators, DTCC and the funds. Schwab is considering all the options for its other businesses including its correspondent clearing business. These include being a conduit, warehousing the data, or Schwab could instead choose to pass on the request to the underlying intermediary to respond.