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The Future Is AutomaticGlobal Processing SolutionAn OverviewMay 2002Table of ContentsI.The Marketing Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3II.The Settlement Engines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4III.Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4IV.The Product Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5V.Initial Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5VI.Components of a Global Solution . . . . . . . . . . . . . . . . . . . . . . . . . . 6VII.Component Interfaces and Flow . . . . . . . . . . . . . . . . . . . . . . . . . . 10VIII.Products and Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14IX.Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15Questions and comments should be forwarded to the attention of:Mr. Konnie KontoleonAutomatic Data Processing2 Journal Square PlazaJersey City, N.J. 07306201-714-8105Email: KAdditional information on the elements of GPS is available upon request.Global Processing Solution (GPS)I.The Marketing StrategyGPS is an outgrowth of ADPs decision in the mid-nineties to extend the products and services we traditionally offered in the North American marketplace to a worldwide market. Our strategy was to bolster the very strong capabilities of the Brokerage Processing System (BPS), used by the majority of U.S. and Canadian broker/dealers that elected to outsource their transaction processing and clearance and settlement data processing functions to a service bureau provider, with more robust fixed income and international instrument product coverage. While our flagship product, BPS, has multi-currency capabilities and processes trades in domestic and international securities in real time, its strengths are focused on domestic equity, option, mutual fund, and annuity products. It was our view that the market segment affording us the greatest potential for growth was the international investment-banking sector, and that our initial target market would be the U.S. broker/dealer entity of such institutions. Our vision was to be able to process any instrument in any market at any time with any party. Our research dictated that to attack this market segment we needed to enhance our capabilities in the processing of domestic fixed income and in international equities and fixed income. We set out to build or buy best of breed transaction processing and clearance and settlement engines and to develop the “glue” necessary to allow these systems to interoperate against consistent product and account definitions (static data) in a manner that would provide consolidated books and records and consolidated customer, firm and regulatory reporting. Our primary thrust was to provide a single vendor service bureau solution that would allow prospects to outsource their commoditized back office data processing across all product lines thereby affording such firms significant cost saving opportunities, allowing them to move from a fixed cost to a variable cost model, ridding them of the headaches associated with volume growth and freeing them to concentrate on the building of applications that distinguish them in the marketplace. An additional benefit of our envisioned solution was enabling a phased, product-aligned conversion onto the GPS platform reducing the risk associated with “big bang” conversions.3II.The Settlement EnginesWe determined that BPS, with its rich functionality and proven scalability could provide the cornerstone of GPS. Our analysis of build-versus-buy in the international arena led us to pursue the acquisition of Wilco International. Our evaluation of the Wilco product, Gloss, was that it was brilliant in design and capable of being grown into a best of breed solution for the processing of securities settling outside of North America. Next, we successfully pursued the acquisition of Information Catalysts Inc. (ICI) and its fixed income trading support and settlement and clearance product FISTS, subsequently renamed impact. As with Gloss, we believed that impact was a robust design, had very rich functionality and could be grown to handle the fixed income data processing requirements of even the largest firms. In 1999 we acquired OMR and its product offering, Trading Assistant that has been rearchitected and renamed TradeThru. TradeThru processes financial derivatives and FX transactions and thereby completes the product set we believed we needed to be able to process. TradeThru is outside the scope of this document and will be incorporated into GPS at a later date.III.Assumptions Our target market would consist of firms that have multiple, product specific, front-end trading systems to which we would need to provide an interface. Our target market would have discrete organizations for DTCC clearance, international clearance (through Euroclear, Clearstream, Crest etc.), and domestic fixed income clearance (through BONY, Chase, MBSCC, GSCC etc.). Therefore, it was initially more important to concentrate on interfaces and interoperability rather than a common look and feel across all elements of GPS. Our target market would prefer to have a uniform chart of accounts across all settlement engines. Our target market would have both institutional and retail customers and these customers could transact any product type in any given account. Our target market would prefer that ADP maintain product master information on behalf of our clients, allowing for reduction/elimination of cost associated with the maintenance of such information. Our target market would find value in consolidated books and records for customer accounting and statements, stock record, fail and trial balance processing and regulatory and tax reporting. Our target market would need to have ready access to consolidated data in a user-friendly format. 4IV.The Product StrategyIn order to encourage the entrepreneurial spirit that allowed Wilco and ICI to develop products that we deemed world class and because we believed that spirit was critical to the continued development of the products, we decided to continue to offer both Gloss and impact on a license basis as well as establishing corresponding service bureau offerings. Additionally, we determined that time to market and development risk considerations dictated that we not try to rewrite the applications into one homogeneous system. Rather, we embarked on the development of three pieces of software that would allow the settlement engines to interoperate efficiently. 1) Global Transaction Manager (GTM), the gateway into GPS and the router of transactions to the appropriate settlement engine. 2) Integrated Name and Address (INA), a superset repository containing all the data elements required by BPS, Gloss and impact, with publish capabilities to assure synchronization of account information across the settlement engines. 3) The Integrated Master Security Distributor (IMSD). IMSD is not a new product master file; it is a publish-and-subscribe mechanism, developed to ADP specifications by IBM that allows the synchronization of security information across the settlement engines. IMSD operates against the BPS Master Security Description Data Base (MSD) that ADP maintains for its clients. Given that BPS can hold positions in any security and money balances in any currency and given that BPS has robust customer processing and North American regulatory reporting capabilities, it was decided that in addition to its function as a settlement engine for securities clearing at NSCC and DTC, BPS would serve in the role of consolidator of information. To this end, two additional software development efforts were initiated: interfaces between Gloss and BPS and between impact and BPS. These interfaces are designed to send all trades and other transactions that affect positions or balances to BPS for consolidation with native BPS data. The consolidated data is represented on BPS reports as well as being available to clients in a Sybase relational database representation, known as BPS/A, on servers located on the clients premises. GPS also utilizes a DB2 implementation of the BPS/A data model, referred to as the Global RepositoryV.Initial ImplementationADP has funded the development of the core elements of GPS. GTM, INA, IMSD and the Gloss/BPS and impact/BPS interfaces. These elements were initially built based on requirements gleaned from discussions with prospects, existing clients and based on the experience of the members of the GPS team. We considered the results to be a set of building blocks that added a basic set of consolidation and interface functions to the settlement engines, which continued to be enhanced based on client input. Realizing that our target market firms would demand enhancements to our base set of capabilities and realizing that there would be diversity among the target market firms, we set out to find firms that were willing to work with us in developing a fully functional system. To date, several large firms have helped us refine the product during the implementation of GPS.5VI.Components of a Global SolutionIntegrated Name and Address (INA):ADPs Integrated Name & Address (INA) database is a component of the Global Processing Solution integrated service bureau. This environment provides users the ability to perform the customer/counterparty account creation and amendment required by the GPS settlement processing engines from a single GUI or via a real time or batch interface from a clients internal system, supporting the ability to assign an account to a legal entity. As accounts are created or edited within the INA environment, corresponding records are published in a real-time fashion to the designated settlement systems for local incorporation. Changes made to Name & Address information within a specific GPS engine are transmitted to INA for storage within the INA data repository. Any changes received from a specific GPS engine are enriched and retransmitted to all subscribing systems to ensure data integrity across the GPS platforms. Additionally, INA maintains delivery and settlement instructions for all GPS settlement engines.Workflow ManagementINA communicates with all of the external processing systems via the Wilco Enterprise Broker product. Any failure of a subscribing system (BPS, Gloss, impact, or OMR TA) to successfully incorporate an INA update transaction will be reported back to the Enterprise Broker to be forwarded to the appropriate instance of STP Explorer, the GPS workflow management and repair facility. Here users can proactively monitor, analyze, repair, and resubmit processing exceptions within a drill-down GUI environment on the NT desktop.SummaryINA provides GPS service bureau clients four major benefits: Provide a single entry point for Name & Address information destined for GPS settlement engines via the INA GUI or from a clients internal system in a multi-entity environment. Provide a single, consistent source of data for Name & Address counterparty/customer information as well as delivery instructions. Provide real-time updates to the GPS systems in a timely fashion. Ensure data integrity across the GPS platforms with reconciliation processing.6Integrated Master Security Distributor (IMSD):The GPS environment uses the BPS Master Security Description database (MSD) as the source of product related data elements for the Gloss and impact settlement engines. Gloss and impact maintain local security master files that are populated with MSD data by invoking the real time IMSD facility for requesting security data. When clients enter trades that need to be processed by Gloss or impact (via an entry screen or some other front-end system) those systems determine whether the security exists on their local security master. If the set-up information is missing from one of the settlement engines other than BPS, a subscription request is made using the IMSD API. This request includes information about the subscribing systems identity and the security identifier. Subscription requests can be made using the ADP Security Number, ISIN, CUSIP, SEDOL, and exchange ticker. The distribution engine receives the subscription request via MQ Series. A subscription for the user is registered and a snapshot of security information is returned to the subscribing system via MQ Series for retrieval via the IMSD API. Any subsequent updates to the security record on the MSD DB2 database will be captured by the IMSD distribution engine and forwarded to the subscribing system in a similar fashion. In instances where the security does not exist on the MSD DB2 database, the settlement system generates an automated broadcast request to the MSD operations staff to establish the security. When the client happens to be the issuer of the security the automated broadcast request is replaced by an automated setup of the security on the MSD DB2 database.SummaryIMSD provides GPS service bureau clients with four major benefits: Provide automated security set-up for timely trade processing. Provide a single, consistent source of data for ADPs GPS applications (e.g., GTM, Gloss and impact). Provide real-time updates to the recipient systems in a timely fashion. Provide an ability to quickly incorporate new GPS processing systems with MSD data. Provide an automated mechanism for establishing new securities on MSD via auto setup and broadcast functions7Global Transaction Manager (GTM):As part of GPS, Global Transaction Manager serves as the central gateway into the environment. GTM provides clients with a single entry point where transactions from a number of front office applications may be captured. GTM determines which of the specialized settlement engines is responsible for processing each trade. This determination is based on client-specific rules and may be driven by the inspection of the IMSD provided product information such as default clearing depository. GTM may also inspect transactions to determine how many client entities are involved with the trade. Where necessary, GTM creates inter-company flip transactions. When a security does not currently exist on MSD, GTM has the ability to route transactions to the appropriate settlement engine by associating trading accounts with a settlement engine. Having completed pre-processing functions, client transactions are then routed by GTM to the settlement engines for further processing. While each of the settlement systems has the ability to operate independently, the introduction of GTM is intended to allow greater interaction between the systems and facilitate an STP environment where clients can benefit from the functionality of all the products in one place.Settlement Engines:In the GPS environment each of the settlement engines has a defined set of responsibilities. Some highlights of each applications role in GPS are as follows:impact Process all domestic fixed income trades Receive trade input from GTM or via direct screen input Perform trade figuration Perform funding (e.g. Repo) processing including automatic allocation of collateral Perform MBS processing including automatic assignment of pools to TBAs Produce confirmations for financing activity and, optionally, for other product types Forward all trades to BPS for consolidation and custody processing Interface to domestic fixed income clearing agents for settlement and clearance Maintain a fail file for fixed income activity Forward all clearance activity to BPS Calculate P & L and create general ledger entries as defined in impact GL tables Calculate corporate actions on financing transactions Maintain and resolve open items for miscellaneous monies Generate bookkeeping transactions for all non-trade activity affecting money or position and forward to BPS for consolidation Produce complete set of Fed Schedules8Gloss Process all non-North American trades Receive trade input from GTM or via direct screen input Perform trade figuration Forward all trades to BPS for consolidation and custody processing Interface to non-North American clearing agents for settlement and clearance Maintain a fail file for non-North American activity Forward all clearance activity to BPS Generate bookkeeping transactions for all non-trade activity affecting money or position and forward to BPS for consolidationBPS Process all domestic equity, option, mutual fund and annuity activity Receive input from GTM, via direct screen input or via real time interfaces from Gloss and impact Accept prefigured trades from Gloss and impact Accept either prefigured or non-prefigured trades from GTM or via screen input Confirm all trades not coded as having been confirmed by other GPS engines Interface with DTCC for ID confirmation / affirmation processing, for CNS processing, FundServ and Insurance Processing Service and for clearance and settlement of all DTC eligible securities Accept clearance activity and miscellaneous bookkeeping activity from Gloss and impact Interface with OCC for options clearance and settlement Affect all cash sweeps to Money Market funds as well as liquidating such funds when necessary. Control DDA processing. Maintain a consolidated fail file f