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28 weeks and counting. Sign up for CBRS now!

June 6, 2011

“Time is running short,” was the message from the experts speaking about cost basis reporting at NICSA’s East Coast Regional Meeting, held Friday, June 3rd, in New York.  Account StatementBeginning January 1, 2012, financial firms will have to provide investors — and the IRS — with a precise calculation of gains and losses incurred on the sale of mutual fund shares. That leaves firms with just 28 weeks to get ready for the new cost basis reporting or “CBR” requirements.

Modifying systems to produce the needed tax data, training associates on the ins and outs of the new rule, and developing educational material for investors is a huge project. In fact, one of our panelists reported that, for her firm, getting ready for CBR is one of the largest efforts in its history.

Fortunately, firms aren’t traveling in completely unexplored territory. CBR became mandatory for equity investments at the start of 2011, generating a roadmap for a smooth implementation.

Here are our panelists’ tips — gleaned from the brokerage industry’s experience at CBR for stocks — on how to avoid potholes and traffic jams:

  • Don’t wait until the last minute. The unexpected will happen. Your technology vendors will underestimate the time required to make system changes, so be prepared to push them. Testing of transfer statements (more on these in a moment) will take 50% longer than you expect.
  • Sign up for CBRS now! CBRS — short for “cost basis reporting system” and fondly referred to as “Sea Breeze” — is DTC’s new system for facilitating the transfer of cost basis information between firms. (The CBR rules require that cost information follow shares from firm to firm. As a result, even if your broker — and, therefore, your account — moves from Avon Hill Securities to Silas Deane Investments, the IRS will still get accurate gain information.)
    • Applying for a CBR number on the system will take at least two weeks — and more likely a month — so you want to get started now. Delays could get even longer as the deadline approaches, when there could well be a rush of applications. Only 200 firms are in CBRS already — and just a handful of mutual fund firms. Note that your service provider CANNOT apply for you.
    • Your law department may have questions about the CBRS agreement, especially about privacy considerations — which could be another source of delay. DTCC is happy to provide details on privacy protection in CBRS, which relies on account number only (not on Social Security number or other types of personal identifying information).
  • Be prepared to handle manual transfers.  Not all firms will be on CBRS, so you’ll need to be set up to handle transfers that come in by fax. Plan how this paper will be flow within your organization — and remember that you will only have 15 days after the transfer to send out the information. Of course, manual transfers will be insignificant if most firms — hopefully 98% of the industry — will be on CBRS. Again, sign up for CBRS now!
  • Make connections within the industry. Get to know your counterparts at other firms — the folks who will be on the other end of the transfer. Make the connections today, before there’s a problem that needs solving. Join the CBRS Working Group. (Contact DTCC for information.) Participate in industry forums like NICSA.
  • Plan a communication strategy. Develop educational materials for associates and investors that clearly explain how to choose a lot selection method. Assume that shareholders won’t pay much attention until December 26th, but be prepared for a rush of questions at that time.

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