Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 4

Each market must have clear rules assuring investor protection by safeguarding participants from the financial risks of failed settlement and ensuring that listed companies are required to follow sound policies on corporate governance, transfer of economic benefits and shareholder rights.

1.	Does the depository or the market have securities lending and borrowing schemes in place, and are these open to all market participants and their settlement agents?	DTCC: There is an active securities lending and borrowing market. The market is open to all market participants and a majority of the settlement institutions participate. NSCC a member of DTCC, which provides broker to broker net settlement clearing services and has a stock borrowing capability as an emergency measure. FED: There is an active securities lending and borrowing market. The market is open to all market participants and a majority of the settlement institutions participate.
2.	Does the settlement system mark fail trades to market and collect margin from the failing counterparty to protect the innocent counterpart's interest?	DTCC: Broker to broker failed trades are marked to the market by the NSCC. On a daily basis each participant receives their margin change. Furthermore, each participant is assessed for credit worthiness to reduce exposures. Non-broker to broker trades are not marked to the market. However, the broker of the trade will have margin reviews as a common practice. FED: The FED does not mark fail trades to market or collect margins from the failing counterparty. Participants traditionally use market transactions, such as repos and securities lending, to remedy short positions. Since both the repo and securities lending markets are extremely liquid, fails are infrequent and in most cases they are resolved the next day.
3.	Does the market operate a guarantee fund or have an equivalent procedure to protect against the cost of failed transactions; and which sectors of the market does it cover?	DTCC: Yes. The Companies' rules require most participants to maintain deposits related to their activities at the clearing agencies. The deposits are available to secure participants' obligations and certain liabilities of the Companies, should they occur. The participant's fund is based on participants' average monthly holding and daily volume, which currently stands at US$400 million. In the event that a participant's failure exceeded its contribution to the fund, DTC would draw on other participants on a pro-rata basis. In addition, DTC sets debit caps for participants, and maintains bank credit lines of US$1 billion, which have not been drawn. DTC will ultimately institute unwind procedures on a LIFO basis to meet the obligations of the defaulting party. Although there are no loss sharing provisions for participants in the banking system, the FedWire System has liquidity and credit is readily available from the Federal Reserve Bank. The DTC participants' fund consists of deposits of cash and short-term U.S. Government securities. FED: Yes. The FRB system has strong default protections, including instantaneous good title for good value, trade by trade settlement, and liquidity/credit availability at the Fed.
4.	Are the stock transfer agents (share registrars) linked electronically to the depository?	DTCC: An electronic link exists with share registrars and DTCC (at the omnibus owner level only). This link is mainly used to ensure accurate records in cases of a contingency processing. The registration for most equities and bonds occurs through DTCC. However, for physical securities, custodian banks effect registration via the relevant transfer agent. FED: Not applicable. The FED serves as the registrar for all government debt instruments.
5.	Is there a legal maximum time period to complete ownership transfers in the books of the issuer? If so, does market practice adhere to the deadline?	Depository instruments: Not applicable. Movements between participant accounts have no effect on the underlying records of the issuer. The registered holder for all securities held within DTCC is recognized as Cede & Co. Physical instruments: Yes. Local agents, within the New York downtown area, are required to turn around within 72 hours of receipt and agents outside of New York have 7 business days. There is a NYSE exchange rule (rule 17ad-2) that requires transfer agents to be located south of Foley Square in New York City. The rule also stipulates that transfer agents must turnaround 90% of all routine items received in a month within 3 business days. In addition, "outside registrars" must turnaround 90% of their items within 1 business day while non-routine items must be handled "promptly". If the transfer agent is a bank or bank holding company sub, the banking regulators enforce rule 17ad-2. The SEC examines non-banks and spot-checks the bank transfer agents.
6.	Are investors entitled to all benefits arising on a security from the point of purchase; and how are any rules enforced?	Fixed income securities are traded with accrued interest, as such the purchaser receives all future entitlements. In regards to equities, for all securities traded after X date, the purchaser is entitled to all future benefits.
7.	Is proxy voting permissible in the market and can such proxies be lodged by post or other remote delivery method?	DTCC: Proxies are permissible and can be lodged by mail, by telephone or via the internet (for most securities) at the Proxyvote website. In terms of delivery, the standard procedure is that proxies are mailed by the company to shareholders and it is paper intensive. There are services such as the proxyedge provided by ADP (vendor) which will provide proxy information via electronic means (internet) to the institutions who subscribe to this service. Casting votes, can be entered via mail, phone or internet. FED: Not applicable
8.	Are there binding rules in the market stating the minimum and maximum lapsed time between the announcement and completion of key events, including registration, the calling of shareholder meetings, the payment of dividends or interest, rights issues, tender offers and other voluntary corporate actions?	Yes, these rules/guidelines are mandated by the SEC. The SEC's shareholder communication rules are intended to ensure that the beneficial owners of are punctually provided with proxy material and other corporate communications. SEC Rule 14a-13 deals with the obligations of issuers in communicating with beneficial owners. SEC Rule 14b-1 governs the proxy processing obligations of brokers and dealers with respect to dissemination of certain communications to beneficial owners and providing beneficial owner information to issuers. SEC Rule 14b-2 governs the proxy processing obligations of banks with respect to dissemination of certain communications to beneficial owners and providing beneficial owner information to issuers.
9.	Are all voluntary corporate actions advised through a central mechanism assuring consistent information to all investors?	DTCC: Yes. The vast majority of corporate actions are advised via DTCC's RIPS system (Reorg Inquiry and Participation System) which provides electronic notifications to direct DTCC participants. In the case of certain DTCC eligible securities (mainly private placements), notifications still take place by way of paper notifications although these are required to flow through DTCC. Physical Securities: Investors choosing to hold securities in paper, certificated form will receive corporate action notifications directly from the registrar / transfer agent in paper form. FED: Not applicable
10.	Is information on corporate actions available electronically, and is the minimum lapsed time for responding to such actions sufficient to enable all domestic and foreign investors to respond in a timely and considered fashion?	The majority of corporate action announcements are provided electronically via DTCC's RIPS system. Although each announcement is different, the vast majority of notifications allow ample time for domestic and foreign investors to respond. In some cases, corporate action time frames can be very short - these shorter timeframes are usually attributed to problems at the transfer agent with the processing of physical securities or unique private placement related issues.