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National Seeurities Clearing Corporation
1990 Annual Report
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PLEASE DO NOT REMOVE LIBRARY COpy Contents 2 To Our Participants 5 Products and Services 6 Marketplaces 9 Technology 10 Legal and Regulatory 12 Boards of Directors IS Audited Financial Statements 22 Participating Organizations Sin";,, ;nooption, NSCC,., a pa Average Daily Value of Transactions Settled (in billions) 90 89 88 87 86 85 84 82 81 8 16 24 32 40 • Continuous Net Settlement • Balam·. Order & Other Average Daily Volume of Transactions Processed * (in thousands) 89 88 87 86 85 84 83 82 81 100 200 300 400 500 • NYSE & Amex • OTC Stocks and Bonds • Municipal Bonels & Others *Includes omnibus accounts Average Cost Per Transaction (in dollars) 89 88 87 86 85 84 83 82 81 .11 .22 .33 .44 .55 • Trade Processing • Clearance Settlement • ACATs, Mutual Funds & Other Costs 1 To Our Participants -W'dO," the new d".de hol~.fo,·the ..euri· same-dayJurtds payment system fot street-side and ties and financial services industry? While'ho one institutional.transactions. can predict the exact nature ortinring!of change, it The focus on creating, greater certainty in the is possible, to identify certain trendsihat will contin marketsjs a trendJhat will contimi,ethtoughoutthe ue to emerge; We also know these'lrends. will have a decalie 'With ongoing discussions of further risk s~gnifican~impact on thefinils,o(n:ga}lizl!tiohs and reducing concepts. NS.CG has participated actively pe.rsoilh~1 thaJ comprise the financial servi~es in the·evaluation,of proposalslIllliated~ythe industry as we know it. industry ..aru;l its ,regulators to,:imptove:the safety As: we look toward the turn ot'tlle:~entury, and sotiiidiless of the U. S. marketplaces., While what are'~9me ofthe trends that· we canidentify sorne of these, more recent initiativeschave created with a fair degree of certainty? Perhaps most obvi controversy within the industry, NSCC has played ous is·the need for participants to continue their aninIpoftant role in facilitating,objective, discus efforts to reduce ,the cost of doing b.u~il:Iess, a trend sions of these'issuesand has continued to explore rooted in;tllela1e 1980s when it bedime,.apparent alternative, solutions. NSCC and the industry will ,that,the.rapidgrowth and prospel'ity thai charac carefullreyaluate each of these pr~posals'and oth terized iheeadierpart ofthe,decade. was Ilo,t::gOing el'S' a~.they, emerge. In' participating in these discus,. to continue indefinitely. ]ustas slrO.Iig,a ttend,is the sions"NSCC will strive tobalance;theiinterests of industry's contrnued commitment to increasing pro individuatparticipants with the needs.,of ihe nation cessing efficiency through better use, oftechnology al market system as. a whole. and automation. In addition, balancing the indus NSCC ,welcomes the new ideas andcchallenges try's focus,on the institutional coniP9ileilt of the that will emerge in the 1990s and views the"changes U.S.~marketswillbe a strong comniitment in the that will occur asopportunitie.s to ~reate \iable 1990s to"addressing the needsoHhe retail investor. options 'for part~cipants~that will make our' markets While the, 1980s saw,many firms co,nceptratlng on safer, and. more competitive. The decade will pro :expandlng:capital.Ii1arkets, the 199Qs,willsee a, .vide,NS.GC.wiih a full and complex a,gendawhich re(ocusQy,1the,industry on those,areas,in which it includes expanding current D.S. clear.apc.e and' set~ has long.excelled. tlemtmh~ystems .to new products a.s they are devel Another'strong trend, also ro.otedin the late· oped With ,a focus on,ensuring thai our technology 1980s and reinforced,by .the downfall of Drexel base is.'up-to~date. To accomplish these 'tasks, Burnhj'(m Lambert Incorporated rn 1990,.is the reg NSCC will need to maintain Jts Illgh.standards of' ulatory·focus,on reducing risk. Some,orthe risk quality, dedicated staff and effective. and coopera reduction pro,posals currently unMt'ruscussioh tive workingrelaiionships withiispaiticipants, includ~ sh{jrteniilg the setderrfentcycle', moving to. Secudfies Industry, Automation Corppratlon, The book-e:n:tryconly for street~side,settiemeni·,making Hep9sitQr,Y'Trust Q9mpany Imdiother'industry all,new issues depository eliguile a:iul adop,tinga organizations. In ciosing, we would like t9 thank our staff for their ~Yl!-Iuable efforts ovetthe past ye'ar, our par ticipants for their inSight. and continued support and our 'B.oard of Directors for their superb guid ance ,anq direction during these tiIneswhen the only constant is change. Howard A. Shallcross Chair1!tan C?f the Board ~nn.~1 Qavicf M,. Kelly " -r President and, Chief ExecuJiv(! Officer 2 Howard A. Shallcross (right) Chairman of the Board David M. KeUy (left) President and Chief Executive Officer 3 "NSCC's products and clearing seroices focus on the and special characteristics offinancial instruments and marketplaces and have evolved out of the dynamic relationship between NSCC and its participants. " Products and Services Changin.6nancial mark... ~d the opera System. In 1990, NSCC received SEC approval to tional demands of emerging and existing instru expand its Municipal Bond Netting Program to ments drive product and service development include regular-way trades for DTC-eligible, book at NSCC. entry-only municipal securities. One hundred fifty In August 1990, NSCC's Reconfirmation and two firms are participating in the netting program. Pricing Service (RECAPS), an automated fail clear During 1990, CNS settlement of when-issued and ance system for equities, municipal bonds and zero regular-way trades amounted to more than 215,000 coupon issues, was mandated for all full-settling sides with a par value of $72 billion. participants by the Securities and Ex NSCC's mutual funds services Open and effective change Commission (SEC). The ser experienced significant increases in dialogue with onr vice reconfirms and reprices both participation and perfor participants is critical aged fails, minimizing expo mance. Fund/SERV, intro in expanding onr sure and relieving partici duced in 1986 with 6 traditional product pants of capital charges for participants transacting base and assessing outstanding fails. As part 15 orders a day, has futnre needs. (Right) of the mandate, NSCC grown to 150 partici John Cirrito, Senior requires participants to pants and over 10,000 Vice President, Pru identify "repeat fails" daily orders worth dential Securities fails compared in previous $121.4 million in settle Incorporated. RECAPS cycles which ment dollars. In addition, remain open and have been participation in Network resubmitted. In the first man ing, implemented in 1989, dated RECAPS cycle in Decem increased by 70% bringing ber, participants compared 87.5% the total number of participants of eligible fails. With almost double the to 46. The number of sub-accounts number of participants and a 23% increase added to the system tripled, reaching a year in volume, this comparison rate was the highest of end total of 900,000. As an add-on feature to any cycle since the system was first implemented in Fund/SERV, NSCC introduced the Dividend Decla June 1987. Currently 358 participants are eligible ration and Year-End Reallocation Service. Mutual for the quarterly cycle of RECAPS. funds groups· can use the new service to announce Responding to industry direction, NSCC and upcoming dividend distributions and report year DTC reestablished the processing facility linking end reallocation information. the Institutional Delivery (ID) and Continuous Net NSCC renewed its commitment to automating Settlement (CNS) systems to accommodate Prime the processing of mutual funds by announcing the Broker activity. Prime Broker transactions are redesign of Fund/SERV. The redesign, a joint effort executed by one party, the Executing Broker, on between NSCC and the users of its mutual funds behalf of an institutional customer. The trades are services, will address the system's ability to handle submitted to ID for affirmation and cleared and additional mutual funds products, flexible set settled by the Prime Broker on a trade-for-trade tlement cycle processing and system efficiency. basis. The restored ID/CNS link steers Prime Bro Flexible settlement processing will allow NSCC to ker activity into a street-side environment, where process products with other than the traditional trades are netted by CNS, limiting security move five-day settlement cycle, such as no-load and mon ments and reducing settlement costs. The program, ey market funds that settle next day and same day, implemented on a pilot basis in May with 4 firms respectively. To address technical efficiency, devel Steve M. Labriola processing less than 10 trades a day, grew to in opment of the system will be folded into NSCC's Senior Vice President, clude 13 firms and 1,000 daily trades by year end. commitment to new technology. Marketing and Cor For the year, over 50,000 trades were processed at porate Communica a value of 18 billion dollars. tions, NSCC NSCC has continued its efforts to ensure that the municipal industry realizes the full benefits of the automated Municipal Bond Comparison 5 Marketplaces T, p,odu,,, and ~rn"" off",d by NSCC Service to accept earlier trade input and provide continually reflect the changes in financial instru earlier trade output. ments and the marketplaces in which they are Throughout 1990, ISCC worked with a num traded. Because the markets are dynamic in nature ber of internationally active broker/dealers in a and continue to become more sophisticated, NSCC cooperative venture to form a centralized clearing as well as its subsidiary, International Securities network to provide clearance, settlement and cus Clearing Corporation (ISCC) and its affiliate, tody in over 25 international markets. ISCC expects Government Securities Clearing Corporation to offer this global clearance network, for which (GSCC), constantly reassess their services, prod ISCC will be the access point for participants' ucts and systems. transactions, in the NSCC modified its Committed to fourth quarter of comparison systelll8 improving the compari 1991. ISCC continued in in support of the son rate and reducing 1990 to serve as a focal marketplaces' imple member firms' exposure on point for foreign clearing mentation of on-line problem transactions, NSCC and depository organizations correction systems enhanced its OTC locked-in in providing access to NSCC designed to compress trade processing stream to accept and DTC for American securities the trade resolution transactions from ACT, the clearing and custody services, as process. (Left) NASD's on-line trade reporting and well as for those more generally Catherine R. Kinney, comparison system whose use was man seeking information about the U.S. Executive Vice dated in 1990. ACT trades are reported industry's infrastructure. ISCC was invit President, New York to NSCC as locked-in which lowers the ed to join a U.S. delegation in Budapest, Stock Exchange, Inc. potential exposure on price movements for Hungary, and to serve on and provide techni unmatched trades. cal advice to several international committees To reduce the interdependencies of the including the SEC's Emerging Markets Advisory exchanges and to prevent delays in output avail Committee, International Society of Securities ability as a result of processing problems at either Administrators (ISSA) and Federation Interna the NYSE or Amex, NSCC modified its Listed tionale des Bourses de Valeurs (FIBV). Equity Clearance System to split all processing GSCC instituted several enhancements to including print and machine-readable comparison its Comparison and Netting Services to further output by the market of execution. Splitting address the needs of the government securities mar T-Contracts, T+1 Regular-Way Contracts and ketplace. Chief among these was the April imple Adjustment Contracts by exchange ensures that mentation of systems changes to accommodate the output is not delayed for all markets in the event netting of when-issued and forward-settling trades that input from one is late. in all government securities products, a step which In February, the NYSE and Amex moved the provided substantial risk reduction and cost savings start of their unresolved trade close-out processes benefits to the industry. The su~cess of the new pro forward to the afternoon of T + 1. NSCC accommo cess was most evident on the three subsequent dated these changes by modifying its processing and quarterly refinancing settlement dates when 98,178 specialist and broker reporting. Also, as part of the trades in the refunding issues with a dollar value of industry effort to accelerate the trade processing $767.2 billion were netted to 1,976 residual settle cycles, NSCC enhanced its Correspondent Clearing ment obligations valued at $78.5 billion, indicating a transaction netting factor of 98% and a funds netting factor of 89.8%. In 1990, the Netting Sys tem was also expanded to include Agencies and Robert A. Schultz Strips; all transactions in Fed book-entry securities Executive Vice are now eligible for the net. GSCC continues to add President, Planning enhancements to its Comparison and Netting Ser and Operations, NSCC vices. Plans for 1991 include adding Treasury auction purchases to the net, a customer report card and netting of correspondent trades. 6 "Through standardization, centralization and automation, NSCC has provided responsive and cost-effective solutions to meet the processing requirements 0/ the continuaUy evolving marketplaces it serves. " \ ,- \) . "NSCC's commitment to the innovative use of state-of-the-art technology positions us to anticipate our participants' pr.ocessing needs and to respond rapidly to the growth of new investment products." Technology Thnology ha. b". NSCC', primary tool technology will enable it to respond rapidly to new for responding to participants' varying needs in processing needs. As part of its development tech multiple financial markets and diverse geographic nologies strategy, NSCC is in the process of organiz locations since the company's formation in 1976. To ing data so that it can be shared across processing respond quickly to the industry's rapidly evolving systems, developing computer models to determine needs, NSCC has embarked on a long-range the optimum method for distributing data and automation planning effort that focuses on sys applying structured techniques on a company tems capacity, connectivity, development tech wide basis to achieve a greater degree of coor nologies and interactive processing. dination among separately built systems. Infonnation engi Since its inception, NSCC has re To accomplish this, NSCC is using a neering, a key build cognized the critical importance of collection of software tools, includ ing block in NSCC's being prepared to handle peak ing IBM's DB2 database as well long-range automa volume days and has been ag as several Computer Assisted tion plan, permits gressive in its strategy of Software Engineering rapid and effective upgrading computer sys (CASE) tools. This systems develop tems capacity. To aid development technolo ment. (Right) John in the evaluation gies strategy will G. Ginelli, Vice of computer ca maximize the appli President/Group pacity, NSCC has de cation of reusable Manager, Merrill veloped a capacity model investments in design and Lynch, Pierce, of the post-trade systems. In code. The goal of this strate Fenner & Smith Inc. September 1990, NSCC, in gy is to develop an architecture' . conjunction with the NYSE and to provide better and more efficient SIAC, conducted a capacity test of service to participants. the systems' major applications. The re The securities industry is fast out sults of this test provided valuable input for growing traditional overnight batch pro the model. The results of running the model cessing as it moves toward compressing the indicated that the systems could handle a 700 mil processing period for securities transactions. One lion-share day on the NYSE with proportional objective of NSCC's long-range automation plan is volume from other markets. Further systems to provide participants with a quality, state-of-the upgrading is planned for 1991 to increase capacity art interactive processing system that is adaptable another 20%. In 1990, NSCC also completed the to participants' needs and requires minimal up planning for a dual-site data center at SIAC's front investment by participants. In 1990, NSCC, corporate headquarters in Brooklyn which, when as an interim step in the evolutionary transition to operational in late 1991, will significantly improve interactive processing, began offering multi-batch data center disaster recovery. processing for equity trade submissions whereby. Improving the data communications connec participants can submit multiple files for process tions, or connectivity, between NSCC's and partici ing. In addition, NSCC and DTC began develop pants' systems is an integral part of the long-range ment work on an interactive CNS link that would automation plan. In 1990, NSCC worked closely tie together NSCC's and DTC's processing. NSCC's with participants to review their existing communi risk management program will benefit from contin cations capacity against projected needs for an 850 uously updated information about positio'ns that million-share day and to recommend upgrades have settled in DTC. where needed. As part of the effort to improve con Sandy Manata nectivity, NSCC encourages participants to move to Senior Vice newer, more efficient protocols such as Network President, Plan Data Mover and Systems Network Architecture for ning, NSCC transmitting their data to NSCC for processing. Development technology is also a critical ele ment in the long-range automation plan. As partici pants' b';sinesses evolve, NSCC must ensure that its 9 Legal and Regulatory In 1990, NSCC, int.. nally., w,n., , ...,.aDy a consolidated database in 1990 to permit clearing within industry groups, took a progressive role in corporations to share settlement and other risk the industry's continuing efforts to maintain the information on participants in two or more of the U.S. national clearance and settlement system's agencies. Also under the auspices of the SCG, position on the leading edge of efficiency and safety. NSCC and DTC began to establish the legal frame Internally, NSCC implemented two efforts in work for cross-liens of excess collateral of failed 1990 aimed at increasing NSCC's liquidity. In the members. Another direct industry initiative in first, NSCC, recognizing that it might face a delay in which NSCC has taken a leadership role includes the drawing on letters of credit, arranged a $200 million agreement between The Options Clearing Corpora committed line of credit, tion (OCC) and NSCC to The accord reached thus bridging the tempo expand NSCC's guaran with OCC will expand rary liquidity gap. This tee of the settlement of the guarantee of amount, approximately the underlying securities options exercises and half the historical size of resulting from OCC assignments bringing the Clearing Fund, is the exercises and assign more certainty to the average amount of the ments. In exchange for marketplace. (Right) Clearing Fund that is col this expanded guaran- John C. Hiatt, Execu lateralized by members' tee, OCC committed to tive Vice President, letters of credit. assume responsibility The Options Clearing In the second effort, for losses incurred by Corporation NSCC increased the mini NSCC, up to the full mum cash requirement for extent of margin held, all participants who use if an OCC member letters of credit to the less defaults on its obligation er of 10% of their total to deliver or receive the Clearing Fund require underlying securities in ment or $1 million, again increasing NSCC's liquidi NSCC's systems. A third ongoing industry effort is ty position. In addition, NSCC placed a cap on the the joint project undertaken by NSCC and DTC as amount of letters of credit that participants can use part of the Group of Thirty initiative to improve to collateralize obligations by imposing a 70% limi clearing and settlement systems worldwide through tation on participants' use of letters of credit to standardization. NSCC and DTC are designing meet Clearing Fund requirements. appropriate protective devices to allow movement Externally, the Securities Clearing Group to same-day funds settlement in accordance with (SCG), which is composed of SEC-registered clear Federal Reserve guidelines. ing agencies and is chaired by NSCC, implemented Because of the importllDce of, and NSCC's expertise in, clearance and settlement, NSCC was also called upon to participate in several other industry-wide initiatives in 1990 including the Federal Reserve Bank of New York Contingency Task Force formed following the demise of Drexel Burnham Lambert Incorporated; the American Bar Association Advisory Committee on Settlement of Market Transactions; and, the U.S. Working Com mittee Group of Thirty Clearance and Settlement Project. Through these internal and external Robert J. Woldow efforts, NSCC will continue to be active in the evo Executive Vice lutionary process of identifying, managing and con President, General taining clearance and settlement risks. Counsel and Secretary, NSCC 10 ''Just as the 'paperwork crunch' of the late 1960s focused attention on improving back-office processing, the 'market break of 1987' proved the value of NSCC's continued attention to risk management. " - - Boards of Directors T, NSCC Board of [);rccto" play, ~ mt~ These nominees became Directors at the Board's gral role in policy development and the establish Annual Meeting in May 1991 to succeed retiring ment of corporate objectives, financial management Directors William P. Behrens and David L. Roscoe and operational planning at NSCC. Through its and two open seats left by Fenton R. Talbott and broad representation from the financial industry James M. Avena who resigned in September and and high level of professional expertise in executive, December 1990, respectively. The New York Stock financial and corporate management, the Board, in Exchange, Inc. appointed Catherine R. Kinney to 1990, continued to provide short- and long-term complete the term of Shareholder Director Donald direction in support of NSCC' s goal of responding J. Solodar. Jules L. Winters, Shareholder Director to participants' post-trade processing needs in a from the American Stock Exchange, Inc., was rapidly changing environment. appointed by the Exchange to serve an additional The Board of Directors, which was expanded term. Gates H. Hawn and Howard A. Shallcross to 18 members in 1989 when the NSCC and ISCC were nominated to serve additional one-year terms. Boards were merged with members serving concur GSCC's separate IS-member Board of Direc rent terms, is comprised of 14 Participant Directors tors represents participants in GSCC, a full-service elected from participating brokers, dealers and clearing corporation providing automated compari banks. In addition to the Participant Directors, the son and netting services for next-day and forward Board includes NSCC's President & CEO, David settling transactions in Treasury Bills, Bonds, M. Kelly, and three Shareholder Directors: Donald Notes and non-mortgage backed Agency securities. J. Solodar, Jules L. Winters and C. Richard Justice Twelve members of the Board of Directors are Par who represent the New York Stock Exchange, Inc., ticipant Shareholder Directors representing six American Stock Exchange, Inc. and National Asso dealers, three brokers and three clearing agent ciation of Securities Dealers, Inc., respectively. banks. Additional members include two NSCC In late 1990, the Nominating Committee, with Designated Directors and the President of GSCC. members selected from the executive ranks of par All 12 Participant Director seats were up for ticipant organizations, began the annual electoral election in 1991, the first time since the original process by inviting participants to propose names of Board was elected in August 1988. At the Annual prospective Participant Directors. Mter reviewing Shareholders Meeting held in April, James P. submitted suggestions, the Nominating Committee Mahoney, Morgan Stanley & Co. Incorporated, proposed four candidates for three-year terms of Joseph A. Malvasio, Cantor Fitzgerald Securities office as Participant Directors. They included Corp., Sal Ricca, The Sequor Group, and Arthur George F. Adam, Goldman, Sachs & Co., Marshall L. Thomas, Merrill Lynch, were each elected to N. Carter, The Chase Manhattan Bank, N.A., Doug serve one-year terms on the Board. Jorge A. Brath las J. Engmann, Sage Clearing Corporation and waite, The Bank of New York, John M. Gavin, Jr., George C. McNamee, First Albany Corporation. RMJ Securities Corporation, Kenneth J. Halpin, Discount Corporation of New York, and John G. Macfarlane III, Salomon Brothers Inc, were elect- ed to serve two-year terms, and Thomas J. Basile, Carroll McEntee & McGinley Incorporated, Allen B. Clark, Manufacturers Hanover Trust Company, Frank D. Cuoco, Jr., Garban Ltd., and Bruce R. Lakefield, Lehman Government Securities, Inc. were elected to three-year terms. In addition, David M. Kelly, NSCC, and M. Andrew Threadgold, J.P. Morgan Securities Inc., were appointed as the NSCC Designated Directors. Charles A. Moran, GSCC, will continue to serve as the Management Director. 12 NSCC and ISCC David L. Roscoe III Howard A. Shallcross Not Pictured: Board of Directors Managing Director Chairman of the Board, (clockwise from top left) J.P. Morgan Securities Inc. NSCC Joseph Anastasio Senior Vice President Managing Director Jules L. Winters Carlos A. Salvatori Merrill Lynch Equity Salomon Brothers Inc Vice PresUknt Executive Vice PresUknt, Markets C. Richard Justice Division Executive Operations Chairman & CEO Executive Vice President Worldwide Securities American Stock Broadcort Capital Corp. National Association of Services Exchange, Inc. David M. Kelly Securities Dealers, Inc. Citibank, N.A. Raymond E. Wooldridge Chairman of the Board, Donald J. Solodar Darryl L. Pope PresUknt & COO ISCC Executive Vice PresUknt Principal, Operations Southwest Securities President & CEO New York Stock Edward D. Jones & Co. Incorporated National Securities Exchange, Inc. David W. Niemiec William P. Behrens Clearing Corporation Senior Managing Director Vice Chairman Walter F. Siebecker Ernst & Company Dillon, Read & Co. Inc. Executive Vice PresUknt Robert H. Benmosche Gates H. Hawn Smith Barney, Harris Executive Vice President Chief Operating Officer Upham & Co. Paine Webber Pershing Division of Incorporated Donaldson, Lufkin & Incorporated Bruce E. Geismar Jenrette Securities Senior Managing Director Corporation Bear, Stearns & Co. Inc. 13 GSCC Board of John G. Macfarlane III Joseph A. Malvasio Jorge A. Brathwaite Directors Managing Director and Executive Vice President Senior Vice President (clockwise from top left) Treasurer Cantor Fitzgerald The Bank of New York Salomon Brothers Inc Securities Corp. William D. Riley Frank D. Cuoco, Jr. Senior Vice President David M. Kelly M. Andrew Threadgold Executive Vice President NFS Services Inc. President & CEO Managing Director Garban Ltd. National Securities J.P. Morgan Securities Kenneth J. Halpin Allen B. Clark Clearing Corporation Inc. Chief Financial Officer, Vice President Senior VU;~' President & James P. Mahoney Sal Ricca Manufacturers Hanover Treasurer Principal President Trust Company Discount Corporation of Morgan Stanley & Co. The Sequor Group Charles A. Moran New York Incorporated Bruce R. Lakefield President Leonard C. Monteleone Thomas J. Basile Chairman of the Board Government Securities Vice President Executive Managing Senior Executive Vice Clearing Corporation RMJ Securities Director, Administration President Corporation & Operations Lehman Government Carroll McEntee & Securities, Inc. McGinley Incorporated 14 Consolidated Balance Sheet National Securities Clearing Corporation December 31, December 31, (in thousands) 1990 1989 Assets Current assets: Cash and cash equivalents $ 57,052 $ 47,059 Temporary investments at cost (approximates market) 125,557 88,750 Accounts receivable 5,004 5,172 Settlement accounts receivable 1,433 2,174 Other current assets 413 452 Total current assets 189,459 143,607 Clearing fund 190,962 259,322 Fixed assets, less accumulated depreciation of $2,727 and $2,349 at December 31,1990 and 1989, respectively 1,473 928 Deposits and other noncurrent assets 7,869 8,1l6 Total assets $389,763 $411,973 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 8,189 $ 6,053 Settlement accounts payable 63,159 50,756 Other 4,820 5,543 Total current liabilities 76,168 62,352 Clearing fund: Participants' cash deposits 108,633 74,049 Other participant deposits 190,962 259,322 299,595 333,371 Notes payable 3,250 Commitments and contingent liabilities (Note 7) Shareholders' equity: Common stock authorized, issued and outstanding; 30,000 shares of $.50 par value 15 15 Capital in excess of par 885 885 Retained earnings 13,100 12,100 14,000 13,000 Total liabilities and shareholders' equity $389,763 $411,973 The accompanying notes are an integral part of this statement. 15 Consolidated Statement Natwnal Securitws Clearing Corporatwn of Income and Retained Earnings December 31, December 31, (for the year ended, in thousands) 1990 1989 Revenues: Revenue from clearing services $74,718 $74,735 Interest income 5,771 4,977 Total revenues 80,489 79,712 Expenses: Securities Industry Automation Corporation processing expenses 44,291 42,762 The Depository Trust Company fees 15,268 16,268 General and administrative 19,206 18,439 Total expenses 78,765 77,469 Income before income taxes 1,724 2,243 Provision for income taxes 724 897 Net income 1,000 1,346 Retained earnings, beginning of year 12,100 10,754 Retained earnings, end of year $13,100 $12,100 The accompanying notes are an integral part of this statement. 16 Consolidated Statement National Securities Clearing Corporation of Cash Flows December 31, December 31, (for the year ended, in thousands) 1990 1989 Cash flows from operating activities: Net income $ 1,000 $ 1,346 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 378 385 Changes in operating assets and liabilities: Decrease in accounts receivable 168 386 Decrease in settlement accounts receivable 741 1,009 Decrease in other current assets 39 518 Decrease (increase) in deposits and other noncurrent assets 247 (841) Increase (decrease) in accounts payable 2,136 (1,194) Increase (decrease) in settlement accounts payable 12,403 (17,450) Decrease in other current liabilities (723) (244) Increase in clearing fund participants' cash deposits 34,584 8,141 Net cash provided (used) by operating activities 50,973 (7,944) Cash flows from financing and investing activities: (Increase) decrease in temporary investments (36,807) 1,652 Purchases of fixed assets (923) (188) Redemption of notes payable (3,250) Net cash (used) provided by financing and investing activities (40,980) 1,464 Net increase (decrease) in cash and cash equivalents 9,993 (6,480) Cash and cash equivalents, beginning of year 47,059 53,539 Cash and cash equivalents, end of year $ 57,052 $ 47,059 Supplementary disclosures: Income taxes paid $ 1,344 $ 1,052 Interest paid 439 293 The accompanying notes are an integral part of this statement. 17 Notes to Consolidated Financial Statements Natwnal Securities Clearing Corporatwn Note 1 Organization and Operations: Temporary investments: Temporary investments con National Securities Clearing Corporation (NSCC - the Com sist of U.S. Treasury securities maturing primarily in less pany), a clearing agency registered with the Securities and than one year, and are carried at cost adjusted for amortiza Exchange Commission (SEC), provides various services to tion of premiums and accretion of discounts. Included in the financial community, consisting principally of securities temporary investments at December 31, 1990 and 1989 trade comparison, clearance and settlement. The Company's were $54,190,000 and $41,540,000 respectively, held in an common stock is owned equally by the New York Stock account for the exclusive benefit of participants to facilitate Exchange, Inc. (NYSE), American Stock Exchange, Inc. participants' compliance with customer segregation rules (Amex) and the National Association of Securities Dealers, of the SEC. Inc. (NASD). The Company is controlled by an independent Settlement accounts: Settlement accounts receivable user Board of Directors which is responsible for its policies, and payable arise from one-day time lags in the cash settle operations and financing. ment process between the Company and participants and The Company is the sole shareholder of International other registered clearing agencies. The nature of the Compa Securities Clearing Corporation (ISCC) which supports U.S. ny's business involves significant money transfers on a daily brokers, dealers and banks through bilateral linkages with basis, certain of which are executed via Federal Funds and central clearing and depository organizations in other given effect in the financial statements on the basis of one-day countries. earlier Clearing House F~nds. The Board of Directors of the Company determines Income taxes: Provision is made for deferred income the amount of net earnings to be retained in a given year, taxes applicable to revenues and expenses reported in the having due regard to current and anticipated needs. The financial statements in periods which differ from those in Company has not historically declared dividends to share which they are subject to taxation. holders, but has provided discounts on its billings to partici Note 3 Participants' Clearing Fund Deposits: pants of $15,727,000 and $6,058,000 in 1990 and 1989, The rules of the Company require certain participants to respectively. Revenue from clearing services is shown net maintain minimum clearing fund deposits based on calculat of such discounts. ed requirements. The consolidated clearing fund balance Note 2 Smnmary of Significant Accounting Policies: includes the NSCC and ISCC clearing funds, which are avail Principles of consolidation: The consolidated financial state able to secure respective participant obligations and certain ments include the accounts of the Company and its wholly liabilities of NSCC and ISCC, should they occur. Clearing owned subsidiary, ISCC. All significant intercompany fund requirements and cash in excess of calculated require accounts and transactions are eliminated in consolidation. ments amounted to $299,595,000 and $333,371,000 at The Company accounts for its investment in Govern December 31,1990 and 1989, respectively. Total clearing ment Securities Clearing Corporation (GSCC), an entity fund deposits held at December 31, 1990 consisted of formed to provide automated u.s. Government securities $108,633,000 in cash, $105,443,000 in market value of secu trade comparison and netting services to participant bro rities issued or guaranteed by the U.s. Government, its states kers, dealers and banks, using the equity method of ac and their political subdivisions, and $202,773,000 in letters counting. The Company's ownership interest in GSCC of credit issued by authorized banks; comparative amounts was approximately 180/0 and 190/0 at December 31, 1990 as of December 31,1989 were $74,049,000, $65,848,000 and and 1989, respectively. $361,222,000, respectively. Cash and cash equivalents: The Company's investment In January 1991, the Company entered into a policy allows for the investment of funds in overnight reverse $200,000,000 line of credit agreement with a major U.S. repurchase agreements. Such agreements provide for the bank to mitigate the liquidity risk associated with letters Company's delivery of cash in exchange for securities having of credit received as clearing fund deposits. a market value of at least 1020/0 of the amount of the agree Note 4 Transactions with Related Parties: ment. An independent custodian designated by the Company SIAC and DTC: Under the terms of an agreement, the Secu takes possession of the securities. Investments under reverse rities Industry Automation Corporation (SIAC), an entity repurchase agreements amounted to $50,000,000 and owned by NYSE and Amex, provides facilities, personnel and $37,000,000 at December 31, 1990 and 1989, respectively. services in support of the Company's operations. SIAC The counterparty to these agreements was a single financial charges NSCC for these services based on its direct, comput institution. The Company considers such overnight reverse er and overhead costs arising from providing such services. repurchase agreements to be cash equivalents. 18 The agreement has no expiration date and continues in effect Note 6 Pension Plans: unless satisfactory written notice of cancellation is given by The Company ha~ a trusteed noncontributory defined benefit either party. pension plan covering substantially all employees. Benefits NYSE, Amex and NASD: NSCC collects regulatory under this plan are based on employees' years of service and fees on behalf ofNYSE, Amex and NASD. At December 31, compensation during the years immediately preceding retire 1990 and 1989, no regulatory fees were due NYSE, Amex ment. The Company's funding policy is to make contribu orNASD. tions under the plan that meet or exceed the minimum GSCC: The Company has entered into an agreement funding standards under the Employee Retirement Income with GSCC to provide various computer and other support Security Act of 1974 and the Internal Revenue Code of 1986, services and office facilities. Charges under this agreement as amended. The Company also has a noncontributory are based on the Company's cost of providing these services. supplemental executive retirement plan which provides for The agreement expires in 1993; however, it will continue in certain benefits to identified executives of the Company upon effect unless notice of cancellation is given by either party. retirement which are in addition to benefits provided by the Costs under this agreement amounted to $4,756,000 and defined benefit pension plan. The Company's funding policy $4,557,000 in 1990 and 1989, respectively. The Company's with regard to this plan is to fund benefits accruing to general and administrative expenses are presented net of employees meeting certain requirements of the plan. Aggre these amounts. At December 31, 1990 and 1989, receiv gate pension C()-Jts for 1990 and 1989 for both plans are· ables from GSCC amounted to $495,000 and $264,000 summarized as follows: respectively. 1990 1989 The Company sublets a portion of its office space to Service cost $700,314 $508,607 SIAC. Rental payments received from SIAC amounted to Interest cost 362,730 267,692 $1,442,000 in 1990 and $1,605,000 in 1989. Actual return on plan assets (108,276) (580,789) NYSE, Amex and NASD own minority interests in The Net amortization and deferral (109,841) 417,533 Depository Trust Company (DTC), whose facilities are used Total pension cost $844,927 $613,043 by the Company. DTC fees included $11,234,000 and $12,070,000, net of rebates, in 1990 and 1989, respectively, The funded status of the plans at December 31,1990 and relating to charges for NSCC participants which the Compa 1989 is as follows: ny sponsors at DTC. NSCC passes through these charges 1990 1989 directly to the sponsored participants. In addition, the Com pany rents certain office space from DTC. Rental payments Actuarial present value of amounted to $795,000 in each of the years 1990 and 1989. benefit obligations: Amounts payable at December 31,1990 to SIAC and Vested benefit obligations ($1,855,770) ($1,506,747) DTC were $4,269,000 and $338,000, respectively ($3,856,000 Nonvested benefit obligations (421,624) (322,088) and $686,000, respectively, at December 31,1989). Accumulated benefit obligations (2,277 ,394) (1,828,835) Note 5 Income Taxes: Effect of salary projections (2,768,546) (2,301,319) The Company and ISCC file consolidated Federal and COIll Projected benefit obligations bined New York State and coInhined New York City incollle (5,045,940) (4,130,154) Fair value of plan assets 4,112,418 '3,017,342 tax returns. The difference between the Company's 42.0% effective tax rate for the year ended December 31,1990 Plan assets less than projected (40.0% for the year ended December 31,1989) and the 34% benefit obligations (933,522) (1,112,812) federal statutory tax rate, is primarily attributable to state Unrecognized net gain (299,203) (165,816) and local taxes. Unrecognized prior service cost (57,810) (191,164) Statement of financial Accounting Standards (SFAS) Unrecognized transitional No. 96, Accountingfor Income Taxes, mandates the liability liability 329,098 449,417 method for computing deferred income taxes. The Company Accrued pension cost ($ 961,437) ($1,020,375) intends to adopt SFAS 96 when adoption becomes mandatory The expected rate of return on plan assets was 8% in 1990 which presently is 1992. Adoption of this Statement is not and 1989. The discount rate and rate of increase in future expected to have a significant effect on the Company's compensation levels used in determining the actuarial present financial position or results of operations. value of accumulated benefit obligations were 8.75% and 8%, respectively, in 1990 and 8.5% and 8%, respectively, in 1989. 19 Notes to Consolidated Financial Statements National Securities Clearing Corporation (continued) Note 7 Commitments and Contingent Liabilities: At December 31,1990, future minimum annual rental The Continuous Net Settlement (CNS) system interposes the payments under all noncancellable operating leases are Company between participants in securities clearance and as follows: settlement. CNS transactions are guaranteed as of midnight Year Amount on the day they are reported to the membership as com 1991 $ 2,828,000 pared. The failure of participants to deliver securities to the 1992 2,853,000 Company on settlement date, and the corresponding failure 1993 3,016,000 of the Company to redeliver the securities, results in open 1994 3,217,000 positions. Open positions are marked-to-market daily. Such 1995 3,453,000 marks are debited or credited to the involved participants 1996 and thereafter 4,951,000 through the settlement process. At the close of business on December 31,1990, open positions due the Company Total minimum annual rental payments $20,318,000 approximated $843,803,000 ($580,322,000 at December 31, Rental expense amounted to $2,100,000 and $1,804,000, 1989), and open positions due by the Company to partici which is net of rental reimbursements from SIAC of pants approximated $514,837,000 ($378,058,000 at Decem $1,442,000 and $1,605,000 in 1990 and 1989, respectively. ber 31, 1989) for unsettled positions and $328,966,000 ($202,264,000 at December 31, 1989) for securities borrowed Note 8 Financial Instruments with Off-Balance-Sheet through the Company's Stock Borrow Program. Risk and Concentrations of Credit Risk: The Company also settles securities transactions for In the normal course of business, the Company is a party to certain other regional clearing exchanges. At the close of financial instruments with off-balance-sheet risk inasmuch as business on December 31, 1990, open positions due from the Company guarantees certain obligations of its partici regional exchanges and due to NSCC participants approxi pants under specified circumstances (see Note 7). If a partici mated $2,775,000 ($6,168,000 at December 31,1989), and pant fails to fulfill its obligations, the Company could be open positions due to regional exchanges and due from NSCC exposed to off-balance-sheet risk in excess of the amount rec participants approximated $7,502,000 ($3,845,000 at Decem ognized in the Company's settlement accounts receivable and ber 31, 1989). payable. In connection with an agreement that ISCC has with The Company mitigates its exposure to off-balance The International Stock Exchange (ISE) in London, ISCC sheet risk by requiring participants to meet certain capital has guaranteed the settlement obligations of ISCC's members requirements which are in excess of SEC-mandated capital at ISE and correspondingly, NSCC has guaranteed ISCC's requirements, monitoring compliance with other financial obligations to ISE. ISCC's members collateralize such obliga standards established by the Company and by requiring par tions by depositing clearing fund amounts with ISCC as ticipants to provide clearing fund deposits in the form of required pursuant to the ISCC Member's Agreement. cash, marketable securities or letters of credit (see Note 3). Throughout 1990 and 1989, ISCC had an unused 1,000,000 If a participant fails to fulfill its settlement obligations pound sterling line of credit with a major London bank. with the Company and the Company ceases to act on behalf Under the terms of the agreement with SIAC noted of the participant, the Company would liquidate that partici above, the Company is contingently liable for the cancellation pant's guaranteed security delivery and receipt obligations of SIAC computer equipment leases in the amount of and apply the clearing fund deposit received to satisfy any $9,859,000 at December 31, 1990. In accordance with the net outstanding obligation and/or loss. In the event that a agreement between NSCC and GSCC (see Note 4), $1,557,000 deficiency still exists, the Company is required to apply of these contingent liabilities are passed through to GSCC. against the deficiency at least 25% of its retained earnings or Additionally, in connection with SIAC's establishment such greater amount to be determined by the Board of Direc of a dual processing site, the Company has entered into an tors. The Company may assess the balance needed on a pro agreement indemnifying NYSE, the guarantor, for NSCC's rata basis to the remaining participants based upon their proportionate share of SIAC's long-term lease obligations. required clearing fund deposits. The Company's contingent liability under this agreement is As discussed in Note 1, the Company provides various approximately $2,000,000 per annum through 1998. services to members of the financial community who par ticipate in securities trade comparison, clearance and settlement. As such, the Company has a significant group concentration of credit risk since its participants may be impacted by economic conditions affecting the securities industry. 20 Report of Independent Branch Offices Accountants I+ice JJizterhouse • National Securities San Francisco Clearing Corporation 250 Montgomery Street To the Board of Directors and Shareholders of National San Francisco, California Corporate Office Securities Clearing Corporation 94104 55 Water Street In our opinion, the accompanying consolidated balance New York, New York 10041 Seattle sheets and the related consolidated statements of income and (212) 412-8400 770 Century Square Seattle, Washington retained earnings and of cash flows present fairly, in all Boston 98101 material respects, the financial position of National Securities One Boston Place Clearing Corporation and its subsidiary at December 31, Boston, Massachusetts Toronto 1990 and 1989, and the results of their operations and their 02108 Two First Canadian Place cash flows for the years then ended in conformity with gener Toronto, Ontario, Canada Chicago ally accepted accounting principles. These financial state M5XIA9 ments are the responsibility of the Company's management; 135 South LaSalle Street our responsibility is to express an opinion on these financial Chicago, Illinois International Securities statements based on our audits. We conducted our audits of 60603 Clearing Corporation these statements in accordance with generally accepted audit Dallas Corporate Office ing standards which require that we plan and perform the Plaza of the Americas 55 Water Street audit to obtain reasonable assurance about whether the TCB Tower New York, New York 10041 financial statements are free of material misstatement. An Dallas, Texas (212) 412-8400 audit includes examining, on a test basis, evidence supporting 75201 the amounts and disclosures in the financial statements, Government Securities assessing the accounting principles used and significant esti Denver Clearing Corporation mates made by management, and evaluating the overall Dominion Plaza Corporate Office 600 17th Street financial statement presentation. We believe that our audits 55 Water Street Denver, Colorado provide a reasonable basis for the opinion expressed above. New York, New York 10041 80202 (212) 412-8400 Detroit 3153 Penobscot Building February 22, 1991 Detroit, Michigan 48226 Los Angeles 727 West 7th Street Los Angeles, California 90017 Minneapolis IDS Center 80 South 8th Street Minneapolis, Minnesota 55402 St. Louis One Mercantile Tower St. Louis, Missouri 63101 21 Participating Organizations (asofDecember31,1990) ABD Securities Corporation Garden State Securities, Inc. Nesbitt Thomson Deacon Inc. Daiwa Securities America Inc. Adams, Harkness & Hill, Inc. Gowell Securities Corporation Odlum Brown Limited Datek Securities Corp. Adler, Coleman & Co., Inc. Hawthorne Securities Pictet (Canada) and Daugherty, Cole Inc. Advantage Capital Corporation Corporation Company, Limited Davenport & Co. of Virginia, Inc. Advest, Inc. Jefferies & Company,lnc. Prudential Bache Securities D.A. Davidson & Co. Inc. J. Alexander Securities, Inc. King, Keller, Inc. Canada Ltd. Shelby Cullom Davis & Company Fred Alger & Company Meadowbrook Securities, Inc. RBC Dominion Securities Inc. Dean Witter Reynolds Inc. Incorporated Merrill Lynch Specialists, Inc. Research Capital Corporation Deltec Securities Corporation Allen & Company Incorporated National Financial Services Richardson Greenshields of Deutsche Bank Capital Allen Securities Corp. Corporation Canada Limited Corporation Alpine Associates Ocean Hill Equities, Inc. Sanwa McCarthy Securities Diamant Investment Corp. Amalgamated Bank of New York PaineWebber Specialists, Inc. Limited Dillon, Read & Co. Inc. American Brokerage Services Pershing Division of ScotiaMcLeod Inc. Doft & Co., Inc. Inc./ODC Donaldson, Lufkin & Thomson Kernaghan & Co. Dominick & Dominick, American Enterprise Investment Jenrette Securities Ltd. Incorporated Services Inc. Corporation Trust La Laurentienne du Easton & Co. American Securities Corporation Prescott, Ball & Turbin, Inc. Canada A.G. Edwards & Sons, Inc. American Stock Exchange Clearing J.C. Bradford & Co. Wood Gundy Inc. Einhorn & Co. Corporation Broadcort Capital Corp. Yorkton Securities Inc. Eppler, Guerin & Turner, Inc. Arnhold and S. Bleichroeder, Inc. Brounoff, Claire & Co., Inc. Canadian Imperial Bank of Equico Securities, Inc. Asiel& Co. Alex. Brown & Sons Commerce Equity Securities Trading Co., Inc. BHF Securities Corporation Incorporated Cantella & Co. Ernst & Company BNYIITC Brown Brothers Harriman & Co. Cantor Fitzgerald & Co., Inc. Ernst Loan Services BNYIITC Investment Dealer Brown & Company Securities Cantor Fitzgerald Corporate Exchange Services, Inc. BT Brokerage Corporation Corporation Brokers, Inc. Execution Services Julius Baer Securities Inc. Brown, Lisle/Cummings, Inc. S.B. Cantor & Co., Inc. Incorporated Baird, Patrick & Co., Inc. P.R. Burke & Co., Inc. Capital Shares, Inc. Fagenson & Company, Inc. Robert W. Baird & Co., Burns Fry Hoare Govett Inc. Carr Securities Corp. Fagenson & Company, Inc.- Incorporated Burns, Pauli & Co., Inc. Carroll McEntee & McGinley Retail Bank of Montreal, New York Butler, Wick & Co., Inc. Incorporated Fahnestock & Co., Inc. Branch D.A. Campbell Company, Inc. J.W. Charles Securities, Inc. Fechtor, Detwiler & Co., Inc. The Bank of New York Campbell, Waterman, Inc. The Chase Manhattan Bank, N .A. Fernandez, Bartsch & Mirra The Bank of New York - Brokers Canadian Depository for Chase Securities Inc. Financial Network Investment Clearance Securities Limited Chemical Bank Corporation Bankers Systems Brokerage Brault, Guy, O'Brien, Inc. Chemical BanklCSI First Alabama Investments, Inc. Services, Inc. Brawley Cathers Limited The Chicago Corporation First Albany Corporation Bankers Trust Broker Clearing Bunting Warburg Inc. S.W. Childs Management Corp. The First Boston Corporation Unit Burns Fry Limited The Cincinnati Stock Exchange First Investor's Corporation Bankers Trust - Clearance Capital Group Securities Citihank Dealer - Municipal First Manhattan Co. Bankers Trust Company Limited Operations First of Michigan Corporation Bankers TrustlInvestment Cassels Blaikie & Co. Limited Citihank, N.A. First Options of Chicago, Inc. Services Connor, Clark & Company Ltd. Citihank - Private Banking First Southwest Company Barclays Bank International Darier Canada Inc. Division First Wachovia Brokerage Limited Deacon Barclays de Zoete Citizens and Southern Securities Service Corporation George K. Baum & Co. Wedd Limited Corporation Walter N. Frank & Co. Bear, Stearns & Co. Inc. Dean Witter Reynolds Coast Options Inc. Wm. V. Frankel & Co., Inc. Bear, Stearns Specialist (Canada) Inc. Comerica Bank - Detroit Freeman Securities Company., Inc. Bear, Stearns Specialists - Desjardins, Deragon, Commerzbank Capital Markets Freeman Welwood & Co., Inc. NYSE Langlois Ltd. Corporation French American Banking Corp. Sanford C. Bernstein & Co., Inc. Disnat Investment Inc. Common Back Office Inc. Albert Fried & Company Bidwell & Company First Boston Canada Limited The Connecticut Bank and Fundamental Corporate Bond Charles W. Blair & Co., Inc. First ¥arathon Securities Trust Company, N .A. Brokers, Inc. William Blair & Company Limited Coughlin & Co., Inc. Gage-Wiley & Co., Inc. Bocklett & Co. Goldman Sachs Canada County NatWest Securities J.W. Gant & Associates, Inc. Bodell Overcash Anderson & Gordon Capital Corporation Corporation USA Geldermann Securities, Inc. Co., Inc. Greenline Investor Services Inc. Cowen & Co. Geldermann Securities, Inc.- Boston Stock Exchange Clearing Guardian Trust Company Craig-Hallum, Inc. Specialists Corp. L.O.M. Western Securities, Ltd. Craigie Incorporated Glickenhaus & Co. Boston Stock Exchange Specialists Lafferty, Harwood & Cresvale International, Inc. Goldman, Sachs & Co. ABD Securities Corporation Partners Ltd. Crowell, Weedon & Co. Gordon & Co. BHF Securities Corporation Levesque Beaubien Custodial Trust Company Gradison & Company Burlington Securities Inc. Geoffrion Inc. Custodial Trust Company/PUP Incorporated Cantella & Co., Inc. Loewen, Ondaatje, Dain Bosworth Incorporated Griffin Financial Services The Chicago Corporation McCutcheon & Co., Ltd. Gruntal & Co., Incorporated Corey, McTavish Trading MacDougall, MacDougall & Oscar Gruss & Son Dean Witter Reynolds Inc. MacTier Ltd. Incorporated Dietrich & Company McNeil, Mantha, Inc. Ganoudis Securities Meridian Securities International Ltd. Merit Investment Corporation Midland Walwyn Capital Corp. 22 Hamilton Investments, Inc. Legg Mason Wood Walker National Westminster Bank USA Piper, Jaffray & Hopwood John Hancock Clearing Incorporated Neuberger & Berman Incorporated Corporation Lewco Securities Corp. New Japan Securities Porter, White & Yardley, Inc. Hanifen, Imhoff Inc. Liberty Street Trust Company International, Inc. Preferred Technology, Inc. J.F. Hartfield & Co., Inc. MKI Securities Corp. New Windsor Associates, L.P. Prudential-Bache Securities Inc. The Heitner Corporation MML Investors Services, Inc. Newbridge Securities Inc. E.J. Quinn & Co., Inc. Henderson Brothers, Inc. MN Services The Nikko Securities Co. RAF Financial Corporation Herzog, Heine, Geduld, Inc. MS Securities Services Inc. International, Inc. RBC Dominion Securities Hibbard Brown & Co., Inc. Mabon, Nugent & Co. Nomura Securities International, Inc. Corporation Hill, Thompson, Magid & Co., Inc. MacAllaster Pitfield Mackay Inc. The Northern Trust Company- R.J. Stock Lending J.J.B. Hilliard, W.L. Lyons Inc. Bernard L. Madoff Trust Income Collections RSF Partners William R. Hough & Co. Manufacturers and Traders John Nuveen & Co. Incorporated Ragen, MacKenzie Incorporated Howard, Weil, Labouisse, Trust Company O'Connor & Associates Rauscher Pierce Refsnes, Inc. Friedrichs Incorporated Manufacturers Correspondent Offerman & Co., Inc. Raymond, James & Associates, Inc. Wayne Hummer & Co. Clearing Services Olde Discount Corporation W.H. Reaves & Co., Inc. Huntleigh Securities Manufacturers Hanover Oppenheimer & Co., Inc. Refco Securities, Inc. Corporation Securities Corporation Pacific Brokerage Services, Inc. Refco Securities Inc.IHTC IBJ Schroder Bank & Trust Co. Manufacturers Hanover Trust Pacific Stock Exchange Refco Securities, Inc.lStock INC Trading Corporation Company Specialist Account Loan Icahn & Co., Inc. Manufacturers Hanover Trust ABD Securities Corporation Richardson Greenshields Ingalls & Snyder Company - Municipal AGF Securities Inc. Securities Inc. Instant Funds Incorporated Dealer Operations Adams-Fastnow Company, M. Rimson & Co., Inc. Instinet Corporation Marcus Schloss & Co., Inc. Inc. Robb, Peck, McCooey Clearing Interstate/Johnson Lane Marine Midland Bank - The Chicago Corporation Corporation Corporation New York Crowell, Weedon & Co. Robertson, Stephens & InvestNet Corporation Marketing One Securities, Inc. D.A. Davidson & Co. Inc. Company JJC Specialist Corp. Mayer & Schweitzer, Inc. Dean Witter Reynolds Inc. Rodman & Renshaw, Inc. JMS Execution Services McCourtney-Breckenridge & Donaldson, Lufkin & Jenrette Rodman & Renshaw, Benjamin Jacobson & Sons Company Securities Corp. Inc.lAccount No.2 Janney Montgomery Scott Inc. McDaniel Lewis & Co. Garat & Co. Roney & Co. Jefferies & Co., Inc. McDonald & Company Goldberg Securities, Inc. Roosevelt & Cross, Incorporated Jesup Josephthal & Co., Inc. Securities, Inc. Shiels Hoelscher & Co. Roulston Research Corp. Edward D. Jones & Co. M.J. Meehan & Co. Hopkins, Harbach & Co. SBCI Swiss Bank Corporation S.A. Judah & Co., Inc. Mellon Bank, N.A. Jefferies & Company, Inc. Investment banking Inc. KK&Company Mellon Securities Trust Co. Kemper Securities Group, Inc. SLS Clearance Kalb, Voorhis & Co. Mercator Partners Ronald E. Melville, Inc. SLS Securities Limited KanKaKu Securities (America) Inc. Mericka & Co., Inc. Merrill Lynch Specialists Inc. Partnership H. Kawano & Co., Inc. Merrill Lynch, Pierce, Fenner & Mesirow Capital, Inc. Sage Clearing Corporation Kellner, DiLeo & Co. Smith Inc. Mitchum Securities, Inc. Sage Clearing/Executions Kellogg Equities Execution Merrill Lynch, Pierce, Fenner & National Financial Services Sage, Rutty & Co., Inc. Kemper Clearing Corp. Smith Inc. - Securities Corporation Sage-Chicago L.P. J.J. Kenny Drake, Inc. Lending PSE LA SCOREX Salomon Brothers Inc Kessler, Asher Clearing Inc. Merrimack Valley Investment luc. PSE SF SCOREX Santa Barbara Bank & Trust Kidder, Peabody & Co. Mesirow Capital, Inc. PaineWebber Specialists Inc. M.A. Schapiro & Co., Inc. Incorporated Midlaud Walwyn Capital Post 96 Partners Charles Schwab & Co., Inc. Kimball & Cross Corporation Seidler Amdec Securities Inc. ScotiaMcLeod (USA) Inc. C.L. King & Associates, Inc. Midwest Clearing Corporation Shearson Lehman Brothers Inc. Scott & Stringfellow Investment Koonce Securities Inc. Bartlett & Co. TCWlnc. Corporation Henry KriegerIDBI L.P. Equitable Securities Wedbush Securities, Inc. Seasongood & Mayer LIT America, Inc. Corporation Weeden & Co. Seattle Northwest Securities LIT America, Inc.IDOT Howe, Barnes & Johnson, Inc. Don C. Whitaker Inc. Corporation LIT America, Inc.IDOT2 The Ohio Company L.W. Wilson & Co., Inc. Security Pacific Loan Group LIT America, Iuc. Securities Stephens Inc. PaineWebber Incorporated Security Pacific National Trust Lending Montgomery Securities PaineWebber Specialists, Company LIT Trading Morgan Guaranty Trust Incorporated - deCordova Morton Seidel & Co., Inc. LaBranche & Co. Company of New York Division Shearson Lehman Brothers Inc. Emmett A. Larkin Co., Inc. J.P. Morgan Securities Inc. S.C. Parker & Co., Inc. Smith Barney, Harris Upham & Lashco, Inc. J.P. Morgan Securities Inc.- H.M. Payson & Co. Co. Incorporated Lashco, Inc. - Account No.2 Fixed Income Division Pershing Division of Donaldson, Smith, Moore & Co. Lasker, Stone & Stern Morgan, Keegan & Company, Inc. Lufkin & Jenrette Smith New Court, Carl Marks Inc. C.J. Lawrence, Morgan Morgan Stanley & Co. Incorporated Securities Corporation Societe Generale Securities Grenfell, Inc. Murphey, Marseilles, Smith & Pflueger & Baerwald Inc. Corporation Lawrence, O'Donnell, Marcus Nammack, Inc. Carl H. Pforzheimer & Co. Southwest Securities &Co. Murphy & Durieu Incorporated Lazard Freres & Co. NB Clearing Corporation Spear, Leeds & Kellogg NFSCO - Stock Loan Spear Securities, Inc. National Financial Services State Street Bank and Trust Corporation Company, N.A. National Westminster Bank N.J. 23 Participating Organizations (as of December 31, 1990) P.J. Steichen & Co. For Mnnicipal Comparison Only Chase Securities Inc.!Syndicate First Interstate Bank of Stern & Kennedy Acker, Wolman Securities Corp. Citibank (Arizona) California - Dealer Bond M.L. Stern & Co., Inc. Adams McEntee, Fleet Norstar Citicorp Securities Markets, Inc. Department Sterne, Agee & Leach, Inc. Securities, Inc. City National Bank, Beverly First Interstate Bank of Stifel, Nicolaus & Company American National Bank Hills, California Denver, N.A. Incorporated St. Paul Colorado National Bank of First Interstate Bank of Stock Clearing Corporation of American National Bank & Trust Denver Oklahoma City - Philadelphia Company of Chicago Comerica Bank - Detroit . Investment Division BHC Securities, Inc. American Security Bank, N.A. Commerce Bank of Kansas First Interstate Bank of Susquehanna Investment (Washington, D.C.) City, N.A. Oregon, N.A. Group AmSouth Bank, N.A. Commerce Bank of St. Louis, N .A. First Interstate Bank of StockCross, Inc. BT Securities Corporation Commercial National Bank of Texas, N.A. Stokes, Hoyt & Co. Banc One Capital Corporation Peoria First Interstate Bank of Stone & Youngberg Bank IV Wichita, N .A. C<;lnnecticut National Bank- Washington - Bank J. Streicher & Co. Bank of America, BISD Dealer- Investment Dealer Investment Department Sutro & Co. Incorporated Portfolio Conners & Company The First National Bank of Henry F. Swift & Co. Bank of California R.W. Corby & Company, Inc. Boston - Dealer Swiss American Securities, Inc. Bank of Hawaii Core States Bank, N.A. - Core First National Bank of Chicago/ Timber Hill, Inc. The Bank of New York States Capital Markets First Chicago Capital The Toronto-Dominion Bank Society National Bank Country Club Bank, Kansas City Markets, Inc. Transatlantic Securities Texas Independent Bank Crews & Associates, Inc. First National Bank of Company Valley Fidelity Bank & Dart, Papesh & Co., Inc. Commerce (New Orleans) Tucker Anthony Incorporated Trust Company Denver National Bank- First National Bank of Maryland UBS Securities Inc. Bank of Oklahoma, N.A. Investment Dept. First National Bank of U.S. Clearing Corporation Bank One, Indianapolis, N.A. Deposit Guaranty National Minneapolis - Bond Dealer Unified Management Bank One, Milwaukee, NA Bank, Jackson, MS First National Bank of Corporation Bankers Trust Company The Depository Trust Company Sp ring/ield United Missouri Bank Cantor Fitzgerald & Co., Manufacturers National Bank The First National Bank & United Missouri Bank of Kansas Inc. - Retail Dealer of Detroit - Municipal Bond Trust Co. of Tulsa - City, N.A. Citizens First National Dept. Investment Division United States Trust Company of Bank of New Jersey Star Bank, N.A. First Security Bank of Utah, New York Citizens Trust Company Wachovia Bank & Trust N.A. Universal Securities Corporation Crestar Bank Company, N.A. First Southern Securities, Inc. Vail Securities Investment, Inc. First Commercial Bank of Ladd Dinkins & Company First Tennessee Bank, N.A. Van Kampen Merritt Inc. Little Rock Discount Corporation of New First Union National Bank of W & D Securities, Inc. First Florida Bank, N.A. York Municipals North Carolina WSI Stock Loan First Interstate Bank of Doley Securities Inc. First Wisconsin National Bank Wachtel & Co., Inc. Nevada, N.A. Dominion Bank, N.A. of Milwaukee Wagner Stott Clearing Corp. Grigsby, Brandford & Co., Inc. (Roanoke, VA) Florida National Bank Wagner Stott Clearing Midlantic National Bank Donaldson & Co. Incorporated (J ackson ville) Corp.!Cohen Feit & Co. E.A. Moos & Co. Incorporated Douglas & Co. Municipals, Inc. Fox Reusch & Co., Inc. Wagner, Stott & Co. National City Bank, Cleveland Duke McElroy & Company, Inc. The Frazer Lanier Company Wall Street Equities, Inc. Pacificorp Capital Securities, Egan, Marrin & Rubano, Inc. Frost National Bank - Bond Dept. Wall Street Investment Services Inc. R.W. Ellwood & Co., Inc. Halpert and Company, Inc. Walnut Street Securities, Inc. D.A. Pincus & Co., Inc. Equibank Harper, Mclean & Company S.G. Warburg & Co., Inc. R. Seelaus & Co., Inc. European American Bank Hattier, Sanford & Reynoir Waterhouse Securities Inc. William E. Simon & Sons The Exchange National Bank of The Huntington National Bank Weber, Hall, Sale & Associates, Inc. Municipal Securities, Inc. Chicago Hutchinson, Shockey, Erley & Co. Wechsler & Krumholz, Inc. Sterling, Grace Municipal Fidelity Bank, N .A. Indiana National Bank Wedbush Morgan Securities, Inc. Securities Corporation The Fifth Third Bank Johnston, Brown, Burnett & Weiss, Peck & Greer The Summit Trust Company First American Bank of Knight, Inc. H.G. Wellington & Co., Inc. Barnett Bank of Jacksonville, Georgia, N.A. Lex Jolley & Co., Inc. Wells Fargo Bank, N.A. N.A. First American National Bank- Joe Jolly & Co., Inc. Wells Fargo Institutional Trust Barr Brothers & Co., Inc. Nashville Kirchner Moore, A Division of Company BayBank Boston, N.A. First Bank George K. Baum & Wheat, First Securities, Inc. Boatmen's National Bank of First Bank (N .A.) Milwaukee Company Thomas F. White & Co., Inc. St. Louis - Dealer Account First Charlotte Corporation W.L. Knox & Company Williams Securities Group, Inc. Branch Banking & Trust Co. First Citizens Bank & Trust LaSalle National BanklDealer Wilshire Associates Incorporated Broadway Financial Investment Company Operations Wolfe & Hurst Bond Brokers, Inc. & Services Corp. First City, Texas - Houston, N.A. David Lerner Associates, Inc. Arthur W. Wood Company Clayton Brown & Associates, Inc. First Commercial Bank Liberty National Bank and Trust Wood Gundy Corp. K.R. Butler, Inc. First Fidelity Bank, N.A., New Company (Louisville, KY) Yamaichi International C & S National BanklDealer JerseylMunicipal Dealer Liberty National Bank & Trust (America), Inc. Cape Cod Bank & Trust Co. - First Institutional Services Company Investment Dept. B.C. Ziegler & Company Trust and Investment Corp. (Oklahoma City, OK) Ziegler Thrift Trading, Inc. Division First Interregional Equity Corp. M&I Marshall & Ilsley Bank Carolan & Co., Inc. First Interstate Bank of Manufacturers and Traders Carty & Company, Inc. Arizona, N.A. Trust Co. - Muni Trading Central Bank of the South & Safekeeping Chapdelaine & Co. Chase Lincoln First Bank, N .A. 24 Manufacturers Hanover Trust J.A. Overton & Co. Sisung Securities Corporation Freedom Distributor Company PNC Securities Corp. R.W. Smith & Associates, Inc. Corporation Alamo National Bank Berney Perry & Company, Inc. Southeast Bank, N.A. GT Global Financial Services The Arizona Bank Pittsburgh National Bank Southtrust Bank of Alabama, N .A. The Gabelli Funds Inc. Banco Popular de Puerto Rico Rhode Island Hospital Trust Sovran Investment Corp. Gabelli Funds - (NFDS) BancOhio National Bank National Bank J.W. Sparks Municipals, Inc. Goldman, Sachs & Co.lMntuai Bank of Virginia Rickel & Associates Stoever, Glass & Co. Inc. F~nds Bankers Trust of South SSB - Bank Portfolio TEAM BankIFort Wortb Guardian Investor Services Carolina Scheetz, Smith & Company, Inc. Texas Commerce Bank, N.A. Corporation Boatmen's National Bank of Schmidt Securities, Inc. Third National Bank in John Hancock Distributors, Inc. St. Louis Seattle First National Bank Nashville Home Group Funds Central Fidelity Bank Seattle - Northwest Securities Thornton, Farish & Gauntt Huntington Investment Inc. Central Fidelity Bank - Corporation Titus & Donnelly Inc. Investment Trust of Boston Investments Security Pacific Bank Trust Company Bank - Distributors, Inc. Central Fidelity Bank Washington Investment Banking Kemper Financial Services, Inc. (Lynchburg, VA) Security Pacific Clearing & Division Keystone Distributors Inc. . Corpus ChristiNational Bank Services Corp . Trustmark National Bank! Lord, Abbett & Company First National Bank of Adams, Block & Coe Investment Division MFS Financial Services Louisville Securities U.S. Bank of Washington Company The First National Bank of Asch-Dwyer Municipal National Association Mackenzie Investment Shreveport Securities L.P. Unihanc Trading Management Inc. 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