* Schwab says SEC OKs broker-dealers' use of AIP platform
* Company says platform will save time for advisers
By John McCrank
NEW YORK, March 7 The process of buying
and selling of hedge funds and other alternative investment
assets will be much smoother for financial advisers following
the U.S. Securities and Exchange Commission's acceptance of a
standardized framework for doing so, said Charles Schwab Corp
Schwab said the SEC recently confirmed in a letter it would
take no civil or criminal actions against broker-dealers for
using the Depository Trust & Clearing Corp's (DTCC's)
Alternative Investment Products service (AIP) to establish
compliance with a broker's possession and control requirements.
DTCC began piloting AIP following the financial crisis in
response to calls for more standardization and transparency in
dealing with alternative assets. It based AIP on its Fund/SERV
platform, which it launched around 20 years ago and is now the
industry standard for processing and settling mutual fund
AIP automates and centralizes the processes related to trade
order initiation, money settlement and post-trade reporting of
pooled funds, such as hedge funds, funds of funds, private
equity funds, and non-traded real estate investment trusts.
Before AIP, the due diligence fell on Schwab and other
broker dealers, and the process could take weeks. Bernie Clark,
head of Schwab's adviser services unit, said that with AIP, it
expects to be able to conduct transactions for clients who want
to purchase alternative investments within 48 hours.
"It's a big win administratively and it's a big win in time
saving,", he said.
About 7,000 registered investment adviser firms managing
around $700 billion in assets use Schwab as a custodian. Of
that, around $5 billion is currently invested in alternative
"Although it's a small portion of the portfolio of the
adviser, it is incredibly important that we have this capability
so that we can handle their entire portfolio, so it's big,
although the numbers right now are small," said Clark.
He said he expects alternatives will become a more bigger
part of advisers' portfolios over time as more providers enter
the space and product development speeds up.
DTCC said on Tuesday that it would soon file a proposed rule
change with the SEC to amend its AIP rules. The proposal, if
adopted, will allow AIP participants to meet certain custody
requirements for uncertified alternative investment securities,
if those positions are processed on AIP.
"This development will improve significantly the
transparency, efficiency and risk profile of the current
processes," DTCC said.
DTCC provides clearance, settlement and information services
for equities, bonds, government and mortgage-backed securities,
money market instruments and over-the-counter derivatives.
DTCC's depository provides custody and asset servicing for
almost 3.7 million securities issues from the United States and
121 other countries and territories, valued at $39.5 trillion.
In 2011, DTCC settled nearly $1.7 quadrillion in securities
Schwab said it will host a webcast in April to help educate
advisers on AIP and how it will affect Schwab's custody of