Citigroup implements Communicator's Qualified Institutional Buyer ID management service

QIB Hub, which manages QIB status information for over 25,000 institutional trading accounts, is one of Communicator's identity management solutions for the financial services industry.

Compliance, operations and settlement professionals must verify that customers are Qualified Institutional Buyers before marketing or selling 144A securities to them. SEC Rule 144A is intended to increase market efficiency by permitting private placements and other securities issues with reduced SEC registration and documentation requirements. Compared with registered, public offerings, a higher standard of qualification is needed for potential 144A securities purchasers, which include investment management firms, banks, insurance companies and employee benefit plans.

Communicator Inc has worked with its clients for several years on QIB compliance. QIB Hub automates the way institutional buyers and registered broker-dealers manage, share and renew Qualified Institutional Buyer letters. This enables financial services companies to significantly reduce the time, cost and risk of maintaining accurate QIB information for regulatory compliance purposes. A 'No Action' letter issued by the SEC to Communicator in 2002 further reduces dealers' risk in collecting QIB status data.

Citigroup is using QIB Hub to manage compliance with all of its relevant fixed income customers. "Citigroup has benefited from Communicator's identity management services for several years," said Scott Richter, managing director of Global Fixed Income Sales at Citigroup. "QIB Hub represents a major shift in the way Qualified Institutional Buyer letters are managed, shifting our operations and demands on customers from fax, microfiche and manual entry-based processes to an e-commerce environment. By automating the process and integrating the data into our sales and trading workflow, the service enables us to significantly reduce our data management costs, improve customer satisfaction and trade with confidence from a regulatory perspective."

How QIB Hub Works

Communicator Inc solicits QIB letters and renewal information from buy-side companies. Its team then collects, validates and adds the letters to the QIB Hub database. The QIB Hub data is subsequently made available to subscribing broker-dealers via a secure Web interface. If a broker-dealer subscribes to QIB Hub's integration services, the data is referenced against the company and account names in the broker-dealer's databases and cross-matched for business process integration purposes. The integration services also allow users to access the data in real-time within their applications.

Benefits of QIB Hub to Broker-Dealers

On the sell-side, many broker-dealers currently manage the QIB certification recording process in ways that are costly and potentially non-compliant with SEC regulations. Investment firms typically submit their SEC certification letters via fax, which are then scanned and stored either as electronic images or on microfiche. Identity information on the letters is entered into online databases either manually or via ad-hoc spreadsheet uploads. Making matters worse, it's often re-entered multiple times into relevant transaction and research systems. This multi-step identity-recording process can cost large securities dealers over $1 million per year. Firms with fewer QIB transactions also perceive letter acquisition to be a time-consuming regulatory compliance issue. Compliance officers may not be confident that their salespeople and traders always have up-to-date paperwork that must be in place prior to a 144A trade. The result of a trade made inappropriately is lost business for all parties involved.

QIB Hub reduces error rates and risk associated with inconsistent, manual processes. It also saves broker-dealers money and staff time by maintaining the infrastructure and processes required to solicit, renew, store and maintain QIB data. This ensures round-the-clock and round-the-globe availability of information.

Communicator's No Action letter from the SEC further reduces broker-dealers' risk. No Action letters are issued by the SEC to indicate that it has reviewed a particular activity and has noted that, based on the information provided, it would not take action against companies engaging in that activity. Communicator's No Action letter infers that registered broker-dealers can rely on QIB Hub to maintain their list of Qualified Institutional Buyers. Communicator is the only company whose No Action letter addresses fully-electronic delivery of QIB information.

Benefits of QIB Hub to Institutional Investors

On the buy-side, investment firms must submit their QIB certification letters to each securities dealer they work with. The multiplication of effort is compounded by the need to specify "sub-account" identities for firms on whose behalf an investment company works. With the SEC requiring firms to renew their QIB status every year-and-a-half, the result is a flurry of regulatory paperwork that does nothing to add to the profitability of any party.

QIB Hub reduces the number of requests institutional buyers receive for updates and renewal information. The secure, self-service Web site is the easiest way for buy-side firms to submit information and make updates to QIB certification forms. Communicator Inc uniquely can deliver QIB status information at the institutional, sub-account and individual user levels.

Identity Management for Compliance and Customer Relationship Objectives

QIB Hub is built on Communicator Inc's Hub ID secure identity management technology, which provides identity matching, authentication and authorization services. Since 1999, Hub ID has been managing over 400,000 identities across 2,500 companies in the securities industry. Customers of Hub ID include many of Wall Street's largest broker-dealers -- Citigroup, Credit Suisse First Boston, Goldman Sachs, JP Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, and UBS Warburg -- and their buy-side clients. Communicator has just released a white paper detailing how identity management addresses a number of financial services objectives, including "know your customer" compliance requirements such as those covered by the Patriot Act, enhanced e-commerce functionality and better-targeted marketing and sales efforts.

"QIB Hub is an example of Communicator Inc's turnkey services that manage all aspects of identity management for regulatory compliance," said Serge Shinkar, product manager for Communicator Inc. "Organizations using this service are relieved of the requirements for identity data collection, verification and update, information storage and application integration. Companies can therefore realize the business benefits of identity management without a lengthy implementation project."