EPN is now the industry standard for mortgage-backed securities pool notification. It brings the benefits of automation and innovation to the rapidly growing MBS marketplace, and it enables users to reduce risk and streamline their operations by providing an automated way for sellers to transmit MBS pool information to buyers quickly, efficiently and reliably.

Overview

A critical step in the trading of mortgage-backed securities (MBS) is informing the buyers of the securities what pools of mortgages will make up the securities. For mortgage-backed securities trades that are submitted to Fixed Income Clearing Corporation (FICC) for processing on a "to-be-announced" or TBA basis, allocation of mortgages to the pools is required two days prior to settlement. For many years, this allocation was a largely manual—and error-prone—process that relied on phones and fax machines, and required someone to be on the other end of the line to take down pool information. However, since 1996, when FICC's MBS Division created an Electronic Pool Notification (EPN) service, the process has become highly automated, using real-time, online technology.

EPN is now the industry standard for mortgage-backed securities pool notification. It brings the benefits of automation and innovation to the rapidly growing MBS marketplace, and it enables users to reduce risk and streamline their operations by providing an automated way for sellers to transmit MBS pool information to buyers quickly, efficiently and reliably.

Today, the successful delivery of EPN messages is denoted by the EPN time stamp, and is independent of whether or not the recipient is logged on to the system. As a result, the number of failed trades and their associated costs has been dramatically reduced.

In addition to the Computer-to-Computer Interface (CTCI) originally offered to members when the service was first started, the MBS Division has since implemented EaSy Pool (ESP) as a new communications front-end to the EPN system to provide a PC-based solution for the real-time exchange of pool information. Using a TCP/IP dial-up connection or a leased line through DTCC's SMART communications network, ESP provides for a "turnkey" implementation, with low start-up costs and a user-friendly message "turnaround" feature.

FICC continues to enhance its EPN platform, including boosting processing capacity to ensure that it can support the changing needs of its growing membership and provide them a safer, more efficient market in which to trade.

Who can use this service

EPN is intended for all firms that are engaged in the MBS pool allocation and notification process, including broker/dealers, inter-dealer brokers, commercial banks, Government Sponsored Enterprises (GSEs), mortgage originators, insurance companies, investment companies, investment managers/ advisors, mutual funds, trust companies, pension funds, international organizations, and organizations that act as principal to the underlying trade and maintain direct FICC accounts. Firms do not have to be members of FICC's MBS Division clearing services in order to use EPN.

Benefits

EPN enables users to:

• Exchange information online and in real-time,
• Substantially reduce clearance failures caused by late pool notification delivery,
• Re-allocate employee time associated with manual procedures,
• Obtain access to an equitable platform for delivery of MBS pool information,
• Provide additional and more detailed data more easily,
• Reduce risk and overall transaction costs.

How the Service Works

Forty-eight hours prior to settlement, the seller is required to inform the buyer of the specific pools related to a TBA position. EPN supports allocation information and trade details, including trade terms and the securities intended for delivery on settlement date. Obviously, the codes used to identify each security in the pool (e.g., MBS agency, product, coupon and maturity) are identical to those in the MBS Division's clearing system.

EPN users may exchange three different types of business messages to accomplish their notification needs. Two of the message types are for sellers. The other is for buyers. Sellers use the ON (Original Notification) message type to notify the buyer of an outstanding TBA allocation. Sellers also use the CX (Cancel) message to notify a buyer to disregard the terms of a previously sent ON. Buyers use the DK (Don't Know) message type to notify a seller that they do not concur with the terms of a previously sent ON.

New Message - Pool Substitution
FICC's MBS division introduced a fourth business message in early 2008 to simplify the task of canceling a mortgage pool and simultaneously replacing it with another pool. The pool substitution message, called CC (for Cancel and Correct) allows a seller to notify a buyer to disregard the terms of a previously sent ON and to replace those pools with new pool details provided in the message. The new message type streamlines procedures by eliminating the two-message process (canceling with a CX message and sending a new ON submission) when the seller intends to replace an entire pool with a different one.

All EPN messages consist of two parts, a header and a body. The header contains the essential message routing information of the seller and buyer along with the terms of the TBA trade for which the pool information is being provided. The body of the message contains from one to 250 pool detail records with the full complement of data necessary to achieve a successful notification.

The EPN system processes all messages real-time. As users submit messages to EPN, EPN performs basic edits and validation checks to ensure essential data integrity. Subsequently, EPN timestamps each message and forwards the message to the outbound queue of the recipient so that it can be returned to the sender. The time stamp placed by EPN on the message is the sender's evidence of "good delivery," that is, that notification was sent within the 48-hour timeframe (before 15:00:00 EST, and before 12:15:00 EST for CC messages when they are introduced).

Since EPN is a queue-based system, it's impossible for a sender to receive a busy signal. Message recipients may connect to EPN at any time throughout the day to retrieve messages from their queues or submit messages to EPN. Volume and/or turn-around objectives determine how much connect time is necessary.

In addition to ensuring that all data are carefully protected, EPN features sophisticated security capabilities, including disaster recovery services and a comprehensive back-up system.

EPN members may communicate with EPN in one of two ways: Computer-to-Computer Interface (CTCI) and/or via EPN EaSy Pool service (ESP). CTCI typically is used by high-volume organizations willing to develop or purchase custom application interfaces between EPN and their internal allocation (optimization) systems.

CTCI users are responsible for the development of their own Application Program Interface (API) as well as any necessary changes to internal allocation and/or optimization applications. Once development of the user's application and thorough in-house testing are completed, MBSD will test the user. Applicants who past the test achieve certification as a CTCI user.

ESP is a low-cost alternative to an EPN CTCI communication, offering high-speed data transmission and reliability. ESP is a PC-based application that resides on the member's desktop and is provided by MBSD free of charge. ESP gives members the ability to import or export data between in-house applications and EPN. The ESP software provides all the necessary message formatting and manages the communications with the EPN host.

Batch Reporting
In addition to the real-time reporting of pool notification, which occurs for both CTCI and ESP users, EPN also provides batch reports available in two formats:

1. Message Detail Report which includes the details of all messages received and delivered prior to Close of Business (COB) at 3 p.m., and when messaging closes at End of Day (EOD) at 5:30 p.m. on the current day.
2. Message Summary Report which, as its name indicates, provides summary information for all messages received and delivered prior to COB and EOD on the current business day.

Both the Message Detail and Summary Reports provide totals of the day's activity, which can be used to reconcile with user internal totals.

For More Information

If you would like further information about our Electronic Pool Notification Service for mortgage-backed securities, please contact your relationship manager via the Relationship Services Group Hotline at (800) 422 0582, or by email at rmsupport@dtcc.com.