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FundSERV facilitates net settlement using two applications: Net Settlement Reporting (NSR) and Net Settlement Messaging (N$M). NSR deals with the settlement instructions while N$M facilitates the electronic exchange of funds.
Net Settlement Reporting (NSR)
All transactions acknowledged by the manufacturer during transaction processing are assigned settlement instructions including settlement dollar and unit values, applicable fees and taxes, as well as commissions and dilutions.
FundSERV’s NSR matches settlement instructions to the original order and calculates aggregate settlement totals per day for all network participants. Totals are adjusted with each new instruction up until the settlement day when they are sent to N$M for the electronic exchange of funds.
When accessed through FundSERV Web Services, NSR allows users to view aggregate totals including details of the orders and settlement instructions which make up those amounts.
Net Settlement Messaging (N$M)
Aggregate settlement totals calculated in NSR are sent to N$M the morning of settlement. N$M nets the totals, receives electronic payments from participants in a net payable position and makes payments to participants in a net receivable position.
For FundSERV's Canadian dollar payment exchange, the Royal Bank uses the Canadian Payments Association's Large Value Transfer System (LVTS). LVTS is the electronic wire transfer system that enables businesses to exchange irrevocable, same-day payments. For FundSERV's U.S. dollar payment exchange, the Royal Bank uses the Fedwire system.
A manufacturer with $500 of purchases and $100 in redemptions with a settlement date of January 1st would receive a $400 LVTS payment on the day of settlement.
Due to restrictions on commingling of cash (refer to National Instrument 81-102), FundSERV's procedures support two separate bank accounts and payment streams: trade-related activity and payments of commission-related activity.