With the looming deadline to comply with new cost basis reporting requirements, companies must ensure effective communication between front-, middle- and back-office systems, people and processes. All of these pieces need to work in unison in order to create the necessary data and communicate changes to their clients over the next several years.
From a technology perspective, various data sources will need to communicate key data elements to your cost basis reporting engine. This involves securities masters and transactions. For example, there are special classifications implications around ETFs. Today you may have all ETFs in one category; however, some ETFs are considered covered in 2011 as stocks, while others will fall into 2012 since they are regulated investment companies (RICs).
Transactions must be accurately identified to allow cost basis to be properly established, adjusted or relieved. Since not all of this information may come from one single source, automation is crucial, but validations and flexibility are also important. Is there a process for validating information as it is being received? Are there rules written and reports available that allow an administrator to review data catch items early on?