The Troubled Assets Relief Program, signed into law in October 2008, includes a provision requiring broker-dealers and investment managers to track and report the cost basis of individual customers' securities.
Handling complex transactions such as wash sales and processing corporate actions automatically are some of the more pressing challenges financial services institutions must tackle.
Many cost basis systems do not track every cost basis method or allow customers to choose a method; retail brokers must act immediately to update these systems if they are to meet TARP's implementation deadlines.
The need to integrate cost basis solutions with existing systems such as trading interfaces and IRS Form 1099 tax reporting systems adds to the technology challenges.
TowerGroup expects two types of firms to emerge: those that simply comply with the legislation and those that look to gain a competitive advantage by using cost basis data to build tax management functionality.
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