The Depository Trust Company
From Wikipedia, the free encyclopedia
The Depository Trust Company ("DTC") is the largest central securities depository in the world, and is based in New York, New York.
DTC is a wholly owned subsidiary of The Depository Trust & Clearing Corporation.
DTC custodies more than 2.5 million securities issues valued at over $28 trillion, and it and its affiliates handle over $1 quadrillion of securities transactions a year. Its main function is to custody and "asset service" the securities.
While other central securities depositories formerly existed in the United States, DTC has acquired all of them, and is now the sole CSD in the United States. Midwest (in Chicago), Philadep (in Philadelphia),[1] and Participants Trust Company (in New York) were the last 3 remaining other CSDs in the United States, but all were acquired by DTC in the past few years.[2]
DTC is also a limited-purpose trust company organized under the laws of the State of New York, a clearing agency registered with the SEC under Section 17A of the Securities Exchange Act of 1934, a “banking organization” within the meaning of the New York Banking Law, and a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code.[3]
[edit] Early years
DTC was established in response to the paperwork crisis in the securities industry that developed in the late 1960s. At that time, brokers still exchanged physical certificates and checks for each trade. Hundreds of messengers scurried through Wall Street clutching bags of checks and securities.
With the NYSE handling only 10 to 12 million shares daily, brokers were buried in paperwork. The crisis was so severe that, in order to help reduce the backlog, the exchanges closed every Wednesday and shortened trading hours on other days.
In reaction, the industry decided to maintain (or immobilize) the physical certificates for stocks in a central location, and to record changes of ownership using "book entry" (where no certificates change hands) accounting records.
The NYSE established the Central Certificate Service (CCS) on a limited basis in 1968 to keep track of the total number of shares held and transferred by broker-dealers who were NYSE members. Banks formed the Banking and Securities Industry Committee (BASIC) to recommend solutions, and BASIC's work led to the creation of DTC, to immobilize securities for broker-dealers and banks, complete the book-entry delivery of those securities, and handle the myriad operational tasks required to provide centralized, automated processing. In 1973, with the help of NYSE employees, DTC assumed the operations of CCS and focused on custodial services for banks, brokers, and other institutions. DTC also began providing centralized post-trade processing of institutional trades to further streamline this activity. daily. Instead of hundreds or thousands of checks being written, a single net money figure could be computed and paid to or received from the central clearance and settlement organization for an entire day's trading.
[edit] SEC regulation
DTC is heavily regulated by the Securities and Exchange Commission.
The SEC Staff meets with DTC throughout the year to review its practices, and performs frequent periodic on-site inspections.
They also require DTC to have the capacity to facilitate the prompt and accurate settlement of securities transactions, and to safeguard securities and assets.
The standards require DTC to:
- Perform periodic operational risk assessments.
- Have a Board audit committee of non-management directors participate in selecting DTC's independent public accountant, and review its work.
- Have a competent internal audit department review internal accounting controls.
- Furnish audited financial statements to participants annually, and furnish unaudited quarterly financial statements on request.
- Furnish to participants annually an independent public accountant's opinion report based on a study and evaluation of DTC's system of internal accounting control.
- Have detailed plans to assure the physical safeguarding of securities and funds, the integrity of data processing systems, and the recovery from loss or destruction of securities, funds, or data.
In addition, the SEC generally does not allow DTC to make any significant changes to DTC's practices without:
- DTC first filing a request for SEC approval
- Awaiting publication of the proposal in the Federal Register, followed by a 35-day public comment period
- A rigorous analysis performed by the SEC Staff of the proposal and those public comments that have been received, typically including discussions between the Staff and DTC, leading at times to modifications in, and a resubmission of, the proposal
- If DTC has satisfied the Staff, the SEC's issuance of an Approval Order.
Generally, until all those steps have been completed, DTC cannot move forward with its proposal. As a practical matter, DTC finds itself making rule filings with the SEC once every 2 weeks or so. As a result of the rigorous level of analysis applied by the Staff, coupled with the Staff's obligation to often weigh competing interests and conflicting positions that may be expressed in public comment letters, approval orders generally follow months, or in the unusual case in which the conflicting interests that must be balanced are greatest, years later.[4]
[edit] Miscellaneous
Euroclear (in Brussels, Belgium) and Clearstream (in Luxembourg) are the second and third largest central securities depositories in the world.
