Depository Trust & Clearing Corporation

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Depository Trust & Clearing Corporation
DTCC logo large.gif
Founded 1999
Headquarters New York
Key People Michael Bodson, President and CEO; Robert Druskin, Non-Executive Chairman
Website www.dtcc.com/

Depository Trust & Clearing Corporation (DTCC) is a U.S. holding company formed in 1999 to combine the Depository Trust Company (DTC), the National Securities Clearing Corp. (NSCC) and three other units providing post-trade services to exchange-traded and over-the-counter (OTC) securities. All units include:

DTCC, through its subsidiaries, provides clearing, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives. In addition, DTCC processes mutual funds and insurance transactions, linking funds and carriers with their distribution networks.

DTCC's depository provides custody and asset servicing for 2.8 million securities issues from the U.S. and 107 other countries and territories, valued at $36 trillion.

We are DTCC - Capabilities Reel, 2015

History

Wall Street's "Paperwork Crisis"

The depository, DTC, and the oldest of the DTCC's clearing subsidiaries, NSCC, were both created in response to the paperwork crisis that developed in the securities industry in the late 1960s and early 1970s. At that time, brokers still exchanged paper certificates and checks for each trade, sending hundreds of messengers scurrying throughout Wall Street clutching bags of checks and securities.[1]

With the New York Stock Exchange (NYSE) handling 10 to 12 million shares daily, brokers were drowning in paperwork, and concern about risk was growing in Congress, the SEC, and elsewhere.

The crisis became so severe that, to help reduce the backlog, the exchanges closed every Wednesday, shortened trading hours on the other days, and extended settlement to T+5 from T+4. Eventually the industry developed two separate and distinct approaches to solve the paperwork problem.

The first solution was to immobilize physical stock certificates by maintaining them in a central location or depository, and to record changes of ownership using "book-entry" accounting methods where no certificates actually change hands. Initially, this was done by the NYSE and its Central Certificate Service. That led to the creation of DTCC's depository subsidiary in 1973.

The second approach to solving the paperwork crisis involved a concept called multilateral netting. If one broker does 100 trades in IBM, both buying and selling at different prices with a variety of different brokers, there are few opportunities for netting. By interposing a central organization as the counterparty to all trades, all of those broker's trades in IBM could settle to one net position, and all money for trades in all securities could settle to a single dollar figure owed to or from the central counterparty.

Today, with net money settlement, only a single money transfer is required, reducing the dollar amount of financial obligations by as much as 98 percent.

More Recent Initiatives

Global Trade Repository

In September 2009, amid the fallout from the global financial crisis, the leaders of the G-20 met in Pittsburgh to hammer out a coordinated approach to regulatory reform. Chief among their concerns was the lack of transparency in OTC derivatives. The Pittsburgh statement set out four priorities – execution transparency, mandatory clearing, data storage and accessibility, and heightened capital buffers. The idea was to have a central repository of OTC derivatives trades, standardized and searchable, so that relevant authorities could monitor data and identify systemic imbalances.

The GTR operates as a trade repository for all OTC derivative contracts, providing regulators with access to information used on a variety of basis. GTR service supports the mandatory reporting as regulations are finalized in each country, such as the Dodd Frank Act and the European Market Infrastructure Regulation (EMIR). [2]

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DTCC's initial vision called for a single repository to be reported into and used by all G-20 regulatory bodies, for all asset classes, including credit, equities, interest rates, commodities and FX. However, as of 2015, there are six approved trade repositories in Europe, and four provisionally-registered swap data repositories in the U.S.[3][4]

In July 2012, it was announced that DTCC and SWIFT had been named by the Commodity Futures Trading Commission (CFTC) to provide the CFTC Interim Compliant Identifier (CICI) for legal entities involved in over-the-counter (OTC) derivatives trading, part of a global legal entity identifier (LEI) system being built across jurisdictions.[5] The initial designation was for a two year term, but has been extended on two occasions. DTCC's Global Markets Entity Identifier (GMEI), as it is now known, creates and assigns LEIs.

As of 2016, GMEI hold about 50 percent of the global market in LEI issuance, with over 200,000 issuances in 184 jurisdictions.[6]

MarkitSERV

In September 2009, the DTCC and Markit launched a joint venture called MarkitSERV, which combines the two organizations' electronic trade confirmation and workflow platforms to provide a single gateway for over-the-counter (OTC) derivative trade processing.[7] In April 2013, Markit purchased DTCC's share to become sole owner.

Omgeo

In October of 2013, DTCC became whole owner of post-trade operations firm Omgeo[8], which DTCC and Thomson Reuters launched in 2001.[9] Before Omgeo became a wholly-owned subsidiary, DTCC and Thomson Reuters served as equal owners and strategic partners. Thomson Reuters continues as a key service provider to and partner with Omgeo. [10]

Clarient Global

In July 2014, DTCC launched Clarient Global LLC along with six big banks. Clarient's key product, Clarient Entity Hub, is a central repository for information about banks' institutional clients designed to help the banks cope with internal risk management requirements and Know Your Customer (KYC), Foreign Account Tax Compliance Act (FATCA) and other client data and documentation challenges.[11]

Clarient went live with its first customers in June 2015 and by the end of its first year had signed over 90 clients for its Clarient Entity Hub.[12]

DTCC Euroclear Global Collateral

In September 2014, Euroclear and DTCC created a joint venture to focus on collateral processing. The joint venture combines a margin transit utility (MTU) for straight-through processing of margin obligation settlement with a collateral management utility (CMU) that addresses collateral optimization challenges.[13]

Blockchain Partnership with IBM

In January of 2017, DTCC said it was partnering with IBM to put the payment and record-keeping system for credit-default swaps on a blockchain by early 2018. The move is designed to reduce redundancies and cut costs. IBM, as well as the blockchain startups R3 and Axoni, will help DTCC create the single network of credit-swaps users.[14]

Key People

References

  1. "Responding to Wall Street's Paperwork Crisis”. Depository Trust & Clearing Corporation.
  2. DTCC GTR. DTCC.
  3. List of registered trade repositories. ESMA.
  4. Swap Data Repository Organizations. CFTC.
  5. /2012/dtcc_swift_compliant_identifier.php Press Release. DTCC.
  6. DTCC’s Legal Entity Identifier Service Surpasses 200,000 LEIs. DTCC.
  7. Markit and DTCC launch OTC derivatives trade processing JV. Finextra.
  8. DTCC To Acquire Full Ownership of Omgeo. BusinessWire, via Yahoo! News.
  9. About. www.Omgeo.com.
  10. DTCC Acquires 100% of Omgeo. Omgeo.
  11. DTCC Collaborates With the Industry to Launch New Client Data and Documentation Utility. DTCC.
  12. OVER 90 CLIENTS SIGN TO ADOPT CLARIENT ENTITY HUB AS THEIR KYC AND CLIENT ENTITY DATA UTILITY. Clarient.
  13. DTCC and Euroclear create collateral processing Joint Venture. GlobalCollateral.
  14. IBM Partners With Wall Street to Bring Blockchain to CDS Market. Bloomberg.