Table of Contents
- What Is the Depository Trust Company (DTC)?
- Key Takeaways
- How the Depository Trust Company (DTC) Works
- History of the DTC
- Functions of the DTC
- What Is a DTC Clearing Number?
- What Does DTC Eligibility Mean?
- What Is the DTCC?
- How Does DTCC and DTC Monitor for Money Laundering?
- How Will an Investor Know if DTC Has Issued a Freeze?
- The Bottom Line
What Is the Depository Trust Company (DTC)?
Let me tell you about the Depository Trust Company, or DTC, which stands as one of the world's largest securities depositories. I founded it in 1973 right here in New York City, organized as a limited purpose trust company. What I do is provide safekeeping through electronic record-keeping of securities balances, and I also function as a clearinghouse to process and settle trades in corporate and municipal securities.
Key Takeaways
You should know that I was founded in 1973 and rank among the world's largest securities depositories. My automated system directly lowers costs and boosts accuracy in operations. I offer services like direct registration, underwriting, reorganization, and proxy and dividend handling. In 2021, I held more than 1.3 million current securities issues, valued at $87 trillion, issued in the US and 131 countries and territories.
How the Depository Trust Company (DTC) Works
I'm registered with the Securities and Exchange Commission (SEC) and a member of the US Federal Reserve System. I was created to cut costs and enhance clearing and settlement efficiencies by immobilizing securities and handling book-entry changes to ownership. The biggest broker-dealers and banks in the United States participate with me; they deposit and hold securities here, which show up in an issuer’s stock records as me being the sole registered owner of those deposited securities.
At the end of each day, I provide financial institutions with records of net settlement obligations from trading in equity, debt, and money market instruments. As I mentioned, in 2021 I held over 1.3 million securities issues worth $87 trillion from the US and 131 countries.
History of the DTC
Back in 1968, the New York Stock Exchange (NYSE) got overwhelmed by paperwork from high trade volumes, so it set up the Central Certificate Service (CCS) to handle things like maintaining daily share prices. Then, in early 1973, I was created to take over the CCS business and extend depository benefits to other parts of the financial industry, especially banks.
The Depository Trust and Clearing Company (DTCC) owns me and manages risks in the financial system. I used to be independent, but in 1999, I was consolidated with other securities-clearing companies and became a DTCC subsidiary. Importantly, I've enabled the NYSE to handle billions of trades per day.
Functions of the DTC
I hold trillions of dollars in securities, including corporate stocks and bonds, municipal bonds, and money market instruments. You as an individual won't interact with me directly; instead, securities brokers, dealers, institutional investors, depository institutions, issuing and paying agents, and settling banks do.
Owned by various financial industry companies, with the NYSE as one of my largest shareholders, I provide several services. I settle funds at the end of each trading day using continuous net settlement through the National Settlement Service Corporation (NSCC). I ensure safekeeping and handle record-keeping. I also manage direct registration, underwriting, reorganization, and proxy and dividend services. When a company announces dividends, I allocate and report payments to shareholders. I offer global tax services too. If there are market irregularities, I alert companies and can impose a 'chill' to limit services or a 'freeze' to completely restrict DTC services on all the company’s securities.
What Is a DTC Clearing Number?
A DTC number facilitates transactions between financial institutions. It's typically linked to the clearing firm your IRA custodian uses. To find your custodian’s DTC number, contact them directly.
What Does DTC Eligibility Mean?
A DTC-eligible security is one that's freely tradable under US securities laws and qualified to be held and serviced by me. You can find the full eligibility criteria in my Operational Arrangements.
What Is the DTCC?
The DTCC, along with its companies including my subsidiary role, acts as the post-trade market infrastructure. We provide automation, centralization, standardization, and streamlining for processes vital to market safety and security.
How Does DTCC and DTC Monitor for Money Laundering?
DTCC and I employ a Know Your Customer (KYC) Program with a risk-based approach to collect information and documentation about customers and subsidiaries' customers, as required by US and international anti-money laundering (AML) regulations.
How Will an Investor Know if DTC Has Issued a Freeze?
When I chill or freeze a security, I issue a 'Participant Notice' to participants, and these are publicly available on my website. For freezes, I provide optional automated notifications so participants can update systems to block future trading and alert their compliance departments.
The Bottom Line
In summary, I'm a limited purpose trust company and DTCC subsidiary. I provide safekeeping via electronic record-keeping of securities balances and act as a clearinghouse to process and settle trades in corporate and municipal securities.
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