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The Depository Trust Company is one of the most powerful financial services institutions. In order to grasp the industry you must understand how it works.
One of the most powerful financial services institutions is the Depository Trust Company. At the same time, relatively few people outside of the industry have an understanding of what it is or what services it provides. So when you tell people that the DTC holds more than $40 trillion of securities in its custody, it's understandable that they want to know more information about it and how it impacts every element of the financial services industry from day trading margin to the insurance industry.
The DTC was created in 1973 as a way for the major players in the financial securities industry to streamline its processes and provide additional security and a solid collateral analysis system. Now a subsidiary of the Depository Trust & Clearing Corporation (DTCC), it is owned by many of the largest companies in the financial services industry. The New York Stock Exchange is one of its largest shareholders, but its Board of Directors also includes representation from leading banking and financial service institutions such as Merrill Lynch, Goldman Sachs and Morgan Stanley.
When institutions make internal trades, the DTC provides the means for settlement of these trades. This involves using an affirmation system designed to ensure that there are no discrepancies between the internal trade information and the information supplied to the DTC.
Along with providing clearance and settlement services, the DTCC also provides financial services software designed to streamline processes and hasten clearance of transactions. For example, the DTCC recently announced the launch of "Attachments," a new electronic solution designed to streamline the processing of required paperwork and signatures for pre-sale and post-issuance transactions in the insurance industry.
Michael Dougherty is a financial writer who lives in Boston, MA. He has written for newspapers and magazines along with some of the leading online Web sites.
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