When you buy or sell a stock, you call your broker or punch up an order online, and voila! You are a stock owner. But where are these transactions handled? Who is the one who holds the securities you own? Where is the money moved from when it exits your brokerage account? Well if you answered “it goes to a clearing house like the Depository Trust & Clearing Corporation (DTCC),” you’d of course be correct. But just what is the DTCC?
What It Is: The DTCC is a pretty huge enterprise with, by their own account (1) more than “$1.48 quadrillion in securities transactions in 2009.” DTCC handles transactions in “equities, corporate and municipal bonds, government-backed securities, money market instruments, and over the counter derivatives.” As well the DTCC involves itself in being a “processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks.” Some may say that the DTCC is in the business of business and even though the equities markets have been down and people are hurting, a business like DTCC seems almost immune to these stings as they keep trucking along and doing what they do.
History of DTCC: While the DTCC was only founded in 1999, its history goes way back. In the 1960’s, stocks were still an all-paper business. Brokers would send off physical statements to investors, they’d be carried through the streets by messengers, and as with any sort of system like this, certificates would get lost, incorrectly sent, or not sent at all. So in response to this crisis of popularity of the stock market, in the early 1970’s “the depository, DTC,” and the oldest of the current “clearing subsidiaries, NSCC,” were created. What these two fledgling arms of what would become the DTCC did was to create “central location or depository,” for stock certificates and “netting,” all the multiple trades a single broker may make to the same stock to one net position. These two tactics have reduced the dollar amount of financial obligations “by as much as 98%.” Pretty impressive indeed.
DTCC Today: With its automation and centralization services, DTC has helped streamline and the investment process while making the markets a freer and safer place for average investors. With their current asset servicing, DTCC has settled, in 2009, “more than $1.48 quadrillion in securities transactions.” That’s a lot of pesos.
DTCC Subsidiaries: The main subsidiaries that the DTCC operates through are “National Securities Clearing Corporation (NSCC), The Depository Trust Company (DTC), Fixed Income Clearing Corporation (FICC), DTCC Loan/SERV LLC, DTCC Deriv/SERV LLC, The Warehouse Trust Company LLC, DTCC Solutions LLC, and EuroCCP Ltd.” DTCC also has a joint venture company, Omego, which “…plays a critical role in institutional post-trade processing, acting as a central information management and processing hub for brokers, investment managers and custodian banks.”
While it’s not really necessary for John Q. Trader to know where his money goes once he executes a trade through his broker, it is an interesting bit of information for some. The next time you send off your trade, just imagine that you are probably now part of the $1.48 quadrillion swimming out there in DTCC settlement land. Don’t feel bad; even if you’re trading one million dollars that’s still nothing when you’re dealing in quadrillions!