What is a Depository Trust & Clearing Corporation?

Depository Trust & Clearing Corporation is a company that offers financial services. It comprises of one depository and five clearing corporations. The company was established in 1999, and it is the largest corporation in the world, dealing with post-trade transactions. The DTCC serves in the United States and other parts of the world.

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How Does the Depository Trust & Clearing Corporation Work?

The National Securities Clearing Corporation subsidiary is the one that acts as a central counterparty, providing trade netting, guarantee, and risk management services for debit transactions and equity across the United States stock markets and exchanges. On the other hand, the DTCC subsidiary offers asset services in the United States for millions of securities and also in more than 60 countries. It is the major clearinghouse for many post-trade settlements institutions. It simplifies the complexities related to the following:

• Equities
• Money market instruments
• Mutual funds
• Insurance transactions for equities
• Corporate and municipal bonds
• Assets, wealth, and collateral management
• Derivatives, clearance, settlement, and information solutions
• Government and mortgage-backed securities
• Alternative investment and insurance products

Key Functions of DTCC

The owners of the DTCC are dealer-brokers that make trades in the financial markets on behalf of their customers. The DTCC major functions are as follows:

• To ensure a cheaper, faster, efficient, and accurate trading transaction process.
• To make available depositories certificates that trade daily in different financial markets. It processes all transactions and trades in every investment through its subsidiaries in the United States and also in foreign markets. It also transfers ownership on bond, stock, and investment certificates.

History of the Depository Trust and Clearing Corporation

In the 1960s, there was a significant rise in the trading volume. This increase forced markets such as New York Stock Exchange to shut down for some days so that it could catch up with its paperwork. The average trading volume in 1965 hit 5 million hares per day. By 1968, the volume had risen to an average of 15 million per day. Since the bond and stock certificate sold had to be delivered physically, the brokerage companies were forced to employ hundreds of messengers. Their work was to deliver the documents to the purchasing brokers. Due to increased trading, there was a piling of filing cabinets leading to poor storage of records giving room for significant errors. There was a need for better ways of facilitating trades by the investment industry so that they could provide proper security for the traded certificates. This need is what gave birth to the formation of companies in 1973 that could offer these services. The companies were created and would all operate under the DTCCs umbrella. The creation of DTCC helped in the settling of securities. For instance, in 2011, it was able to settle a good number of securities transactions in the U.S. It also worked on over $1.7 quadrillion securities across the world. This quick processing made DTCC become the worlds highest financial value processor. It currently operates a number of facilities in the New York metropolitan area. It also operates in several locations outside the United States.