What is the Depository Trust Company (DTC)?
The Depository Trust Company (DTC) is one of the largest securities depositories in the world. Founded in 1973 and based in New York, DTC is organized as a limited purpose trust company and provides custody through the maintenance of electronic records of securities balances. It also serves as a clearing house to process and settle corporate and municipal securities transactions.
Depository Trust Company
The settlement services provided by DTC are designed to reduce costs and risks and increase market efficiency. The DTC offers net settlement obligations at the end of each day resulting from the trading of stocks, debt instruments and money market instruments. DTC also provides an asset service, as well as a range of services.
Most of the country’s largest brokers and banks are participants in the DTC. This means that they deposit and hold securities in DTC, which appear in the share registers of an issuer as the sole registered owner of those securities deposited in DTC. Participants – banks and brokers – have a proportional interest in the total shares of an issuer held at DTC. Bank X, for example, may contain part of the group of BB share stocks held at DTC.
Key points to remember
- Founded in 1973, the Depository Trust Company is one of the largest securities depositories in the world.
- The automated DTC system reduces costs and improves accuracy.
- In addition to custody, record-keeping and clearing services, the DTC provides direct registration, underwriting, reorganization and proxy and dividend services.
- As at July 31, 2020, the DTC held more than 1.3 million outstanding securities issues valued at $ 54.2 trillion and issued in the United States and in 131 countries and territories.
History of DTC
The need for DTC appeared in the late 1960s when the New York Stock Exchange (NYSE) became unable to manage its trading volume, which was then over 8 million shares per day. Thanks in part to the creation of DTC, the NYSE can now handle billions of transactions a day. The automated DTC system reduces costs and improves accuracy.
The Depository Trust and Clearing Company (DTCC) owns the DTC. DTCC manages risks in the financial system. Formerly an independent entity, DTC was consolidated with several other securities clearing houses in 1999 and has become a subsidiary of DTCC.
The DTC has enabled the New York Stock Exchange to increase its trading volume to billions per day.
Scope of DTC Activities
DTC holds trillions of dollars in securities on deposit, including stocks and bonds, corporate bonds and money market instruments. He settles the funds at the end of each trading day using the National Settlement Service. DTC is registered with the Securities and Exchange Commission (SEC), is a member of the Federal Reserve System and is owned by many companies in the financial sector, with NYSE being one of its major shareholders. Individuals do not interact with DTC, but securities dealers, brokers, institutional investors, deposit-taking institutions, issuing and paying agents, and settlement banks do.
As of July 31, 2020, the DTC’s latest report, the depositary held more than 1.3 million outstanding securities issues valued at $ 54.2 trillion. These included securities issued in the United States and in 131 other countries and territories.
Additional services provided by DTC
In addition to custody, record-keeping and clearing services, the DTC provides direct registration, underwriting, reorganization and proxy and dividend services. When a company declares a dividend, for example, the DTC announces it, then collects the dividend payment from the issuing company, allocates the dividend payment to the shareholders and reports these payments. The DTC also provides global tax services.