What is DTCC?
The Depository Trust and Clearing Corporation (DTCC) is a U.S.-based financial services company focused on providing clearing and settlement services. It accepts deposits from more than 65 countries.
The DTCC was founded in 1999 as a way to merge the Depository Trust Company (DTC) and the National Securities Clearing Corporation (NSCC).
As such, the DTCC converges functions from both organizations. At the center of global trading, DTCC processes trillions of dollars worth of securities every day.
The DTCC acts as a centralized clearinghouse for a variety of exchange and equity platforms for most large banks and brokers in the United States.
It also settles transactions between securities buyers and sellers.
Today’s DTCC subsidiaries handle trade clearing to record and facilitate trading transactions while its depositories hold onto the certificates that are traded. Because of these key roles, the DTCC is the largest financial services processing corporation on the planet.
DTCC also plays a key role in financial markets across the globe by:
- Automating
- Centralizing
- Standardizing
- Streamlining
They’re also tasked with clearing, settling, and disseminating information about several securities products, like alternative investments, bonds, mortgages, government-back securities, and mutual funds.
Sometimes, clearing corporations earn fees for the work they do as a third party during a trade. For instance, when clearinghouses receive cash from buyers and securities from sellers. It is the clearinghouse that manages the exchange and collects a fee for the service. How much the fee is will depend on:
- The size of the transaction.
- How many services were needed.
- What kind of instrument is being traded.
Investors who make multiple transactions daily can earn a decent amount of fees. This often adds up for investors because the long positions are spread out over an extended amount of time.
Case study
Adrian is a stockbroker. One of his clients has just placed a securities order. So, Adrian relays the trade information to the NSCC for clearing services.
Once the transaction is complete, the NSCC gives Adrian a report that shows the net securities positions post-trade and money due for the transaction.
Then, the NSCC provides the DTCC with instructions they must follow. The DTCC is responsible for following these guidelines to ensure the funds—and thus, ownership—are transferred seamlessly.
Throughout the transaction, Adrian is tasked with adjusting his client’s account appropriately. This entire process usually happens in one day.
The bottom line
The Depository Trust and Clearing Corporation (DTCC) offers financial services for clearing and settlements for financial markets. It’s responsible for settling most securities transactions in the United States. The reason settlement is so important to securities transactions is that it boosts investor confidence while also reducing market risk.
