Depository Trust Company - DTC

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DEFINITION

One of the world's largest securities depositories. The Depository Trust Company, founded in 1973 and based in New York City, is organized as a limited purpose trust company and provides safekeeping through electronic recordkeeping of securities balances. It also acts like a clearinghouse to process and settle trades in corporate and municipal securities.

INVESTOPEDIA EXPLAINS

The DTC emerged in the late 1960s when the New York Stock Exchange became unable to handle its trade volume, which was then in excess of 8 million shares per day. Thanks in part to the DTC, the NYSE now can handle billions of trades per day. As an automated system, the DTC lowers costs and improves accuracy. The Depository Trust Company is owned by the Depository Trust and Clearing Company, which manages risk in the financial system. Formerly an independent entity, the DTC was consolidated with several other securities clearing companies in 1999 and became a subsidiary of the DTCC.

The DTC holds trillions of dollars’ worth of securities in custody, including corporate stocks and bonds, municipal bonds and money market instruments. It settles funds at the end of each trading day using the Fedwire Funds Service. The DTC is registered with the SEC, is a member of the Federal Reserve System, and is owned by many companies in the financial industry, with the NYSE being one of its largest shareholders. Securities brokers, dealers, institutional investors, depository institutions, issuing and paying agents and settling banks use the DTC, but individual investors do not interact with it.

In addition to safekeeping, recordkeeping and clearing services, the DTC provides direct registration, underwriting, reorganization, and proxy and dividend services. For example, under its dividend services, it announces when a company declares a dividend, then collects the dividend payment from the issuing company, allocates dividend payments to shareholders and reports those payments.


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