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What is the 'Depository Trust Company - DTC'

The Depository Trust Company (DTC) is one of the world's largest securities depositories. The DTC, 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 as a clearinghouse to process and settle trades in corporate and municipal securities.

BREAKING DOWN 'Depository Trust Company - DTC'

The settlement services that the DTC provides are designed to lower costs and risk as well as increase the efficiency of the market. It offers net settlement obligations at the end of each day from trading in equity, debt and money market instruments. The DTC also provides asset servicing, along with a range of services.

Most of the country’s biggest broker-dealers and banks are DTC participants. That means that they deposit and hold securities at the DTC, which appears in the records of an issuer’s stock as the sole registered owner of those securities deposited at the DTC. The participants — the banks and the brokers-dealers — own a proportionate interest in the aggregate shares of an issuer held at DTC. For example, Bank X may contain a proportion of the group of shares of Stock BB that are being held in custody at the DTC.  

History of the DTC

The DTC emerged in the late 1960s when the New York Stock Exchange (NYSE) became unable to handle its trade volume, which was then more than 8 million shares per day. Due in part to the creation of the DTC, the NYSE now can handle billions of trades per day. The DTC lowers costs and improves accuracy through its automated system.

The Depository Trust and Clearing Company (DTCC) owns the DTC. The DTCC 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 Scope of the DTC's Activities

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 Securities and Exchange Commission (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 2012, the DTC settled 299.3 million securities, with a dollar amount of $110.3 trillion. As of July 31, 2017, the DTC held more than 1.3 million current securities issues valued at $54.2 trillion. These included securities issued in the United States and 131 other countries and territories. 

Additional Services Provided by the DTC

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

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