What Is the Depository Trust Company (DTC)?
The Depository Trust Company (DTC) is one of the world's largest securities depositories. Founded in 1973 and based in New York City, the DTC is organized as a limited purpose trust company and provides safekeeping through electronic record-keeping of securities balances. It also acts as a clearinghouse to process and settle trades in corporate and municipal securities.
- Founded in 1973, the Depository Trust Company is one of the world's largest securities depositories.
- The DTC's automated system lowers costs and improves accuracy.
- In addition to safekeeping, record-keeping, and clearing services, the DTC provides direct registration, underwriting, reorganization, and proxy and dividend services.
- If any irregularities arise, the DTC may impose a “chill” or a “freeze” on all the company’s securities.
- As of July 31, 2017, the DTC held more than 1.3 million current securities issues valued at $54.2 trillion and issued in the U.S. and 131 countries and territories.
Depository Trust Company
How the DTC Works
The settlement services that the DTC provides are designed to lower costs and risk and increase the efficiency of the market. The DTC 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 they deposit and hold securities at the DTC, which appear 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 broker-dealers—own a proportionate interest in the aggregate shares of an issuer held at DTC. Bank X, for example, may contain a proportion of the group of shares of Stock BB held in at the DTC.
History of the DTC
The need for the DTC emerged in the late 1960s when the New York Stock Exchange (NYSE) became unable to handle its trade volume, particularly the massive amount of paperwork associated with this trade volume. In 1968, the NYSE initiated the functions of DTS through its Central Certificate Service (CCS), a securities depository established to serve NYSE member firms.
Pursuant to plans developed by the ad hoc Banking and Securities Industry Committee in 1970-72, DTC was created in early 1973 to acquire the business of CCS and to expand the benefits of the depository approach to other areas of the financial industry, particularly the bank sector. Due in part to the creation of the DTC, the NYSE can now handle billions of trades per day. The DTC's automated system also lowers costs and improves accuracy.
The Depository Trust and Clearing Company (DTCC) owns the DTC. 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 DTC has helped make it possible for the New York Stock Exchange to increase its trade volume to billions per day.
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 National Settlement 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. Individuals do not interact with the DTC, but securities brokers, dealers, institutional investors, depository institutions, issuing and paying agents, and settling banks do.
As of July 31, 2017, the latest reporting by the DTC, the depository 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, 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 and then 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.
Another responsibility of DTC is staying alert to irregularities in the market. Should problems arise with a company or its securities on deposit at the DTC, DTC may impose a “chill” or a “freeze” on all the company’s securities. A “chill” is a limitation of certain services available for a security and a “freeze,” formally referred to as a “global lock,” is a complete restriction on all DTC services. If the reason for the chill or freeze cannot be resolved, the security will be removed from the DTC.
What Is DTC?
The Depository Trust Committee was created by the securities industry to improve efficiencies and reduce risk in the clearance and settlement of securities transactions. Today, DTC is the largest securities depository in the world.
What Does DTC Mean in Finance?
As a clearing agency registered with the SEC, DTC provides security custody and book-entry transfer services for securities transactions in the U.S. market involving equities, corporate and municipal debt, money market instruments, American depositary receipts, and exchange-traded funds.
What Is a DTC Clearing Number?
The DTC number is a number that helps facilitate transactions between financial institutions. The DTC number is typically associated with the clearing firm that is used by your IRA custodian. To confirm your custodian’s DTC number, please contact your current IRA custodian.
What Does DTC Eligibility Mean?
A DTC “eligible security” is a security that is freely tradable pursuant to U.S. securities laws and is otherwise qualified to be held at DTC and serviced. The eligibility criteria are more fully described in DTC’s Operational Arrangements.