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.
Depository Trust Company
How the DTC Works
The settlement services that the DTC provides are designed to lower costs and risk as well as 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 brokers-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 that are being held in custody at the DTC.
- 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.
- 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.
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, 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's automated system lowers costs and improves accuracy.
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 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. 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.
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, 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.