DTCC

Depository Trust & Clearing Corporation

US Model for Clearing & SettlementDTCC

Helped automate,centralise,standarise & streamline processes that are critical to safety & soundness of Capital markets. Helped its customers in increasing their operational efficiency,reduced risk & lower cost. DTCC was establised in 1999 to combine the Depository Trust Company(DTC) & National Securities Clearing Corporation(NSCC) These two companies grew out of wallstreets paper crisis in the late 1960s & early 1970s, which handled initially NYSE & American Stock Exchange & later-on NASDAQ.. Regulated by US Securities & Exchange Commision & US Federal Reserve system.

US Paper-crisis
As a result of US paper crisis in late 1960s ,the transaction cycle exceeded to T+4 from T+3 Market starts closing on Wednesday. This paper Crisis gave result to DTC & NSCC.

WHY DTCC??
Clearing & Settlement was highly fragmented during that time. Regional markets each maintained separate clearing & depository businesses. As trading volumes grew,customers became concerned about the high costs,inefficiencies,redundant system. As a result of which,US regulators sought to encourage the creation of a unified national market mechanism

Primary Principles of DTCC

The need for customer choice : The need for transperancy. i.e Regulators required the creation of trading links between the exchanges which gives traders an opportunity to buy or sell a security whereever the best price could be found.Also,if a trade could be executed on any market, it could also be cleared and settled by whichever organisation offered a better price or more efficient service. In short, customer choice and competition were encouraged.

Contd..
Between 1977 & 1995 five regional exchanges exited the business of clearance, settlement and custody, and customers consolidated this activity at NSCC and DTC. In 1999, NSCC & DTC combined to form DTCC. Today,DTCC subsidiaries clear and settle nearly all US market trades in equities, corporate and municipal bonds, government securities and mortgage-backed securities, money market instruments and OTC derivatives. Also provide Asset Servicing.

Cond..
Accepts trades in multiple currencies. DTCC operates on at-cost basis i.e it returns excess revenue from transaction fee to its member firms. The transation fee for DTCC is among lowest in the world. DTCC Subsidiaries 1. National Securities Clearing Corporation (NSCC) 2. The Depository Trust Company (DTC) 3. Fixed Income Clearing Corporation (FICC) 4. DTCC Deriv/SERV LLC 5. DTCC Solutions LLC

Contribution to OTC Derivatives

DTCC Deriv/SERV LLC provide automated matching & confirmation services for OTC derivatives including IRP & Credit derivatives. Also provides bilateral netting services(PAYREC) Deriv/Serv customer base includes dealers & buyside firms from more than 30 countries. More than 80% of credit derivatives traded globally are now confirmed through Deriv/Serv

Bilateral vs central Clearing

Bilateral :
1. Web of Counterparty exposures. 2. Complex collateral movements. 3. Potential domino effect of one dealer default

Central :
1. Hub & spoke with central gurantor. 2. All collateral moves to/from clearing house. 3. Clearing house capitalised to withstand dealer default.

Contd..

Bilateral

Central