Depository Trust Company

Depository Trust Company (DTC), founded in 1973, is a New York corporation that
performs the functions of a central securities depository as part of the US National
Market System.[3] DTC annually settles transactions worth hundreds of trillions of dollars,
processes hundreds of millions of book-entry deliveries, and custodies millions of
securities issues worth tens of trillions of dollars issued in the United States and over
100 other countries. Since 1999 it has been a subsidiary of the Depository Trust &
Clearing Corporation, a securities holding company.

DTC manages book-entry securities entitlement transfers for brokerage houses and
maintains custody of global (jumbo) stock certificates and other stock certificates
through its affiliated partnership nominee, Cede and Company. DTC maintains Omnibus
Customer Securities Accounts for the account of the DTC Participant.

As of 2018, DTC was the world's second-largest CSD by value of securities held,
behind the Federal Reserve System's Fedwire Securities Service and well ahead
of Euroclear Bank.[4]: 69

History
Background
1960s Wall Street paperwork crisis

Before DTC and NSCC were formed, brokers settled trades by physically
exchanging stock certificates—that is, hard copy documents which declared their
holders to be the owners of so many shares of stock. The mechanisms brokers used to
transfer securities and keep records relied heavily on pen and paper, and they
employed hundreds of messengers to carry certificates and checks. The exchange of
physical stock certificates was difficult, inefficient, and increasingly expensive. Before
1946, the SEC had allowed for T+2 settlement (that is, settlement within two days of the
trade date), but by the early 1960s, this deadline had been lengthened to four days and
then five.[5]

In the late 1960s, with an unprecedented surge in trading leading to volumes of nearly
15 million shares a day on the NYSE in April 1968 (as opposed to 5 million a day just
three years earlier, which at the time had been considered overwhelming), the
paperwork burden became enormous.[6][7] Stock certificates were left for weeks piled
haphazardly on any level surface, including filing cabinets and tables. Stocks were
mailed to wrong addresses, or not mailed at all. Overtime and night work became
mandatory. Back office worker turnover was 60% a year.[8]

To help brokerage firms catch up on the overwhelming volume of paperwork, the stock
exchanges were forced to close every week (they chose every Wednesday), and
trading hours were shortened on other days of the week.[5]
Industry response

The first response was to hold all paper stock certificates in one centralized location,
and automate the process by keeping electronic records of all certificates and securities
clearing and settlement (changes of ownership and other securities transactions).[9]

One problem was state laws requiring brokers to deliver certificates to investors.
Eventually all the states were convinced that this notion was obsolete and changed their
laws. For the most part, investors can still request their certificates, but this has several
inconveniences, and most people do not, except for novelty value.

This led the New York Stock Exchange to establish the Central Certificate Service
(CCS) in 1968[10] at 44 Broad Street in New York City.[8] Anthony P. Reres was appointed
the head of CCS. NYSE President Robert W. Haack promised: "We are going to
automate the stock certificate out of business by substituting a punch card. We just can't
keep up with the flood of business unless we do".[11] The CCS transferred securities
electronically, eliminating their physical handling for settlement purposes, and kept track
of the total number of shares held by NYSE members.[12] This relieved brokerage firms
of the work of inspecting, counting, and storing certificates. Haack labeled it "top
priority", $5 million was spent on it,[13] and its goal was to eliminate up to 75% of the
physical handling of stock certificates traded between brokers.[11] One problem, however,
was that it was voluntary, and brokers responsible for two-thirds of all trades refused to
use it.[7]

By January 1969, it was transferring 10,000 shares per day, and plans were made for it
to be handling broker-to-broker transactions in 1,300 issues by March 1969.[14] In 1970
the CCS service was extended to the American Stock Exchange.[15] This led to the
development of the Banking and Securities Industry Committee (BASIC), which
represented leading U.S. banks and securities exchanges,[16] and was headed by a
banker named Herman Beavis.[17]

Founding
Established in 1973, The Depository Trust Company (DTC) was created to alleviate the
rising volumes of paperwork and the lack of security that developed after rapid growth in
the volume of transactions in the U.S. securities industry in the late 1960s. [18] DTC was
formed under the special incorporation laws of New York for trust companies.

It was headed by William (Bill) T. Dentzer Jr., a former U.S. intelligence

community member and New York State Banking Superintendent.[19][20] All the top New
York banks were represented on the board, usually by their chairman. BASIC and the
SEC saw this indirect holding system as a "temporary measure", on the way to a
"certificateless society".[16]

Bill Dentzer was Chairman and CEO from 1973 to 1994.[21] He was succeeded by
William F. Jaenike, who was Chairman and CEO from 1994 to 1999.[21][22]

In 1999, DTC became a subsidiary of the new Depository Trust & Clearing Corporation.
Today, all physical shares of paper stock certificates are held by a separate entity, Cede
and Company.[9]

Functions
DTC participants own the non-voting stock of DTC. Depository Trust & Clearing
Corporation owns all of the voting stock in DTC, which makes DTC a subsidiary of
Depository Trust & Clearing Corporation.

DTC is not itself the holder of record of the securities for which it manages the custody.
Instead, DTC designates Cede and Company as their main custodial nominee pursuant
to New York's Uniform Commercial Code, Article 8: Investment Securities. Cede and
Company's partners are employees of DTC.

In 2007, DTC settled transactions worth $513 trillion, and processed 325 million book-
entry deliveries.

In addition to settlement services, DTC retains custody of 3.5 million securities issues,
worth about $73 trillion, including securities issued in the United States and more than
170 other countries.[23]

DTC Eligibility
Stocks held by DTC are kept in the name of its partnership nominee, Cede and
Company.[24] Not all securities are eligible to be settled through DTC ("DTC eligible").

DTC eligibility means that a company's stock is eligible for deposit with DTC aka "Cede
and Company." A company's security holders will be able to deposit their particular
shares with a brokerage firm. Clearing firms, as full participants with DTC, handle the
DTC eligibility submissions to DTC. Transfer agents were responsible for eligibility
coordination years ago. Now, in order to make a new issue of securities eligible for
DTC's delivery services, a completed and signed eligibility questionnaire must be
submitted to DTC's Underwriting Department, Eligibility. Parties that may submit the
questionnaire include one of the following: Lead Manager/Underwriter, Issuer's financial
advisor or the DTC Participant clearing the transaction for its correspondent. The Lead
Manager/ Underwriter must ensure that DTC's Underwriting Department receives the
issue's offering document (e.g., prospectus, offering memorandum, official statement)
and the CUSIP numbers assigned to the issue within the time frames outlined in DTC's
Operational Arrangements.[25]

FAST processing is functionality that can be turned on for issuers who are fully DTC
eligible. Participation in FAST (Fast Automated Securities Transfer) allows issuers,
security holders and brokerage / clearing firms to move stock electronically between
one another. Transfer agents, as limited participants, file for FAST participation. DTC
approves each issuer on a merit review basis into this system.
"Chills and freezes"
Occasionally a problem may arise with a company or its securities on deposit at DTC. In
some of those cases DTC may impose a "chill" or a "freeze" on all the company's
securities. A "chill" is a restriction placed by DTC on one or more of DTC's services,
such as limiting a DTC participant's ability to make a deposit or withdrawal of the
security at DTC. A chill may remain imposed on a security for just a few days or for an
extended period of time depending upon the reasons for the chill and whether the issuer
or transfer agent corrects the problem. A "freeze" is a discontinuation of all services at
DTC. Freezes may last a few days or an extended period of time, depending on the
reason for the freeze. If the reasons for the freeze cannot be rectified, then the security
will generally be removed from DTC, and securities transactions in that security will no
longer be eligible to be cleared at any registered clearing agency. Chills and freezes are
monitored by DTC's Office of Regulatory Compliance.

DTC imposes chills and freezes on securities for various reasons. For example, DTC
may impose a chill on a security because the issuer no longer has a transfer agent to
facilitate the transfer of the security or the transfer agent is not complying with DTC
rules in its interactions with DTC in transferring the security. Often this type of situation
is resolved within a short period of time.

Chills and freezes can be imposed on securities for more complicated reasons, such as
when DTC determines that there may be a legal, regulatory, or operational problem with
the issuance of the security, or the trading or clearing of transactions involving the
security. For example, DTC may chill or freeze a security when DTC becomes aware or
is informed by the issuer, transfer agent, federal or state regulators, or federal or state
law enforcement officials that an issuance of some or all of the issuer's securities or
transfer in those securities is in violation of state or federal law. If DTC suspects that all
or a portion of its holdings of a security may not be freely transferable as is required for
DTC services, it may decide to chill one or more of its services or place a freeze on all
services for the security. When there is a corporate action, DTC will temporarily chill the
security for book-entry activities. In other instances, a corporate action can cause a
more permanent chill. This may force the issuer to reapply for eligibility altogether.

When DTC chills or freezes a security, it will issue a "Participant Notice" to its
participants. These notices are publicly available on DTC's website.[26] When securities
are frozen, DTC also provides optional automated notifications to its participants. These
processes provide participants the ability to update their systems to automatically block
future trading of affected securities, in addition to alerting participant compliance
departments. DTC has information regarding these processes on its website.

References
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03-29. Retrieved 2016-04-01.
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