Depository Trust & Clearing Corporation - History

History

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.

Before DTC and NSCC were formed, brokers physically exchanged certificates, employing hundreds of messengers to carry certificates and checks. The mechanisms brokers used to transfer securities and keep records relied heavily on pen and paper. The exchange of physical stock certificates was difficult, inefficient, and increasingly expensive.

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. 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. Turnover was 60% a year.

To deal with this large volume, which was overwhelming brokerage firms, the stock exchanges were forced to close every week (they chose every Wednesday), and trading hours were shortened on other days of the week.

Two methods were used to solve the crisis:

The first 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). The method was first used in Austria by the Vienna Giro and Depository Association in 1872.

One problem was state laws requiring brokers to deliver certificates to investors. Eventually all the states were convinced that this notion is obsolete and changed their laws.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 at 44 Broad Street in New York City. Anthony P. Reres was appointed the head of CCS. New York Stock Exchange 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." 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. This relieved brokerage firms of the work of inspecting, counting, and storing certificates. Haack labeled it "top priority," $5 million was spent on it, and its goal was to eliminate up to 75% of the physical handling of stock certificates traded between brokers. One problem, however, was that it was voluntary, and brokers responsible for 2/3 of all trades refused to use it.

By January 1969, it was transferring 10,000 shares per day, and plans were for it to be handling broker-to-broker transactions in 1,300 issues by March 1969. In 1970 the CCS service was extended to the American Stock Exchange. This led to the development of the Banking and Securities Industry Committee (BASIC), which represented leading U.S. banks and securities exchanges, and was headed by a banker named Herman Beavis, and finally the development of DTC in 1973, which was headed by Bill Dentzer, the former New York State Banking Superintendent. 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."

The second method involves multilateral netting; and led to the formation of the National Securities Clearing Corporation (NSCC) in 1976.

In 2010, Robert Druskin was named Executive Chairman of the company, and in July 2012 Michael Bodson was named President and Chief Executive Officer.

In 2008, The Clearing Corporation and the Depository Trust & Clearing Corporation announced CCorp members will benefit from CCorp's netting and risk management processes, and will leverage the asset servicing capabilities of DTCC's Trade Information Warehouse for credit default swaps (CDS).

On Thursday 1 July 2010, it was announced that the DTCC had acquired all of the shares of Avox Limited, based in Wrexham, North Wales. Deutsche Börse had previously held over 76% of the shares.