Depository Trust & Clearing Corporation - Subsidiaries

Subsidiaries

The DTCC has several subsidiaries:

• The Depository Trust Company (DTC) – The original securities depository.

Established in 1973, it was created to reduce costs and provide efficiencies by immobilizing securities and making "book-entry" changes to show ownership of the securities. DTC moves securities for NSCC's net settlements, and settlement for institutional trades (which typically involve money and securities transfers between custodian banks and broker-dealers), as well as money market instruments. 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 $40 trillion, including securities issued in the US and more than 110 other countries. DTC is a member of the U.S. Federal Reserve System, and a registered clearing agency with the Securities and Exchange Commission.

Most large U.S. broker-dealers and banks are full DTC participants, meaning that they deposit and hold securities at DTC. DTC appears in an issuer’s stock records as the sole registered owner of securities deposited at DTC. DTC holds the deposited securities in “fungible bulk,” meaning that there are no specifically identifiable shares directly owned by DTC participants. Rather, each participant owns a pro rata interest in the aggregate number of shares of a particular issuer held at DTC. Correspondingly, each customer of a DTC participant, such as an individual investor, owns a pro rata interest in the shares in which the DTC participant has an interest.

Because the securities held by DTC are for the benefit of its participants and their customers (i.e., investors holding their securities at a broker-dealer), frequently the issuer and its transfer agent must interact with DTC in order to facilitate the distribution of dividend payments to investors, to facilitate corporate actions (i.e., mergers, splits, etc.), to effect the transfer of securities, and to accurately record the number of shares actually owned by DTC at all times.

DTC Operation Stocks held by DTC are kept in the name of its partnership nominee, Cede & Co. Not all securities are eligible to be settled through DTC ("DTC eligible").

What DTC eligibility? This means that a company's stock is eligible for deposit with DTC aka "Cede & Co" aka the Street. Your 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.

What is FAST processing? FAST processing is functionality that can be turned on for issuers whom 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.

What are “chills” and “freezes” and why does DTC impose them? 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 (ORC) Unit.

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. 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.

• National Securities Clearing Corporation (NSCC) - The original clearing corporation, it provides clearing and serves as the central counterparty for trades in the US securities markets.

Established in 1976, it provides clearing, settlement, risk management, central counterparty services, and a guarantee of completion for certain transactions for virtually all broker-to-broker trades involving equities, corporate and municipal debt, American depositary receipts, exchange-traded funds, and unit investment trusts. NSCC also nets trades and payments among its participants, reducing the value of securities and payments that need to be exchanged by an average of 98% each day. NSCC generally clears and settles trades on a "T+3" basis. NSCC has roughly 4,000 participants, and is regulated by the U.S. Securities and Exchange Commission (SEC).

• Fixed Income Clearing Corporation (FICC) – Provides clearing for fixed income securities, including treasury securities and mortgage backed securities

FICC was created in 2003 to handle fixed income transaction processing, integrating the Government Securities Clearing Corporation and the Mortgage-Backed Securities Clearing Corporation. The Government Securities Division (GSD) provides Real-Time Trade Matching (RTTM), clearing, risk management, and netting for trades in US Government debt issues, including repurchase agreements or repos. Securities transactions processed by FICC's Government Securities Division include Treasury bills, bonds, notes, zero-coupon securities, government agency securities, and inflation-indexed securities. The Mortgage-Backed Securities Division provides real-time automated and trade matching, trade confirmation, risk management, netting, and electronic pool notification to the mortgage-backed securities market. Participants in this market include mortgage originators, government-sponsored enterprises, registered broker-dealers, institutional investors, investment managers, mutual funds, commercial banks, insurance companies, and other financial institutions.

• DTCC Solutions – DTCC’s subsidiary delivering information-based and business processing solutions to financial intermediaries globally, such as Global Corporation Action Validation Service (GCA VS) and Managed Accounts Service.

GCA VS simplifies announcement processing by providing a centralized source of "scrubbed" information about corporate actions, including tender offers, conversions, stock splits, and nearly 100 other types of events for equities and fixed-income instruments traded in Europe, Asia-Pacific, and the Americas. In 2006, GCA VS processed 899,000 corporate actions from 160 countries. Managed Accounts Service, introduced in 2006, standardizes the exchange of account and investment information through a central gateway.

• DTCC Learning – Provides financial, technology, and career training and educational services to the global financial industry.

• Loan/SERV - Provides services to loan syndicates and agents.

• Deriv/SERV – Provides clearing for credit derivatives, such as CDOs.

It provides automated matching and confirmation services for over the counter (OTC) derivatives trades, including credit, equity, and interest rate derivatives. It also provides related matching of payment flows and bilateral netting services. Deriv/SERV's customers include dealers and buy-side firms from 30 countries. In 2006, Deriv/SERV processed 2.6 million transactions.

• EuroCCP – European Central Counterparty Limited (EuroCCP) is the European subsidiary of DTCC that provides equities clearing services on a pan-European basis. Headquartered in London, EuroCCP is a UK-incorporated Recognised Clearing House regulated by the UK’s Financial Services Authority (FSA).

EuroCCP began operations in August 2008, initially clearing for the pan-European trading platform Turquoise. EuroCCP has subsequently secured appointments from additional trading platforms and now provides central counterparty services for equity trades to Turquoise, SmartPool, NYSE Arca Europe and Pipeline Financial Group Limited. EuroCCP clears trades in more than 6,000 equities issues for these trading venues. In October 2009 EuroCCP began clearing and settling trades made on the Turquoise platform in 120 of the most heavily-traded listed Depositary Receipts. Citi Global Transaction Services acts as settlement agent for trades cleared by EuroCCP. EuroCCP now provides clearing services in 15 major national markets in Europe: Austria, Belgium, France, Denmark, Germany, Ireland, Italy, Finland, Netherlands, Norway, Portugal, United Kingdom, Switzerland, Sweden and Spain. Trades are handled in seven different currencies: the Euro, British Pound, U.S. Dollar, Swiss Franc, Danish Krone, Swedish Krona, and Norwegian Krone.

• Omgeo – Partnership with Thomson Reuters that provides clearing automation solutions.

Omgeo is a central information management and processing hub for broker-dealers, investment managers, and custodian banks. It provides post-trade, pre-settlement institutional trade management solutions, processes over one million trades per day and serves 6,000 investment managers, broker/dealers, and custodians in 42 countries.