Depository Trust & Clearing Corporation (DTCC)

Established in 1999, the DTCC is a holding company that consists of five clearing corporations and one depository, making it the world's largest financial services corporation dealing in post trade transactions.

Owned by its principal users, the DTCC's function is to integrate the National Securities Clearing Corporation (NSCC) and DTC, streamlining clearing and depository transactions in attempts to reduce cost and increase capital efficiency. Clearing corporations handle the confirmation, settlement and delivery of transactions. They fill the core mission of ensuring that transactions are made in a prompt and efficient manner. They achieve this by taking offsetting positions with clients in every transaction.

Clearing brokers are critical links between clearing corporations and investors. Clearing brokers are exchange members, who help ensure that trades settle appropriately and transactions are successful. Clearing brokers are also responsible for maintaining paperwork associated with the clearing and executing of a transaction.

At times, clearing corporations may earn clearing fees when they act as a third-party to a trade. In this case, the clearing house receives cash from the buyer and securities or futures contracts from the seller. The clearing corporation then manages the exchange, collecting a fee for doing so. This is a variable cost, dependent on the size of the transaction, the level of service required, and/or the type of instrument being traded. Investors who make several transactions in a day can generate significant fees. Specifically in the case of futures contracts, clearing fees can pile up for investors as long positions spread the per-contract fee out over a longer period of time.

The National Securities Clearing Corporation is a subsidiary of the DTCC and was established in 1976. The U.S. Securities and Exchange Commission (SEC) regulates the NSCC. Before the NSCC’s inception, stock exchanges would close once a week, due to huge demand of paper stock certificates. To overcome this problem, multilateral netting was proposed. In multilateral netting, multiple parties arrange for transactions to be summed, rather than settled individually. All netting activity is centralized to avoid a myriad of invoicing and payment settlements. This can occur between one or multiple organizations. This subsequently lead to the formation of the NSCC.

The NSCC today serves as a seller for every buyer and as buyer for every seller for trades settled in U.S. markets.