What Is the Depository Trust Company (DTC) in Banking?

What Is the Depository Trust Company (DTC)?

The Depository Trust Company (DTC) is one of the world's largest securities depositories. Founded in 1973 and based in New York City, the DTC is organized as a limited purpose trust company and provides safekeeping through electronic record-keeping of securities balances. It also acts as a clearinghouse to process and settle trades in corporate and municipal securities.

How the Depository Trust Company (DTC) Works

The Depository Trust Company (DTC) is registered with the Securities and Exchange Commission (SEC), is a member of the U.S. Federal Reserve System, and was created to reduce costs and provide clearing and settlement efficiencies by immobilizing securities and making "book-entry" changes to the ownership of the securities.

The largest broker-dealers and banks in the United States are DTC participants and they deposit and hold securities at the DTC, which appear in the records of an issuer’s stock as the sole registered owner of those securities deposited at the DTC.

The DTC provides financial institutions with a record of net settlement obligations at the end of each day from trading in equity, debt, and money market instruments. In 2021, the DTC held more than 1.3 million current securities issues valued at $87 trillion and issued in the U.S. and 131 countries and territories.

History of the DTC

In 1968, as the New York Stock Exchange (NYSE) became overwhelmed by the paperwork involved with trade volume, it installed the functions of DTS, or maintenance of daily share prices, through its Central Certificate Service (CCS), a securities depository established to serve NYSE member firms.

DTC was created in early 1973 to acquire the business of CCS and to expand the benefits of the depository approach to other areas of the financial industry, particularly the bank sector. 

The Depository Trust and Clearing Company (DTCC) owns the DTC and manages risk in the financial system. Formerly an independent entity, the DTC was consolidated with several other securities-clearing companies in 1999 and became a subsidiary of the DTCC.

Functions of the DTC

The DTC holds trillions of dollars worth of securities in custody, including corporate stocks and bonds, municipal bonds, and money market instruments. Individuals do not interact with the DTC, but securities brokers, dealers, institutional investors, depository institutions, issuing and paying agents, and settling banks do.

Owned by many companies in the financial industry, with the NYSE being one of its largest shareholders, the DTC provides services including:

• Settling funds at the end of each trading day using continuous net settlement documentation through the National Settlement Service Corporation (NSCC).
• Ensures safekeeping and employs record-keeping services.
• Provides direct registration, underwriting, reorganization, and proxy and dividend services.
• Announces dividend payments from an issuing company and allocates and reports dividend payments to the shareholders.
• Global tax services.
• Alerts companies on market irregularities and may impose a “chill,” a limitation of services, or a “freeze,” a global lock and complete restriction of DTC service, on all the company’s securities.
  

The Bottom Line

The Depository Trust Company (DTC) is a limited purpose trust company and subsidiary of DTCC. It provides safekeeping through electronic record-keeping of securities balances and acts as a clearinghouse to process and settle trades in corporate and municipal securities.