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The Depository Trust Co. (DTC), established in 1973, is a national clearinghouse that settles corporate and municipal securities for its members-which are predominantly banks and broker/dealers. The DTC provides custodial services for its members and acts as a central communications hub, funneling trade data to counterparties through its Institutional Delivery system for confirmation.
BACKGROUND
The DTC was formed to centralize and automate the settlement and custody of securities. As early as the 1960s, trading volume increased to the point where it was impossible to keep pace with the recordkeeping and settlement of securities manually, said Tom Williams, president of DTC. As a result, large volumes of trades were failing. There were also problems ensuring that all parties involved received adequate information, including confirmations, reports and verification that trades were settled, explained Williams.
The industry was in need of a central location to house certificates, settle trades-by exchanging securities for payment-and keep records of transactions. In 1968, the Stock Clearing Corp., a subsidiary of The New York Stock Exchange launched the start of a central depository, but it did not have the processes in place to take care of settlement problems and mainly provided services for brokers, not banks, noted Williams. In 1970, the Banking and Securities Industry Committee (BASIC), a group formed by representatives from the brokerage and banking community, rallied the support of the major banks and brokerages to back the development of a central depository BASIC created the charter for the DTC and in 1973 it was approved by the New York State Banking Department.
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