Depository Trust Company (DTC)

Overview

The Depository Trust Company (DTC), founded in 1973 and based in New York City, is one of the world’s largest central securities depositories. As a subsidiary of the Depository Trust & Clearing Corporation (DTCC), DTC provides electronic safekeeping, record-keeping and automated post-trade services that streamline clearing and settlement for corporate and municipal securities.

How DTC Works

• DTC immobilizes physical certificates (where applicable) and records ownership through book-entry changes, eliminating much of the paperwork formerly required to transfer securities.
• Its participants are primarily major broker‑dealers, banks, institutional investors and other financial intermediaries; individual investors do not interact directly with DTC.
• Each trading day DTC produces net settlement obligations for participants, enabling efficient netting of transactions across equity, debt and money‑market instruments.
• DTC can act as a clearing participant in conjunction with other DTCC entities to settle trades and move funds.

History and Organization

• Created to expand and centralize services first provided by the NYSE’s Central Certificate Service, DTC formally began operations in 1973.
• In 1999 DTC became a subsidiary of the DTCC as part of a consolidation of several securities‑clearing organizations.
• DTC is registered with the U.S. Securities and Exchange Commission (SEC) and is a member of the U.S. Federal Reserve System.

Key Services

• Safekeeping and electronic record-keeping of securities issued in the U.S. and abroad.
• Settlement facilitation via continuous net settlement mechanisms.
• Direct registration of shareholder records on issuer books.
• Support for corporate actions: proxy processing, dividend allocation and notification.
• Underwriting and reorganization support for issuers.
• Global tax services and reporting.
• Monitoring market irregularities and, when necessary, imposing operational restrictions (“chills” or “freezes”) on securities.

Operational Details

• DTC Clearing Number: A numeric identifier used to route transactions among custodians and clearing firms. IRA custodians and brokerage firms can provide their DTC number when needed for transfers.
• DTC Eligibility: A security that meets DTC’s operational and legal criteria—i.e., freely tradable under U.S. securities laws and qualified to be held and serviced by DTC—is designated “DTC‑eligible.”
• Participant Notices: If DTC restricts or freezes a security, it issues Participant Notices to affected participants; these notices and optional automated alerts allow systems to block trading in affected securities.

Risk Management and Compliance

• As part of DTCC, DTC helps manage systemic risk through centralized processing and netting efficiencies.
• DTC and DTCC maintain a Know‑Your‑Customer (KYC) program and other controls to comply with anti‑money‑laundering (AML) regulations and to assess participant risk.
• Operational tools such as chills and freezes help limit exposure from market irregularities or compliance concerns.

Impact and Scale

DTC’s automation and centralization have significantly reduced settlement costs and errors and supported dramatic increases in trading volume. At scale, DTC holds and services trillions of dollars’ worth of securities issued domestically and internationally.

Key Takeaways

• DTC is a foundational post‑trade infrastructure provider that enables electronic safekeeping and efficient settlement of securities.
• Its services reduce costs, lower operational risk and support high volumes of trading through netting and book‑entry ownership.
• DTC operates under regulatory oversight, integrates AML/KYC controls, and has tools to restrict services when necessary to protect market integrity.

Conclusion

By centralizing custody and settlement functions and providing standardized electronic processes, the DTC plays a central role in the stability and efficiency of U.S. and global securities markets.