Clearing and settlement in the U.S was highly fragmented at the time. Regional markets, such as those in Boston, Philadelphia and Chicago, each maintained separate clearing and depository businesses. As trading volumes grew, customers became concerned about the high costs, inefficiencies, redundant systems and disparate processes, as well as the need to post collateral at each of the clearing companies.

At the same time, U.S regulators sought to encourage the creation of a unified national market mechanism. To guide the process, they advanced a number of key concepts. At the heart of them were two primary principles:

• the need for customer choice,
• and the need for price transparency.

To give traders an opportunity to buy or sell a security wherever the best price could be found, regulators required the creation of trading links between the exchanges. This meant that dealers could choose to have a trade executed on whichever market offered the best price. The corollary to this was, if a trade could be executed on any market, it could also be cleared and settled by whichever organization offered a better price or more efficient service. In short, customer choice and competition were encouraged.

Advantages to Commoditizing Back-Office Functions

Over time, U.S market participants came to realize that while they could always compete on the front end of the securities business, there were considerable cost-efficiencies and risk reduction advantages to commoditizing back-office functions. They began to see the advantages of a centralized infrastructure model that could achieve economies of scale from critical mass. They also saw the value of centralized trade netting to reduce cost and risk. Eventually, customers steered the regional clearing and depository organizations into consolidation - a process that took a number of years to complete.

Between 1977 and 1995, five regional exchanges exited the business of clearance, settlement and custody, and customers consolidated this activity at NSCC and DTCC.

The Process of Consolidation Continues

Since 1999, DTCC has worked to consolidate and integrate the operations of DTC and NSCC. Later, we brought in - and consolidated - two more clearing corporations for fixed-income securities, Government Securities Clearing Corporation (GSCC) and Mortgage Backed Securities Clearing Corporation (MBSCC).

Today, DTCC subsidiaries clear and settle nearly all U.S market trades in equities, corporate and municipal bonds, government securities and mortgage-backed securities, money market instruments and OTC derivatives. We also provide securities safekeeping and asset servicing capabilities for equities, corporate and municipal debt, collateralized mortgage obligations, exchange-traded funds, money market instruments and many other types of securities.