Equity, Corporate and Muni Debt Transaction Processing

DTC’s Settlement Service for equity, corporate debt and municipal debt securities transactions consolidates and facilitates end-of-day net funds settlement of a participant’s net debits and credits resulting from various intraday activities, including institutional trading activity, stock loans, etc.

ABOUT

The Depository Trust Company (DTC), the central securities depository subsidiary of DTCC, provides settlement services for virtually all equity, corporate debt and municipal debt trades transacted on the New York Stock Exchange, NASDAQ, regional exchanges and electronic communication networks (ECNs) in the U.S. Approximately 1.4 million settlement-related transactions per day, with a value of approximately $600 billion, are completed at DTC.

The service allows for the collection/disbursement of a participant’s net obligations and credits, via its settling bank through the NSS system of the Federal Reserve.

Using collateral and net debit cap risk management controls, DTC’s settlement system protects its participants against the credit and liquidity risks of the failure to settle by DTC’s largest participant or affiliated family.

DTC’s settlement service offers participants a number of settlement capabilities, including but not limited to: settlement of securities transaction through Deliver Orders (DOs); collection of option contract premiums by processing Premium Payment Orders (PPOs); collection of stock loan mark-to-markets on open contracts by processing Securities Payment Orders (SPOs); pledging securities to pledgees as collateral through the collateral loan system; pledging securities to the Options Clearing Corporation (OCC) to meet OCC margin requirements.

Who Can Use the Service

All DTC participants eligible to settle can use the settlement service; please consult DTC membership guidelines for details.

Benefits

  • Settlement services are delivered through a single, unified net settlement system linked through settling banks and the NSS system of the Federal Reserve.
  • The system is fully collateralized, mitigating risk for DTC and its participants.
  • The system imposes net debit caps so that DTC will have sufficient liquidity to complete system-wide settlement despite the failure to settle of the largest participant of participant family.
  • The system provides automated fail, stock loan and repo tracking.
  • The system is linked to international clearing agencies, which provide delivery-versus-payment in the case of CDS, or free-of-payment settlement for other international links.

How the Service Works

As a central securities depository (CSD), DTC holds securities on behalf of its participants and credits interests in those securities to participant accounts. Through the settlement process, DTC, on the instructions of its participants, transfers participant interests by book entry and records the movement of these positions each trading day. DTC receives the vast majority of these instructions on behalf of Participants from three sources:

  • National Securities Clearing Corporation (NSCC), a DTCC subsidiary and the central counterparty for exchange transactions in the U.S., through its automated Continuous Net Settlement (CNS) system. In CNS, NSCC nets each participant’s buys and sells for each security into one net “long allocation” (receive) or “short cover” (deliver) per security per settlement day. NSCC instructs DTC on behalf of its members to process deliveries of securities from participant accounts to NSCC and from NSCC to participant accounts, free of payment at DTC, with funds settlement through NSCC. Securities received into NSCC’s CNS account on the books of DTC are redelivered to expecting brokers. Omgeo, a DTCC subsidiary, offers automated post-trade processing between investment managers, broker/dealers and custodian banks. Omgeo submits affirmed institutional transactions (ID) directly to DTC in real time. Because these instructions are not received directly from participants, the delivering participant must authorize delivery before DTC processes the transaction.
  • Participants directly – e.g., banks and brokers and their service providers. Participants submit transactions to DTC via three main transaction types:
    • Deliver Orders (DOs): an instruction for the book-entry transfer of a security from one Participant to another; a DO may be free of payment or versus payment (a “DVP”). DTC also processes several other types of DOs, e.g., stock loans, customer account transfers (ACATS).
    • Payment Orders (POs): funds-only payments between two participants. POs are of two types – Security Payment Orders (SPOs), used primarily for mark-to-market activity related to stock lending, and Premium Payment Orders (PPOs), used to facilitate collection of premiums associated with put and call options.
    • Collateral Loans (Pledges): The collateral loan service facilitates the pledge of securities by a participant (the pledgor) to a pledgee, typically a bank. The primary reason for a pledge is to secure a financing arrangement [or to reduce a clearing fund obligation].

Transaction processing for equities, corporate debt and municipal debt begins the afternoon of the day before settlement day, which is generally two days after trade date, and continues until approximately 3:30 p.m. Shortly after this cutoff, DTC issues a trade summary to participants, indicating the net funds due to or from system-wide settlement. (See End-of-Day Settlement for more information )

For More Information

Please contact Client Support at 1-888-382-2721, Option 2 then Option 1, or by email at rmsupport@dtcc.com.

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