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DTCC Settles Record $1.8 Quadrillion In 2007 and Returns $984 Million in Rebates to Customers
DTCC cleared and settled more than $1.86 quadrillion in securities transactions in 2007. DTCC also reported record revenue of $1.69 billion and returned $984 million to its customers in the form of discounts and rebates.
Through its subsidiaries, DTCC provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter (OTC) derivatives, and is a leading processor of mutual funds and insurance transactions. DTCC’s depository provides custody and asset services for about 3.5 million securities issues from the U.S. and 110 other countries and territories worth more than $40 trillion.
Record year
DTCC’s $1.69 billion in revenues last year was up 24% from $1.36 billion in 2006. Record-high volumes and DTCC’s tight fiscal management helped reduce costs in some of DTCC’s traditional market segments and resulted in record rebates and discounts of $984 million. Because DTCC operates on an “at-cost” basis, excess revenue beyond that required to fund the business is returned to customer firms on a pro-rata basis.
In addition to the rebates, the company announced the largest fee cuts in its history for 2008, driven by the economies of scale and frugal cost management provided by DTCC’s operations. These changes are expected to result in a combined total of $198 million in fee reductions to customers for the coming year. That followed fee revisions resulting in almost $90 million in reductions for 2007.
Global footprint
DTCC made significant progress in expanding its services globally in 2007 when its EuroCCP subsidiary was selected to clear and settle trades for Turquoise, a new pan-European multilateral trading facility developed by nine global investment banks. EuroCCP expects to provide the lowest costs for clearing and settlement of trades in Europe and is expected to support other European trading platforms, once it begins operation in 2008.
In support of OTC derivatives trading, DTCC launched its Trade Information Warehouse, the first global, automated repository for OTC derivatives, where contracts can be tracked and serviced in an automated environment over their lifecycle. During 2007, about 3 million contracts were recorded into the Warehouse, with an average of an additional 10,000 new contracts now being added daily.
Deriv/SERV’s matching and confirmation platform has improved the automated confirmation rate for credit default swaps to more than 95% from 15% in 2003. DTCC also launched automated payment and centralized settlement for Warehouse contracts through a partnership with CLS Bank International. Almost 1,100 global dealers, asset managers, global banks and hedge funds were using DTCC’s Deriv/SERV services at the end of 2007, with more being added each week.
Changing environment
Customer satisfaction scores for DTCC across its diverse customer base reached record levels. DTCC scored 91% in overall satisfaction on an annual customer survey conducted by an independent polling company.
“All in all, we had a very successful year at DTCC in handling high transaction volumes, helping to reduce risk and lowering costs for customers across asset classes we support – and we continued to expand our services globally. DTCC recognizes that we are facing a new trading environment where customers require ever-greater levels of efficiency and stronger risk management,” said Donald F. Donahue, DTCC chairman and CEO. “We are facing new venues for trading, new and complex instruments and risk transfer vehicles that demand new solutions to reducing risk and implementing technology to reduce costs, and we are responding to that challenge.”
Volume growth
DTCC’s National Securities Clearing Corporation (NSCC) subsidiary, which clears virtually all trades done on the NYSE, the NASDAQ Stock market and other exchanges, electronic communications networks and alternative trading systems in the U.S., processed 13.5 billion transactions versus 8.5 billion in 2006, up 59%.
On an average daily basis, transaction volume jumped to 53.9 million in 2007 from 34 million transactions daily in 2006, an increase of almost 20 million transactions a day. The average cost for clearing of one side of an equity trade through NSCC dropped to $.006 (six-tenths of a cent), down 45% from the $.011 cost in 2006 and a fourth of the cost four years ago. Overall, NSCC netted down (or reduced) transaction value from $283.2 trillion to only $5.2 trillion that actually had to be settled in 2007, a 98% reduction.
The Government Securities Division (GSD) of Fixed Income Clearing Corporation (FICC) also saw significant volume growth. Transactions processed increased to 30.4 million in 2007 from 24.9 million in 2006, a 22% increase. GSD netted down the value of its U.S. government securities transactions from $4 trillion in average daily transaction value to just under $1 trillion, a 75% netting factor. The Mortgage-Backed Securities (MBS) Division saw volume increase to 2.1 million transactions from 1.7 million, a 22% increase. The MBS Division handles only agency-backed mortgages that are issued by Ginnie Mae, Freddie Mac and Fannie Mae. The MBS Division reduced the total $61.9 trillion in par value to $3.3 trillion requiring bilateral settlement, a 94.5% netting factor.
DTCC Deriv/SERV LLC, which matches and confirms OTC derivatives transactions, saw its transaction volume jump 123% to 5.9 million transactions from 2.6 million in 2006. The number of customers also increased dramatically, up 43% to 1,078 at the end of 2007 from 753 in 2006. @