DTCC Subsidiaries Obtain Highest Credit Rating for 9th Year

Once again, the financial strength of the U.S. capital markets infrastructure has been reaffirmed by a major credit rating agency. In a report released last month, DTCC’s major subsidiaries received Standard & Poor’s (S&P) highest credit rating, AAA/Stable/A-1+, for the ninth consecutive year.

The report cited the strong financial safeguards and robust risk management controls employed by National Securities Clearing Corporation (NSCC) and The Depository Trust Company (DTC) in awarding the recognition. A third DTCC subsidiary, Fixed Income Clearing Corporation (FICC), also received S&P’s highest rating for the sixth consecutive year in May 2009.

“We are pleased that S&P has again recognized NSCC, DTC and, earlier last year, FICC, for their financial stability and creditworthiness,” said Donald F. Donahue, DTCC chairman and CEO. “Attaining the highest ratings reinforces for our customers and regulators the certainty, safety and soundness we are able to provide the marketplace. The consistency of our credit rating is a testament to our tight fiscal and management controls as well as the risk management programs we have in place to protect the stability of the financial system.”

“AAA” is S&P’s highest long-term debt rating and means a company has extremely strong financial security characteristics. “A-1+” is the highest short-term counterparty credit rating and means an organization has an extremely strong ability to meet its financial commitments on short-term obligations.

Snapshot of NSCC

NSCC provides clearing, settlement, risk management and a central counterparty guarantee of trade completion for virtually all broker-to-broker equity, corporate and municipal bond and unit investment trust (UIT) trading in the U.S. market, taking feeds from more than 50 exchanges and trading platforms. In 2009 through November, NSCC cleared over 30 billion transactions valued at more than $193 trillion.

Through its Continuous Net Settlement system, NSCC netted or reduced the total number of trade obligations requiring financial settlement by 98% during that same period.

In rating NSCC, S&P wrote:

• “We consider NSCC’s risk-management controls, processes and procedures to be excellent. Our opinion is underpinned by the maintenance of strong financial and operational safeguards, which minimize NSCC’s exposure to member default.”
• “NSCC employs multiple layers of protection to shield itself from member default, including stringent membership admission procedures and a variety of controls and systems to track member positions.”
• “In our opinion, NSCC maintains very robust procedures to protect against operational risk.”

Snapshot of DTC

DTC serves as the central securities depository for the U.S., providing clearing and settlement efficiencies by immobilizing securities and making “book-entry” changes to ownership of the securities. DTC also provides settlement for institutional trades, money market instruments and other financial obligations.

In 2009 through November, DTC processed almost 274 million book-entry deliveries valued at more than $112 trillion. In that same 11-month period, DTC settled money market instruments valued at almost $88 trillion. It also retains custody of more than 3.5 million securities issues worth about $33 trillion, including securities issued in the U.S. and more than 117 other countries.

In rating DTC, S&P wrote:

• “Standard & Poor’s Ratings Services’ ratings on DTC are based on the firm’s ability and willingness to satisfy its financial obligations in a timely manner.”
• “In our opinion, DTC’s contribution in supporting the infrastructure of U.S. securities markets is crucial. The low-risk nature of DTC’s core operations, which include safekeeping, record keeping, servicing securities held in custody and settling off-exchange securities transactions among institutional participants, underpins the ratings.”
• “In our opinion, DTC’s risk-management framework is excellent, underpinned by robust policies, procedures and systems. We believe the maintenance of strong financial and operational safeguards minimizes DTC’s exposure to member default.”
• “In this context, DTC has substantial resources to ensure the smooth settlement of transactions for the benefit of its member participants and the broader securities market. In our opinion, DTC maintains and adheres to robust risk-management policies and procedures that ensure its limited exposure to counterparty credit risk. The firm requires full collateralization of all unsettled positions at all times, as well as net debit caps that effectively limit the size of unsettled intraday positions.”

Signal to marketplace

“Over the course of nine years, NSCC and DTC have been able to maintain the highest rating even as the economic climate has shifted from periods of prosperity to unprecedented crisis,” said Ellen Fine Levine, DTCC’s CFO. “The AAA rating signals to lenders that they can have confidence in our subsidiaries’ ability to meet their financial obligations. On a more practical level, the AAA credit rating is an important asset in the marketplace, demonstrating that DTCC is recognized as a reliable and high-quality borrower.”

Copies of the full reports on the ratings of NSCC and DTC are available at S&P’s website at www.standardandpoors.com/ratingsdirect following free registration. @