DTCC Marks 10th Anniversary
A little over ten years ago, on November 8, 1999, DTCC announced completion of the final step in the integration of The Depository Trust Company (DTC) and National Securities Clearing Corporation (NSCC). The deal closed when all shares in DTC and NSCC were exchanged for shares in the new entity, a holding company called The Depository Trust & Clearing Corporation, under which DTC and NSCC would operate as subsidiaries.
In 1999, the vision for the integration of the two companies was to leverage their respective strengths to create a single organization that would support the changing U.S. financial services industry. DTCC was expected to increase synergies, drive down costs, strengthen the industry’s technology platform and advance an international strategy for the U.S. industry infrastructure.
At that time, it was impossible to anticipate the blistering pace of change in the industry, the volatility, the exponential growth of volumes, the proliferation of trading platforms, the expansion of new asset classes, the new business continuity requirements and the new types of risk – not to mention that two of the top five broker/dealers in the industry would not exist 10 years later.
“All these changes put tremendous demands on the infrastructure in spheres of activity that were not on the drawing board when DTCC was created,” said Donald F. Donahue, DTCC chairman and CEO. “As a result, we have seen an order-of-magnitude shift in the level at which DTCC must perform.”
Power of one
In announcing the official launch of DTCC in 1999, then-chairman and CEO Jill Considine said, “We are looking forward to beginning the new millennium as one company with a unified strategy, purpose and mission: to be the provider of choice worldwide for investment servicing solutions through leadership, innovation and technology.” The inaugural annual report, whose theme was “The Power of One,” captured the spirit of the new company.
DTCC delivered on the initial drivers for the integration while continuing to give the industry the efficiency and reliability it had come to expect from DTC and NSCC. The new organization also proved agile in an ever-changing environment, taking a leadership role on a range of industry issues. And, as DTCC expanded into new asset classes, geographies and client segments, it created new subsidiaries and joint ventures under the holding company umbrella.
The organization also confronted events no one could have predicted, including 9/11, the largest blackout in U.S. history in 2003 and the collapse of Lehman Brothers in 2008. During those and other volatile times, DTCC rose to the challenge to support the industry, and then applied lessons learned from the experiences to further fortify the infrastructure for the future.
During the first part of the decade, DTCC focused on aligning its risk infrastructure with mainstream industry practices. Since then, the mandate has become far broader. “Today, when it comes to risk management, the industry recognizes that DTCC needs to be ahead of the curve, rather than in the mainstream,” Donahue said. “The fact that we began preparing for the potential failure of a major member in 2005 illustrates that we have moved to the forward edge of risk management.”
Now DTCC is taking steps to increase its focus on systemic risk, including the recent hiring of a new chief systemic risk officer.
Intersection of cost/volume curves
DTCC’s achievements over the past 10 years include its success in driving fees to their lowest levels ever, while seamlessly processing volumes that surged to dizzying new heights. In fact, its fees represent just a sliver of the cost of overall trading.
For instance, DTCC charges the lowest equity clearance fees in the world. Back in 1999, its NSCC subsidiary charged 8.2 cents per equity side. Now, 10 years later, the company charges about one-third of a penny. Said another way, for each 100 equity shares in a trade, customers today pay an average of just 66-thousandths of a penny. DTCC’s ability to continually lower fees across all its subsidiaries over the past 10 years has allowed it to return billions of dollars to the industry in fee cuts and rebates.
Meanwhile, the decade also saw equity volume catapult to astonishing levels. Between 1999 and 2008, annual volume processed grew twenty-fold to 21.9 billion transactions with a value of $315 trillion. In 1999, DTCC processed total equity volume of 1.6 billion transactions with a value of $70 trillion.
A quantum leap
In addition to processing surging volumes, DTCC’s technology organization faced challenges including: reinforcing and dispersing the industry’s infrastructure to strengthen business continuity post-9/11; creating new products on time and within budget; rolling out enhancements to existing products; reengineering the legacy systems that had served the industry for decades; insourcing applications and systems from SIAC; strengthening risk systems; and implementing global messaging standards.
DTCC succeeded in these and other initiatives thanks to a behind-the-scenes transformation of its technology organization.
Today, DTCC is the only U.S.-headquartered financial services organization to achieve the Capability Maturity Model Integration (CMMI) Level 3 rating across its entire applications development group, with progress beyond this level well under way. And last year, DTCC became one of the first companies in the industry to install the IBM z10, considered the first commercially available super-computer on the market.
Global footprint
Globalization also marks DTCC’s first decade, with the organization extending its products and infrastructure to support firms whose businesses are increasingly global.
In 2001, DTCC created Omgeo, a joint venture with Thomson Financial to serve the institutional market globally. And 2003 saw the launch of Deriv/SERV LLC, a new subsidiary that took DTCC into a new and booming global asset class: over-the-counter derivatives. The same year, DTCC rolled out the Global Corporate Actions Validation Service. In 2007, DTCC established its European subsidiary, EuroCCP, to provide clearance, settlement and risk management services on that continent. And in 2008, the company entered the global syndicated loan space with its Loan/SERV product offering.
Today, the DTCC family of companies serves customers out of offices in New York, London, Shanghai, Tampa and elsewhere and has a growing roster of non-U.S. clients. Approximately 160 customers operate directly from offices outside the U.S., a number that rises to 600 when including the firms served by MarkitSERV, DTCC’s joint venture with Markit for the over-the-counter derivatives market.
In addition, DTCC’s clearing corporations have opened their doors to direct membership by non-U.S. firms. FICC’s membership, for example, now includes sovereign wealth funds from Asia and the Middle East, as well as the World Bank.
DTCC also has signed memoranda of understanding with 11 infrastructure partners from Brazil, China, India, Japan, Korea, Pakistan and Taiwan.
Then, now and into the future
“It is difficult to imagine that just in the last decade we had numerous clearing corporations and depositories, all operating separately in the United States,” said Donahue. “Today, the infrastructure functions as a cohesive organization that offers customers a robust platform and an integrated package of services they can rely on.”
Forward thinking also characterizes DTCC, according to Donahue. “Our board members and our staff are always focused on the issues that will be facing the industry in the coming years,” he said. “And this ability to stay ahead of the curve is part of the richness of the organization.”