DTCC's Settlement Service facilitates end-of-day net settlement of a participant's net settlement obligations resulting from trading activity.

Overview

DTCC's Settlement Service facilitates end-of-day net settlement of a participant's net settlement obligations resulting from trading activity. The consolidated Settlement Service platform, which unites the settlement systems of The Depository Trust Company (DTC) and National Securities Clearing Corporation (NSCC), was one of the underlying goals envisioned by the industry with the integration of DTC and NSCC in 1999.

Through these two subsidiaries, DTCC provides clearance and settlement services for virtually all trades done on the New York Stock Exchange and NASDAQ as well as on all regional exchanges and electronic communications networks (ECNs) in the United States.

Collateralization controls and net debit caps are employed by DTC to protect participants against the inability of one or more participants to pay for their settlement obligations.

DTC's collateralization controls prevent the completion of transactions that would cause a participant's net debit to exceed the total available collateral in its account. This assures that a participant that fails to pay for its settlement obligation will have sufficient collateral in its account to liquidate in the event it becomes insolvent. DTC's net debit cap controls limit the net settlement debit that each participant can incur to an amount, based upon activity level, which is less than DTC's total liquidity. This helps ensure that DTC will have sufficient liquidity to complete settlement should any single participant fail to settle.

DTC also

• Ensures the collection/disbursement of a participant's net settlement obligations and credits through the Fedwire system.
• Ensures that major components of DTC's Settlement System are updating/processing in a timely manner.
• Helps resolve problems affecting the settlement process.
• Grants input extensions when processing problems arise.
• Provides Participant Terminal Service (PTS)/Participant Browser Service (PBS) backup to the extent possible when a participant's systems go down.
• Answers questions from participants regarding all aspects of settlement processing.
• Processes deposits and withdrawals of Federal Reserve book-entry eligible securities.

Who Can Use the Service

All DTC participants who settle are eligible to use the service.

Benefits

The consolidated platform eliminates work for both banks and brokers since they have only one unified settlement system to support and one end-of-day settlement process to complete.

DTC's Settlement Service also provides:

• Reduction of risk through a fully collateralized settlement system
• Reduction of risk by imposing net debit caps to ensure that appropriate liquidity exists to complete settlement
• Creation of efficiencies by utilizing Settling banks and the Fedwire system to facilitate end-of-day processing
• Automated fail, stock loan and Repo tracking
• Links to international clearing agencies, which provide delivery versus payment or free-of-payment settlement
• Cost-effective systems for the settlement and clearance of transactions in equity, debt and money market instruments
• Settlement of security movements associated with institutional delivery transactions and Continuous Net Settlement (CNS) trades

How the Service Works

Using DTC's Settlement Service, participants can:

• Settle securities transactions by processing Deliver Orders (DOs).
• Collect option contract premiums by processing Premium Payment Orders (PPOs).
• Collect stock loan marks-to-market on open contracts by processing Securities Payment Orders (SPOs).
• Pledge securities to pledgees as collateral through the collateral loan system.
• Pledge securities to the Options Clearing Corporation (OCC) to meet OCC margin requirements.
• Protect customer fully-paid-for positions and manage firm positions through the use of segregation and memo-segregation procedures.

For More Information

Please contact Relationship Management at 800-422-0582.