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Ask the Expert: How Does DTCC Process Non-U.S. Dollar Dividends?

By Ann Marie Bria, DTCC Executive Director, Asset Services Business Management | 3 minute read | March 9, 2022

To understand how we process non-U.S. dollar (USD) dividends, it makes the most sense to take a step back and explain the streamlined, traditional approach first:

DTCC’s central securities depository is The Depository Trust Company (DTC), one of our three core businesses that are designated as Systemically Important Financial Market Utilities (SIFMUs) under the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010). For almost 50 years, DTC has stood at the heart of the securities industry, retaining custody for over 1.3 million securities, including securities issued in the U.S. and more than 170 countries and territories. It’s within DTC where we process dividend payments through our Corporate Actions Services, which provides processing efficiencies and cost savings to issuers, agents and clients — and ultimately to the securities’ beneficial owners.

Related: Take a Simplified Look at the Post-Trade Process

Time Tested & Straight-Through

When a company declares a dividend, the information is provided to DTC by either the exchange the security is traded on or the security’s issuer or agent in the form of an event announcement. This information is then sent to all clients of DTC’s Corporate Action Service, in near real-time, through automated ISO 20022 messages and display on our CA Web application. 

When it is time for the event’s proceeds to be allocated, all entitled holders at DTC are sent payment confirmations through the same automated ISO 20022 messages and CA Web display. This communication includes all information such as relevant dates, options, payment rates, and other important information associated with the dividend event. The ISO 20022 message can feed directly into a client’s system so that they can pay their holders and perform their reconciliation process as soon as their account at DTC has been funded. 

Plenty of Options

Now that I’ve gone through the traditional dividend payment process, lets touch on some of the additional dividend options we support.

For instance, instead of just paying a cash dividend, clients can choose how they would like to be paid: by having dividends reinvested into additional securities, a combination of reinvestment and cash, new securities as a separate option, or which tax rate they would like to be paid at via Tax Relief at source. All these additional options that DTC supports can be instructed using automated ISO 20022 messaging, which in addition to reducing risk, creates efficiencies by allowing straight-through system-to-system processing. As soon as the client’s beneficial owner chooses their option, that election can be made at DTC. 

Processing Non-USD Currencies

Even though the depository does not allocate non-USD currencies (with the exception of Canadian Dollar), we can, and do, fully support these options based upon how the client elects, by assisting agents with the collection of required documentation and payment instructions.

Although the actual currency is not distributed through us, we do have an efficient and risk reduced process to help with the election and communication of information between clients and agents to support these payments. Through our Corporate Actions Services, we have helped facilitate dividends in over 20 different currencies, in addition to traditional USD payments.

Let me give you an example to explain how this works: If a DTC-eligible security pays out a dividend with an option in Euros, Yen, or even Bitcoin, our ISO 20022 messaging platform communicates the event details about the dividend to all DTC Participants, including any specific requirements from the Issuer needed to elect in these options.

Our Corporate Action service then allow clients with entitled positions to elect in the event, and these instructions are then communicated to the Issuer/Agent for processing and potential reconciliation with receipt of other required documentation. Once elections are confirmed by the Issuer/Agent, confirmation messages are sent via ISO 20022 and clients can expect the non-USD allocation directly from the Agent.

While DTC may not physically settle that foreign or digital currency, our process is safe and efficient because the shares don’t ever have to be withdrawn or leave the custody of the depository.

As a result, clients and their beneficial owners benefit from a time-tested, efficient and risk managed process that helps maintain an efficient, orderly marketplace.

So the next time you receive a dividend in your account, you can rest assured that DTC played a key role in facilitating the exchange of information and movement of proceeds for you to receive your money.

Ann Marie Bria

DTCC Executive Director, Asset Services Business Management

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