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by Michael Scholl

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  • "Our lawyers are part of many closing calls on IPOs and hear discussions between The Depository Trust Company and the back office of the investment banks, but they don’t necessarily understand the steps in the settlement process. Who could fill us in?”

    The question, posed by a senior attorney at a leading law firm, was answered recently when a trio of DTCC Asset Services executives visited the New York offices of Clifford Chance, an international law firm with an extensive corporate finance practice.

    The DTCC team, led by Cheryl Lambert, managing director, Asset Services, with Joseph Graziano and Joseph Brennan, DTCC vice presidents, provided an hour-long overview of DTCC and its underwriting and settlement services to more than 50 attorneys at the Clifford Chance New York office. Attorneys at the firm’s offices in London, Frankfurt, Milan and São Paulo participated via videoconference.

    Worldwide viewing

    In addition to being videoconferenced, the presentation was filmed and placed on a digital video disk. Copies of the disk were distributed to the firm’s 29 worldwide offices, including Asia and the Mideast, so that all of its 3,600 attorneys would be able to view the session.

    Clifford Chance requested the presentation because it wanted its attorneys to have a stronger grasp of DTCC’s operations, including the procedures for facilitating the underwriting of new securities. As part of its corporate practice, Clifford Chance represents parties involved in the underwriting of securities and, as a result, often interacts with DTCC when such deals are made.

    Behind the scenes

    Andrew Epstein, a partner with Clifford Chance who specializes in corporate finance, said the presentation benefited the firm by giving its attorneys a behind-the-scenes look at DTCC and its role in the closing of underwriting deals.

    “The people who attended were very appreciative and felt they came away with a much better understanding of how everything works,” he said. “It makes our job easier by helping us understand why things are happening the way they are,” added Epstein, who said he would recommend that other law firms schedule similar presentations.

    Multi-part presentation

    Lambert, who oversees the more than 400 employees working in the Asset Services area, began the presentation by outlining the corporate structure and history of DTCC and providing an overview of the company’s products and services.

    She explained that DTC, a DTCC subsidiary, was founded in 1973 to reduce securities processing costs and increase efficiencies for its participants, which include broker/dealers, banks, investment managers, central security depositories and other third parties who market financial products and services.

    Graziano, who heads DTC’s underwriting operations area, explained that an underwriter generally submits offering documents and other information about a newly created security to DTC as part of an application to make the security eligible for DTC’s asset services. His team reviews the information to make sure the new security qualifies for such services. This examination includes determining whether the security offering complies with anti-money laundering regulations and with the economic sanctions the U.S. government has imposed on certain foreign entities.

    After the review is completed, a recorded conference call known as a “closing call” is held in which representatives from DTC, the underwriter and the entity issuing the security are all included. If all the parties on the call agree, the new security is declared eligible for DTC services and is released from a DTC holding account into the underwriter’s account, from which it can be traded on the open market.

    Next came a discussion of DTC’s procedures for processing the settlement of trades led by Brennan, who heads the settlement services section of DTC’s Asset Services area. Brennan’s department is responsible for facilitating the electronic transfer of securities ownership as well as the end-of-day net settlement of DTC participants.

    Brennan discussed DTC’s collateral requirements and explained the “net debit cap,” which is the highest amount a DTC participant can owe DTC during a business day and is equivalent to a consumer’s credit card limit. This cap ensures that DTC always has enough liquidity to ensure completion of a day’s worth of settlement processing.

    The Q&A

    The presentation concluded with a question-and-answer session that lasted more than 15 minutes as several attorneys asked follow-up questions about the material Lambert, Brennan and Graziano presented.

    “Everyone in that room really wanted to hear what we had to say,” said Lambert. “We imparted knowledge and information to the attorneys so that when they’re using our underwriting services, when they’re actually on the phone closing a deal, they now have a more thorough understanding of what we do, what we’re looking for and the kinds of details that are needed to close the deal. This information will help them carry out future underwriting deals more efficiently,” she added.

    Lambert said she hopes other law firms involved in the underwriting of securities reach out to DTCC to schedule presentations similar to the one given at Clifford Chance because, “when it comes to DTCC operations, the more law firms know, the better.” @

    [To request a presentation on DTC’s Asset Services, contact Cheryl Lambert, DTCC managing director, Asset Services, at or 212.855.3600.])