An Introduction to DTCC

Services and Capabilities

.........................................................6 • Who Regulates Us? ................................................................. Asset Services C............ Wealth Management Services F.................................................................8 October 2008 .........................................6 • What ar e DTCC’s Financial Strengths? ...Table of Contents • Introduction..................S........... ..................................... ............ Mortgage-Backed Securities 4........... ......6 • Who Owns DTCC? .....................................7 • Post-Tr ading Costs: European Union and U............. ......1 • The Depository Trust & Clearing Corporation................. Syndicated Loan Processing • Who Are Our Customers?.............3 A.. ........ Government Securities 3..............6 • What are DTCC’s Global Operating Capabilities?....... Equities............................... Corporate and Munici pal Bonds 2...... ......8 • How Do We Manage Risk?.........7 • How Does D TCC Establish Its Fees? ............................... OTC Derivatives E.... Clearing and Settlement 1..............................3 • What Markets Does DTCC Serve Today?......... Clearance an d Settlement of Equities in Europe B........... . Insurance & Retirement Serv ices G....... Global Corporate Actions D...............

if a trade could be executed on any market. there were considerable cost-efficiencies and risk-reduction adv antages to commoditizing back-office functions. Beginning in 1999. In short. grew out of Wall Street’s p aperwork crisis in the late 1960s and early 1970s. customers steered the regional clearing and depositor y organizations into consolidation – a process that took a number of years to comp lete.S. U. redundant systems and disparate processes . reduce risk and lower cost. They began to see the advantages of a centralized infrastructure model that could achieve economies of scale fro m critical mass. Need for Greater Efficiencies Clearing and settlement in the U. DTC.S. market trades in equities. We also provide securities safekeeping and asset servic ing capabilities for equities. Th e corollary to this was. it could al so be cleared and settled by whichever organization offered a better price or mo re efficient service. each maintained separate clearin g and depository businesses. the process of consolidation continues. as well as the need to post collateral at each of the clearing companies. which means that we look to return any profi ts that we make to our customers. Today. Eventually. At the heart of them were two primary principles: • the need for customer cho ice. corporate and municipal debt. under one roof.S. money market instrume nts and OTC derivatives. suc h as those in Boston. An At-Cost Organization DTCC is owned by its principal user s and operates on an at-cost basis. in turn. and • the need for price transparency. At t he same time. DTCC subsidiaries clear and s ettle nearly all U. This meant that dealers coul d choose to have a trade executed on whichever market offered the best price. U. DTCC is a holding company establishe d in 1999 to combine The Depository Trust Company (DTC) and National Securities Clearing Corporation (NSCC). standard ize and streamline processes that are critical to the safety and soundness of th e capital markets. government securities and mortgage-backed securities. They also saw the value of centralized trade netting to reduce cost and risk. And. Later. Government Securities Clearing Corporation ( GSCC) and MBS Clearing Corporation (MBSCC). market participants ca me to realize that while they could always compete on the front end of the secur ities business. U. exchangetraded funds. To guide the process.Introduction For 35 years. sta rted out serving a national market. and our equities clearing organization. we brought in – and consolidated – two more clearing corpor ations for fixed-income securities. DTCC w orked to bring our depository.S. regulators sought to encourage the creation of a unified nati onal market mechanism. and customers consolidated this activity at NSCC and DTCC. inefficiencies. we’ve helped our customers increase their operatio nal efficiency. was highly fragmented at the time. regulators required t he creation of trading links between the exchanges. settlement and custody. five regional exchanges exited the business of clea rance. and later on. Philadelphia and Chicago.S. customers became concerned about the high costs. They were formed initially to handle clearin g and immobilize securities solely for the New York Stock Exchange and American Stock Exchange. Neither company. As trading volumes grew. they advanced a number of key conce pts. money market instruments and many other types of securities. Between 1977 and 1995. Nasdaq. our 1 . collateralized mort gage obligations. however. NSCC . Regional markets. As a result. customer choice and competition were encouraged. centralize. Advantages of Centralized Infrastructure Over time. Those companies. corporate and municipal bonds. To give traders an opportunity to buy or sell a security wherever the best price could be found. DTCC’s family of companies has helped automate. Driven in Continued on page 2 part by economie s of scale.

In our incr easingly global industry. the brea dth of our experience across product lines and the need to build different technology solutions for diverse market sectors offer a distinct competit ive advantage. that by developing serv ices in conjunction with customers. responding to w here market forces are driving their businesses. our customers have given us a strong vote of confidence on the qu ality of service we provide to the industry. In 2008. In our annual industry-wide custome r satisfaction survey. A Competitive Advantage DTCC’s size has a lso not prevented us from being quick to market or innovative. As our customers look to mov e beyond traditional trading in cash equities and fixed income securities market s to more derivative instruments. In fact. The point is. we also look forward to collaborating and partnering m ore closely with our colleagues around the world.transaction fees are among the lowest in the world. We’ve been able to repurpose technology and leverage existing softw are design to minimize our technology development costs. DTCC received a world-class score of 91%. we continue to work with them. we leveraged our experience and technology to rapidly build Deriv/SERV to automate and lower risk for the growing global market in credit default swaps and other over-the-counte r (OTC) derivative instruments. We look forward to the continued growth and development of additional services as we work to an ticipate our customers’ needs and the changing nature of the industry. For instance. we partner with our customers and continue t o earn their business. 2 . Broad Experience. for the fifth year in a row. of course.

DTCC’s depository provid es custody and asset servicing for 3. notes. mutual funds. DTCC oper ates through six subsidiaries – each of which serves a specific segment and risk p rofile within the securities industry: • National Securities Clearing Corporation (NSCC) • The Depository Trust Company (DTC) • Fixed Income Clearing Corporation (FIC C) • DTCC Deriv/SERV LLC • DTCC Solutions LLC • European Central Counterparty Limited (EuroCCP) Each of DTCC’s subsidiaries operates separately from the others. Mortgage-Backed Securities What Markets Does DTCC Serve Today? A. inve stment managers and custodian banks. including repurchase agreements. Government debt issues. established in 1976. provides real-time trade matching. Services available: • Real-Time Trade Matc hing • Electronic Pool Notification Services • Netting Services 3 . government-sponsored enterprises. corporate and m unicipal debt. and unit inv estment trusts. DTCC is a leading processor of mutual funds and insurance transactions. In addit ion. Services available: • Auction Take down • Real-Time Trade Matching/RTTM Web • Government Securities Net Settlement Serv ices • Fail Netting • Repurchase (Repo) Agreement Processing • General Collateral Fina nce Repo Services 3. or repos. CLEARING AND SETTLEMENT IN THE U. National Securities Clearing Corporation (NSCC). institutiona l investors. zero-coupon securities. reduc ing the value of securities and payThe Mortgage-Backed Securities Division of the Fixed Income Clearing Corporation . DTCC settled more than $1. netting and electronic pool notification to the mortga ge-backed securities market. risk management and nett ing for trades in U. NSCC also nets trades and payments among its participants. settlement.86 quadrillion in securities transactions. central counterparty services and a guarantee of completion fo r virtually all U.S.S. has 6. corporate and municipal bonds. registered broker/dealers. collater al fund and safeguards. government agen cy securities and inflation-indexed securities. Services available: • Automated Customer A ccount Transfer Service (ACATS) • Continuous Net Settlement (CNS) • Custom Index Sha re Processing • Inventory Management System • Processing Trade Reporting and Confirm ation • Real-Time Trade Matching (RTTM) • Reconfirmation and Pricing Service • Settlem ent Services • Stock Borrow Program 2.000 customers i n 42 countries and plays a critical role in institutional post-trade processing. insurance comp anies and other financial institutions. investment managers. ments that need to be exchanged by an average of 98% each day. lin king funds and carriers with their distribution networks. acting as a central information management and processing hub for brokers. Equities. Key participants in this market are mortgage origin ators. risk management. valued at $40 trillion.The Depository Trust & Clearing Corporation DTCC. NSCC generally cl ears and settles trades on a T+3 basis. Omgeo. broker-to-broker trades involving equities. Each is self-funded from fees paid by users and each has its own risk profile. provides real-time automated trade matching. In 2007 . provides clearing. risk management. commercial banks. a subsidiar y of DTCC. a subsidiary of DTCC. trade confi rmation. exchange-traded funds. bonds. settlement and information se rvices for equities.S. 1.5 million securities issues from the United States and 110 other countries and territories. Government Securities The Government Securi ties Division (GSD) of the Fixed Income Clearing Corporation (FICC). Securities transactions processed by FICC’s Government Securities Divisi on include Treasury bills. through its subsidiaries. government and mortgagebacke d securities. money market instruments and overthe-counter derivatives. Corporate and Municipal Bonds DTCC’s subsidiary. clearing. American depositary receipts. DTCC’s joint venture company. provides clearing.

was created to reduce costs and provide clearing and settlement efficiencies by immobilizing securities and making “book-entry” changes to ownership of the securities. owned by NYSE Euronext. .5 million sec urities issues worth about $40 trillion. operated by DTCC Solut ions LLC. For banks. EuroCCP’s services were launche d in mid-August for Turquoise.a. In 2007. Clearing and Settlement of Equit ies in Europe European Central Counterparty Ltd. cost reduction and reduced risk to the post-trade processing of OTC der ivatives contracts. Deriv/SERV processed a recor d 5. ASSET SERVICES DTCC’s subsidiary. B. GLOBAL CORPORATE ACTIONS DTCC’s Global Corporate Action Validation Service (GCA VS). D. EuroCCP has also been selected to clear and settle for the block trading platfor m. up from 15% in 2004. which can extend fo r many years. equity and ot her OTC derivatives. as well as money market instruments. bro ker/dealers and other financial institutions. C. (EuroCCP) is the European subsi diary of The Depository Trust & Clearing Corporation that has been established t o provide pan-European low-cost clearing services. is the largest of any post-trade service pr ovider in the OTC derivatives marketplace. including tender offers. including credit. Asia-Pacific and the Americas.7 trillion. The Depository Trust Company.S. Deriv/SERV’s customer base. and processed almost 325 m illion book-entry deliveries. BNP Paribas and JPMorgan Chase. In 2007. which includes dealers and buy-sid e firms from more than 30 countries. established in 1973.87 million transactions. During 2006 . OTC DERIVATIVES DTCC Deriv/SERV LLC provides automated matching and confirmation services for ov er-the-counter (OTC) derivatives trades.• Mortgage-Backed Securities Clearing Services 4. is designed to be extended to accommodate interest rate. and by reducing the high fixed costs associated with this la bor-intensive processing. while lowering the risk and cost of la bor-intensive. equity and interest r ate derivatives. owned by nine global banks who have formed a trad ing platform of their own to compete in Europe with established trading venues. this global infrastructure solu tion. In 2007. Octopus).K and i s headquartered in London. It also provides related matching of payment flows and bilatera l netting services. GCA VS processed more than 1 million corporat e actions from more than 160 countries. which was developed in close collaboration with leading dealers and buy-si de firms. In addition to settlement services. and the high frequency trading platform. and nearly 100 other types of events for equities and fixed-in come instruments traded in Europe. the GCA VS transforms the way corp orate action announcements are managed globally by eliminating redundant operati ons and technology. The warehouse maintains the primary record of each contract and handles the servicing of contracts over their lifecycle. simplifies announcement processing by providing a centralized source o f “scrubbed” information about corporate actions. HSBC.k. stock splits. EuroCCP is a Recognized Clearing House in the U. and more than 3 million scheduled paymen t announcements. Deriv/SERV has already been an important driver in increasing electronic confirmation rates. Beginning with credit derivatives. DTC prov ides securities movements for NSCC’s net settlements. and settlement for instituti onal trades (which typically involve money and securities transfers between cust odian banks and broker/dealers). NYSE Arca Europe (a. the most complete global coverage of corporate actions by any o rganization. DTCC also launched its global Trade Information Warehouse to bring increased a ccuracy. In the longer term. D TC settled transactions worth almost $512. More than 90% of credit derivatives trade d globally is now confirmed through Deriv/SERV. DTC brings eff iciency to the securities industry by retaining custody of about 3. EuroCCP uses Citi’s Global Transact ion Services as its settlement agent and initially clears and settles trades in 14 countries in seven currencies. it will clear and settle t rades throughout Europe. including securities issued in the U. conversio ns. SmartPool. Both are expected to be launched before year-end 2008. paper-based processing.

Reorganization and Pr oxy Services • Restricted Securities Family of Services • Direct Registration Servic e 4 . Services available: • Custody & Safekeeping Services • Und erwriting Services • Deposit & Withdrawal Services • Dividend.and 110 other countries.

funds of hedge funds. and providing a centralized r epository for information contained in a fund’s prospectus. life insurance and retirement programs. enables lenders to submit and reconcile their lo an trans5 . signatures and other documen ts. errors and other related risks. Fund/S ERV® automates purchases. linking investment managers. processing defined contri bution transactions. and assets in IRAs between fund companies. also operated by DTCC Solutions LLC. The aim of the business is to automate and provide seamless end-to-end commu nication between insurance carriers. provided by DTCC’s subsidiary. Reconciliation Service. processing and money settlement of all types of insurance products nationwide. settling commission payments. redemptions and settlement of these fund transactions in the U. which went into full production in August. NSCC. sponsoring broker/dealers and service providers through one centralized. are the acknowledged industry standards for processing fund transactions. asset pricing. and Bilateral Netting • Trade Information Warehouse • Central Settlement account maintenance. and Attachments. commission payments. licensing and appointments. helps automate and streamline th e processing of syndicated commercial loans by enabling agent banks and lenders to view and reconcile loan positions on a daily basis. provided by DTCC’s subsidiary. SYNDICATED LOAN PROCESSING Loan/SERV. Services available: • ACATS-Fund/SERV • Commission Settlement • Defined Contribut ion Clearance & Settlement • Fund/SERV® • Fund/SPEED • Mutual Fund Profile Service • Netwo rking • Transfer of Retirement Assets DTCC’s Managed Accounts Service standardizes t he exchange of account and investment information through one central gateway. communicating account-related information. In 2008. distributors and their solution providers f or the sale. real estate investment trusts and other alternat ive investments. The first service to be o ffered. G. managed account s and the growing interest in alternative investment products. The services include processing of annuity applications and premiums. automated platform. NSCC. thereby expanding the service’s role as a primary industry source for rules-based processing. positions and valuations. documentation workflow. WEALTH MANAGEMENT SERVICES DTCC also provides a family of services to support mutual funds. registrations. The service a lso includes features that address F. the service simplifies an unwieldy and costly account set-up process. Mutual Fund Servi ces. The service is built on a platform that streamlines trade order . NSCC. reporting and settlement of these complex products. Mutual Fun d Services also provide money settlement of transactions through the Fedwire sys tem. The service is provided by DTCC’s subsidiary. s ignificantly reducing operational costs. and for off-shore funds. Features available: • Acco unt Set-Up • Account Maintenance • Corporate Actions • Fee Billing DTCC’s Alternative In vestment Products Service brings automation and efficiency to critical transacti ons like subscriptions. is helping t o commoditize and mainstream annuities. transferring accounts between firms. wh ich will support the electronic transfer of images.Services available: • Credit Default Swaps Matching and Confirmation • Equity Deriva tives Matching and Confirmation • Interest Rate Derivatives Matching and Confirmat ion • Payment Matching. Introdu ced in 2006 by DTCC Solutions LLC. redemptions and position and valuation reporting for hed ge funds. E. Other capabilities include coo rdinating account information between funds and firms. financial activity reporting and annuity customer account transfers. currently in pilot testing.S. tw o services are being added: Fund Transfers within variable annuities. Th e service has been designed to accommodate global hedge fund providers and settl ement reporting in multiple currencies immediately prior to entering production. and linking fund companies with their growing network of distribution firms. INSURANCE & RETIREMENT SERVICES Insurance & Retirement Services. corporate actions and fee billing.

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formerly Thomson Fina ncial. banks . such as banks. markets. Who Regulates Us? .S. London and Shanghai. and overseas. dealers. In additio n to the one million corporate actions event announcements a year. automated acc ess to trade management services. Government and mor tgage-backed securities. and now encompass thousands of companies in dozens of count ries. mutual funds and other financial institutions .S. payment and lifecycle support of these contrac ts globally. secure automated network for the transm ission. (EuroCCP). broker/dealers. the American Stock Exchange. DTCC launched a new electronic Al ternative Investment Products Service. our Lo ndon-based subsidiary. Omgeo. initially clears and settles equity trades in 14 countries in sev en different currencies. Who Are Our Customers? DTCC’s customer base extends to thousands of companies within the global financial services industry. which enables DTC to settle transactions in Canadian dollars on behalf of its participants.S.S.S. institutional investors. DTCC’s customers operate both in the U. trust companies. Loan/SERV is moving toward launching a Mess aging Service which will provide a safe. In addition to DTCC’s clearing and settlement operations in the U. Loan/SERV offers position reporting where a lender can view the agent position records and transactions online and notify the agent whe ther they agree or disagree with the current position.S. China a nd Taiwan. equity marketplaces. through offices in New York. it also provi des more than three million announcements on scheduled payments annually for DTC -eligible fixed income instruments.000 customers in more than 40 countries centralized. Who Owns DTCC? DTCC is industry-owned by its customers who are members of the financial communi ty. In the U. European Central Counterparty Ltd. with its settlement agent. Citi Global Transac tion Services. including the New York Stock Exchange. Increasingly. and r egional U. The Nasdaq Stock Market. and to all U..action and position records against those of the agent or view and download the agent information for their own processing. What Are DTCC’s Global Operating Capabilities? DTCC’s services are increasingly being developed to accommodate not just U. DTCC has 16 cross-border depository links with central infrastructure o rganizations worldwide. the over-the-counter derivatives market conti nues to grow rapidly. DTCC serves brokers. but global requirements. For lenders who do not want the full reconciliation service. Korea. insurance carriers. linking hedge funds around the world to d istributors such as banks and broker/dealers to allow them to set up and service hedge fund accounts for qualified customers. mutual fund companies.100 customers in more than 30 countries usi ng the service. hedge funds and ot her financial intermediaries – either directly or through correspondent relationsh ips. returning excess revenue from transaction f ees to its member firms. London and S hanghai. While the Reconciliation Service launched merely a month ago. provides pa nEuropean low-cost clearing and settlement services to multilateral trading faci lities (MTFs) in Europe. DTCC operates on an at-cost basis. DTCC provides critical services to the markets for U. EuroCCP. DTCC has developed a flexible and growing infrastructure t o support matching. That information is validated and distribute d to client firms around the world via service centers in New York. India. receipt and online storage of industry standard loan messages. confirmation. DTCC’s joint venture with Thomson Reuters. Globally. as well as electronic trading and communications networks (ECNs). including a link with the Canadian Depository for Securi ties.. We now have more than 1. provides global support for institutional post-trade processing and offer s more than 6.S. This summer. DTCC also has signed information and cooperation agreements wi th major post-trade infrastructure organizations in Japan. The Global Cor porate Actions Validation Service provides corporate actions announcement inform ation on well over one million securities in more than 160 countries.

S.K.S. Securities and Exchange Commission (SE C). Federal Reserve System and a lim ited-purpose trust company under New York State banking law.All services provided through the U. EuroCCP is regulate d by the Financial Services Authority (FSA) in the U. 6 . clearing corporations and depository are registered with and regulated by the U.S. The depository is also a member of the U.

the actual cost borne by our customers is the net amount paid after rebates and discounts. DTC C plans to give customers an estimate of this annual rebate in December. DTCC has made changes to its fee policies intended to re turn money to customers faster and help them accurately capture these returns in their P&Ls for the period which they are paid. (See Risk Management – page 8. and streamlining settlement processes frees up trillions of dollars of ca pital each year that customers can then use for other investment purposes. NSCC. Since our subsidiaries are stand-alone entities. This markedly increased the capital available to the financial services industry. our allocation of staff and operating cos ts is based on actual usage to support each particular business segment. so they can better accrue for it before they close their year-end books. DTCC generated revenue of just over $1. there is an immediate price reductio n for that month in the form of a discount. Fees are a means of tracking usage and allocating our costs to custom ers. especially when the markets are in turmoil.2 trillion. discounts and interest.2 trillion to $5.Increasingly. DTCC reduced its transaction fees for 2008 by $198 million for services provid ed by its subsidiaries. The net ting down. which has the potential to save financial firms hundreds of millions of dollars. FICC also sharply lowers the total number of governme nt and mortgagebacked securities trade obligations that require financial settle ment. Beginning in 2008. DTCC recognizes the importance of supporting the increasingly global trading environment with optional efficiencies and low-cost infrastructure service. And even on peak volume days. enormous processing capacity and business continuity. These programs are d esigned to protect our members and guarantee that trades will be completed under both ordinary and extraordinary circumstances.69 bil lion. Even as . Fee reductions and rebates are only part of the savings DTCC delivers to the industry. which yields economies of scale and unit savings. based on calculated requirements to secure participants’ obligations and certain liabili ties of the subsidiaries. DTCC continually works to reduce fees of our core services by contr olling fixed costs.S. this means that when actual volume exceeds budgeted volume. and gave back $984 million in rebates. FICC) received Standard & Poor’s highest credit rating. AAA/A-1+. equities market. whic h will lead to cost savings for investors everywhere. In 20 07. although the number of transactions has doubled o ver the same period. In addition . $100 million a year for the past three years for NSCC’s clearing operations for th e entire U. In 2007. each of DTCC’s regulated subsidiaries (DTC. DTCC nets down financial obligations requiring settlement by as much as 99%. Given that expenses are relatively fixed. In 2007. DTCC’s subsidiaries’ rules require most par ticipants to maintain deposits of collateral related to their activities. NSCC reduced the total value of obligations requiring financial settlement b y 98% – from $283. while lowering risk and improving efficiency. While our fees represent the initial billing for services. or reducing the number of trade obligations requiring financial settl ement. Extensive risk mitigation services from DTCC also help the industry avoid potential loss. and nearly 95% of all mortgage-backed se curities trades. We now immediately return any ne t revenue in excess of our target gross margin rate in the month in which that r evenue was generated.) What Are DTCC’s Financial Strengths? In 2007. The margin remaining at the end of t he year is returned to customers in the form of a rebate. FICC’s netting process eliminated three-quarters of all government securities trades requiring settlement. Baked into that fee are our comprehensive risk management pro gram. Effective in 2008. Through its daily Netting process. How Does DTCC Establish Its Fees? DTCC members pay the lowest equity clearance fees in the world – DTCC charges an a verage of three-tenths of a cent per transaction or about 66 thousandths of a ce nt per 100 shares. DTCC’s services are using international standards and messaging at m ultiple data centers and operations facilities to process trades and service ass ets through a growing network that operates around the world and around the cloc k.

transaction volumes have increased dramatically. DTCC has kept annual expenses flat at less than 7 .

DTCC’s depository controls the final settlement of transactions in equities. which include CEPS. among others. and each customer’s collateral requ irements can change daily. ongoing operational risk assessment.Post-Trading Costs: European Union and U. The compan y now regularly performs back testing of the quality and accuracy of its risk ma nagement systems. And it uses the results of these tests to recalculate clearing fund and collateral requirements placed on its customers. several European studies have compared the costs of post-trade processing in the EU with the U.S. corpo rate and municipal debt. In recent years.S. while freeing up available capital. DTCC has expanded its use of analytical value-at-risk methodologies for stress testi ng of customer and participant exposure in extreme market conditions. In ad dition. contributed data to various comparative cost studies. the additional capacity that our clearing subsidiary continues to build in its technology infrastructure allows u s to handle steadily increasing trading volumes – while continuing to drive our cl earing fees down. market now costs on average about USD 0. inclusion of reb ates and discounts). DTCC has long been in the business of managin g risk on behalf of the industry – and views it as a core competency. and unit investment trusts.. a variety of advanced quantitative analytical methodologies such as back an d stress testing. The risk managem ent programs operated by DTCC’s clearing subsidiaries determine how much collatera l is required from each customer to secure its outstanding trading obligations. DTCC’s clearing subsidiaries help the industry reduce the risk associated with trading. the trading of more complex instruments and the application of n . The Commission analyzed the studies.g. We have recently raised our processing capacity from 280 milli on sides per a day to 450 million. Customers typically must post collateral. both for EU-domestic and cro ss-border transactions. we have not sought to draw our own comparisons. capital ad equacy standards.003 (three-tenths of a cent) per transaction. DTCC’s principal subsidiaries all carry the highest credit ratings. or to respond to othe r risk factors the tests may reveal. including net debit caps and collateralization. The globalization of fin ancial markets. AFTI/Eurogroup. How Do We Manage Risk? Managing the risks inherent in executing securities transactions and holding sec urities in custody is a key component of DTCC’s business. and a special focus on regulatory and compliance issues. Tools DTCC employs to mitigate risk include continuous trade netting. and conclu ded that: • In the EU market. business resiliency exercises. As the European Commission pointed out in its working paper draft about post-trading. According to DTCC’s estimate. The clearing corporations do this by steppi ng in between the seller and buyer of each trade to assume the counterparty cred it risk and the responsibility to deliver the securities to the buyer and paymen t to the seller.. By ope rating as central counterparties and thus taking the risk onto themselves. LSE/Oxera. More recently. Moreover. a cross-border equity transaction is two to six time s more expensive than a domestic transaction from an investor’s point of view.S. The studies show that the aggregate excess cost of post -trading for investors in the EU is between €2 billion and €5 billion. These calculations are less than estimates by the European studies becaus e they rely on different assumptions (e. money market instruments. a fully collateralized settlement syst em that is marked-to-market daily.S. In the course o f assuming this level of risk. clearing an equity trade in the U. based on its open trading positions. NERA Economic Consulting. While DTCC has. This is the function of a central counterparty. after rebates and disc ounts. many assumptions impact this calculation. Giovannini I. and it is difficult to achieve a true comparison. the wide geographic dispersion of operating and data cent ers. average trade size. each DTCC subsidiary sets minimum standards for c apital adequacy and collateral that its customers must meet in order to do busin ess. e nsuring its ability to complete settlement payments through a series of settleme nt controls. on request. The studies have found that post-trading proc essing costs in the EU are higher than in the U. • A d omestic transaction is up to eight times more expensive in the EU post-trading e nvironment than at DTCC. a common clearing fund.

operational risk and enterprise risk.ew technologies all make the management of risk more critical – and more challengi ng. credit risk. Today’s markets require strong risk management. 8 . and our customers place their confidence in DTCC. DTCC routinely examines a wide range of factors associated w ith market risk.

©2008 .Produced for distribution at the DTCC Executive Forum 2008.