The Story of the Depository Trust & Clearing Corporation by TheDTCC

CELEBRATING

YEARS

THE STORY OF

The Depository Trust & Clearing Corporation

JEFFREY L. RODENGEN FOREWORD BY

FRANK LA SALLA PRESIDENT, CEO AND DIRECTOR THE DEPOSITORY TRUST & CLEARING CORPORATION

THE STORY OF

The Depository Trust & Clearing Corporation

JEFFREY L. RODENGEN Edited by Christian Ramirez Design and Layout by Sandy Cruz and Jessica Quijada

Also by Jeffrey L. Rodengen Write Stuff Enterprises, LLC 1001 South Andrews Avenue, Suite 120 Fort Lauderdale, FL 33316 954 462-6657 www.writestuff.com

Copyright © 2023 The Depository Trust & Clearing Corporation. All rights reserved. Printed in the United States of America. No part of this book may be translated to another language, reproduced, transmitted, in any form by any means, electronic or mechanical, including photocopying and recording, or stored in any information storage or retrieval system, without written permission. The publisher has made every effort to identify and locate the source of the photographs included in this edition of The Story of The Depository Trust & Clearing Corporation. Grateful acknowledgment is made to those who have kindly granted permission for the use of their materials in this edition. If there are instances where proper credit was not given, the publisher will gladly make any necessary corrections in subsequent printings.

Publisher’s Cataloging-In-Publication Data Names: Rodengen, Jeffrey L., author. | Ramirez, Christian, 1980– editor. | Cruz, Sandy, designer. | Quijada, Jessica, designer. | La Salla, Frank, writer of foreword. Title: The story of the Depository Trust & Clearing Corporation / Jeffrey L. Rodengen ; edited by Christian Ramirez ; design and layout by Sandy Cruz and Jessica Quijada ; foreword by Frank La Salla, President, CEO and Director, the Depository Trust & Clearing Corporation. Other titles: Story of the Depository Trust and Clearing Corporation Description: Fort Lauderdale, FL : Write Stuff Enterprises, LLC, [2023] | Includes bibliographical references and index. Identifiers: ISBN: 978-1-947991-22-4 (hardcover) | 978-1-947991-23-1 (ebook) | LCCN: 2023930724 Subjects: LCSH: Depository Trust & Clearing Corporation—History. | Securities industry—United States—History. | Financial services industry—United States—History. Classification: LCC: HF5686.B65 R64 2023 | DDC: 332.6320973— dc23

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Table of Contents FOREWORD

by Frank La Salla . . . . . . . . . . . . . . . . . . . . . . . .

vii

ACKNOWLEDGMENTS

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

viii

CHAPTER ONE

Crisis Creates Opportunity . . . . . . . . . . . . . . . . . 10

CHAPTER TWO

Regulation, Regionalization and Reorganization . . 20

CHAPTER THREE

Technological Revolution . . . . . . . . . . . . . . . . . . . 34

CHAPTER FOUR

Mitigating Risk, Seizing Opportunity . . . . . . . . . . 46

CHAPTER FIVE

Going Global . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

CHAPTER SIX

A Day Unlike Any Other . . . . . . . . . . . . . . . . . . . 68

CHAPTER SEVEN

Twin Storms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

CHAPTER EIGHT

A Higher Profile . . . . . . . . . . . . . . . . . . . . . . . . . 96

CHAPTER NINE

Risk Management . . . . . . . . . . . . . . . . . . . . . . . 110

CHAPTER TEN

A Bright Future . . . . . . . . . . . . . . . . . . . . . . . . 122

BIBLIOGRAPHY

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

INDEX

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

VII

Foreword Frank La Salla PRESIDENT, CEO AND DIRECTOR

he year 2023 marks an important milestone in The Depository Trust & Clearing Corporation’s (DTCC’s) history— it’s our company’s 50th anniversary. Moments like this are an opportunity to celebrate the past, reflect on the path our company has traveled and gain perspective on how those experiences have shaped our firm’s evolution. But anniversaries are also about the future—about setting bigger goals, building upon past achievements and elevating the organization to new levels of success. DTCC’s storied history began in response to the paperwork crisis of the late 1960s and early 1970s—and we’ve been innovating, shaping and advancing the financial services industry ever since. When an organization’s founding is rooted in solving a crisis, it indelibly shapes the firm. Our company is purpose driven: We protect and safeguard the stability and integrity of the global financial markets. That makes us unique among our industry colleagues. It also means we have a critical responsibility to our constituents and the investing public. While DTCC has grown considerably in scale and scope over the past half-century, our commitment and dedication to fulfilling our mission has remained constant. Our firm’s success belongs to those who came before us and is a testament to our past and present DTCC colleagues, clients and stakeholders, whose support has made it all possible. This book, and the story it tells, is a tribute to all of you. As we look to the next 50 years, we’re committed to building upon our rich heritage as we write the next chapter in our amazing company’s history and lead the advancement of the global financial markets as the most influential, strategic and tech-focused partner.

PHOTO BY NEIL VAN NIEKERK.

VIII

Acknowledgments

any dedicated individuals assisted in the research, preparation and publication of The Story of the Depository Trust & Clearing Corporation. Research Assistant Sandy Smith conducted the principal archival research for the book. Vice President, Writer and Producer Christian Ramirez managed the editorial content, while Senior Vice President/Creative Services Manager Sandy Cruz and Graphic Designer Jessica Quijada brought the story to life. The author would like to extend his gratitude to DTCC President, CEO and Director Frank La Salla for allowing us to tell the story of this organization that has been dedicated to maintaining the security and integrity of the global financial system since 1973. Special thanks are also extended to Marie Chinnici-Everitt, Craig Donner and Michael Bellini, who helped shepherd this book to completion and whose considerable time and collaborative efforts provided invaluable guidance to the storytelling process. The author would also like to recognize past and present DTCC employees, board members, community partners, retirees and friends who were generous

with their time and insights. We are particularly beholden to those whose thoughts and words added important historical context to the story, including: Anthony Alizzi, Mike Ames, Peter Axilrod, Keisha Bell, Cathie Bellini, Lynn Bishop, Michael Bodson, Kevin Brennan, Mary Ann Callahan, Christopher Childs, John Colangelo, Marisol Collazo, Jill Considine, Susan Cosgrove, Nellie Dagdag, Dennis Dirks, Donald Donahue, Andrew Douglas, Robert Druskin, John Faith, James Femia, Jacob Feuchtwanger, Rob Gambardella, Robert Garrison, Andrew Gray, Bill Hodash, Tim Keady, Anthony Leone, Jennifer Peve, Tony Portannese, Murray Pozmanter, Matthew Stauffer, Larry Thompson and Joseph Trentacoste. Finally, special thanks are extended to the contributors and colleagues at Write Stuff Enterprises, LLC, who worked diligently and tirelessly to produce this book: Scott Luxor, senior editor; Patricia Dolbow and Barbara Martin, transcriptionists; Maude Campbell, Laurie Russo and Sharon Tripp, proofreaders; Ligia Leonardi, photo retoucher; Lisa Ryan, indexer; Kevin Rodengen, audio embed engineering; Amy Major, executive assistant to Jeffrey L. Rodengen; Marianne Roberts, president, publisher and chief financial officer; and Tiffany Massenburg, marketing assistant.

CHAPTER

1966–1970

One

These four years comprised one of the most difficult periods in the history of the securities industry. It was characterized by a crushing burden of paperwork, followed by a severe cost-income squeeze that brought financial disaster to many brokerage firms.

Lee D. Arning SENIOR VICE PRESIDENT NEW YORK STOCK EXCHANGE IN TESTIMONY TO CONGRESS, AUGUST 2, 1971

Crisis Creates Opportunity

n the mid-1960s, Wall Street was booming, part of a prolonged expansion as institutional investors moved into the markets. The upswing caught Wall Street off guard and brought on the realization that the current way of doing things—physically delivering security certificates to customers—was outdated and insufficient to meet the volume. The New York Stock Exchange (NYSE), in a report to Congress in 1971, admitted that antiquated or otherwise unsatisfactory securities handling methods prevailed at virtually every type of financial organization involved in the various phases of the securities issuance and transfer process. Quick fixes proved fruitless, mainly “hasty efforts to apply sophisticated computer technology to operations problems which had not been adequately analyzed in advance,” the NYSE reported to Congress.

The trading floor of the New York Stock Exchange (NYSE) in the 1960s, when physically delivering security certificates to customers was the only way settlement of trades occurred—until the Central Certificate Service, the NYSE’s own internal computerized bookkeeping technology, was developed. (Photo courtesy of Library of Congress Prints and Photographs Division Washington, D.C. 20540 USA. Collection: U.S. News & World Report magazine photograph collection. Reproduction Number: LC-DIG-ppmsca-56735.)

T H E S T O R Y O F T H E D E P O S I T O R Y T R U S T & C L E A R I N G C O R P O R AT I O N

The trading volume was so intense that brokers could not physically deliver securities to their customers—they were unable to get them from transfer agents quickly enough. Compounding the problem, the securities industry had been weakened from the late 1920s through the early 1950s, having endured the Great Depression and World War II, creating a management gap. “In some instances, older, experienced management personnel simply had not groomed successors and found themselves overwhelmed by the volume surge. At other firms, younger management did not at first appreciate the risks inherent in the avalanche of paperwork or in neglecting to maintain financial standards above the minimum requirements set by the Exchange,” the NYSE report stated. Of course, some firms had invested in technology prior to the crisis, improving back-office functions and automating what they could. But even the most advanced firms were bogged down by the issues elsewhere. William Denzter, later head of The Depository Trust Company (DTC), put it this way in a history of the firm: “The paperwork crisis caused the post-trade processing of hundreds of millions of dollars to be delayed or to fail entirely, dividends to investors to be misdirected, and brokerage firms to go bust.” It was clear that the very foundation of the security industry was at risk.

Too Much of a Good Thing The bull market in the early 1960s started off at a trot, and the flow of business was manageable for the first half of the decade. By 1967, however, the volume increased sharply, up 14 percent above the previous record for a three-month period. In all, some 615 million shares were traded in the first quarter of 1967.

1967

1968

AUGUST

JANUARY

FEBRUARY

MARCH

The New York Stock Exchange (NYSE) Board of Governors curtails trading by 90 minutes on nine consecutive business days to ease the paperwork problem.

Trading in all securities markets is limited to four hours a day. NYSE member companies are told to keep offices staffed until at least 7 p.m. on weekdays to catch up on paperwork.

The settlement period is extended from four days after a transaction to five. Some firms begin operating six and seven days a week, while others maintain a 24-hour workday.

The typical 5.5-hour trading day resumes. By June, volumes for the quarter will exceed 845 million shares and the NYSE, the American Stock Exchange (AMEX) and National Association of Securities Dealers vote to close markets one day per week.

C H A P T E R O N E | C R I S I S C R E AT E S O P P O R T U N I T Y

Stockbrokers working on the floor of the NYSE in 1963. (Photo courtesy of Library of Congress Prints and Photographs Division Washington, D.C. 20540 USA. Collection: U.S. News & World Report magazine photograph collection. Reproduction Number: LC-DIG-ppmsca-03199.)

It would only amp up from there, with each successive quarter of 1967 breaking the record set by the previous one. In all, some 2.53 billion shares—a 33 percent increase over 1966—were traded. The problem was becoming a full-blown crisis, and the NYSE Board of Governors began to act. In August, it curtailed trading by 90 minutes on nine consecutive days to allow firms to catch up on paperwork. By the end of that year, it had authorized nine “combined settlement dates” in the last five months of the year to allow firms to concentrate on their individual paperwork problems. Most significantly, however, the NYSE opted to discontinue development of its central computer accounting programs and to redirect the manpower and funds into the development of the Central Certificate Service (CCS).

1968

1969

JUNE

DECEMBER

FEBRUARY

JUNE

The Central Certificate Service (CCS) is activated on a limited basis by the NYSE. Initially, ownership in shares of four NYSE-listed issues were transferred by computer bookkeeping entry, with other issues phased in throughout the year. By the end of its first six months of activation, CCS handles 535 listed issues, about 43 percent of the total.

Despite having 12 percent fewer trading hours than in 1967, 1968 ends with a new record of 2.93 billion shares, an increase of 400 million shares over the previous record. On 25 days during the year, the reported volume exceeds the 16.4 million share daily record set during the 1929 stock market crash.

The NYSE and AMEX retain the Rand Corporation to develop a plan to improve operations of the securities industry. Rand identifies expansion of CCS, advanced design of an automated clearing and central certificate system, and floor automation that would integrate with CCS as keys to future success.

CCS expands its operations. By the end of the year, CCS has 464 million shares on deposit.

In the late 1960s, the NYSE experienced a surge in trading volume, which resulted in the paperwork crisis on Wall Street. The large number of stock trades caused a buildup of paperwork, leading to a backlog of stock certificates. Brokerage firms were unable to keep up with the demand, prompting action to be taken. As a result, trading was restricted to four days a week and the Securities and Exchange Commission concentrated on improving settlement methods in order to mitigate the crisis.

T H E S T O R Y O F T H E D E P O S I T O R Y T R U S T & C L E A R I N G C O R P O R AT I O N

C H A P T E R O N E | C R I S I S C R E AT E S O P P O R T U N I T Y

After a day of trading on the NYSE (below), mountains of paper are swept up from the trading floor (opposite). With every trade managed by paper in the 1960s, it took five full business days to settle a trade despite shorter trading hours. Still there were many fails to deliver, with the Stock Exchange shortening hours to allow the paperwork to catch up. (Photo below courtesy of Library of Congress Prints and Photographs Division Washington, D.C. 20540 USA. Collection: U.S. News & World Report magazine photograph collection. Reproduction Number: LC-DIG-ppmsca-56734.)

T H E S T O R Y O F T H E D E P O S I T O R Y T R U S T & C L E A R I N G C O R P O R AT I O N

It would not prove to be a quick fix, and by 1968, the problems only increased. In January, heavy trading volume strained the entire system. With a daily volume that averaged 12 million shares, the number of “fails to deliver” securities skyrocketed. With securities firms stretched to the limits, there simply was no time to check on delinquent items. The heavy trading volume created a cascade of other challenges as well. Failure to deliver meant that “keeping track of where the dividends belong and that sort of thing becomes a monumental accounting problem,” said William Jaenike, who worked at the American Stock Exchange (AMEX) at the time. He would later become chairman and CEO of CCS’ successor, DTC. “Tremendous write-offs took place and a lot of big brokers went out of business.” The year would be a challenging one—and one of ongoing increases in volume. The NYSE adopted a series of reporting requirements designed to identify special problems. Along with AMEX and the National Association of Securities Dealers, the NYSE voted to begin closing the markets one day per week. Every Wednesday, markets shuttered so that the paperwork could catch up. The other four days, trading only occurred from 10 a.m. to 2 p.m. “All it did was push the volume into the remaining trading days and hours,” Jaenike told the Securities and Exchange Commission Historical Society in 2011. That volume was significant. By the end of 1968, the market had topped a record 2.93 billion shares, despite having 12 percent fewer trading hours than the previous year. It was an increase of 400 million shares over the 1967 volume. Most significantly, for 25 days during the year, markets reported volume of more than 16.4 million shares, topping a volume record that had stood since the great sell-off of October 29, 1929, known as Black Tuesday.

One Possible Solution CCS, a computerized bookkeeping solution, stepped in as one possible fix to the crisis. CCS took its first deposits in 1966 and first book-entry deliveries on June 21, 1968. Initially, the service transferred ownership in just four issues, with additional issues added on an alphabetical basis

C H A P T E R O N E | C R I S I S C R E AT E S O P P O R T U N I T Y

T H E S T O R Y O F T H E D E P O S I T O R Y T R U S T & C L E A R I N G C O R P O R AT I O N

WHAT IS TRADE SETTLEMENT? Trade settlement is the final process of a securities trade, completing the exchange of securities ownership and payment. In its earliest days, this was handled largely manually, with checks exchanged for stock certificates. Later, Central Certificate Service (CCS) member brokers would deliver stocks they had deposited to the accounts of other CCS member brokers, with payment occurring late in the day, a method known as book-entry delivery versus

payment. In the first days of CCS, member brokers could only process a limited number of securities in this way. These days, securities are delivered by book entry between The Depository Trust Company participant accounts throughout the day. That is more than 1.3 million times, on average, versus cash debits and credits in their net settlement statements, with net cash settlement at approximately 4:15 p.m. Eastern time.

throughout the year. By the end of 1968, about 43 percent of the NYSE’s issues were handled through CCS. CCS got off to an “inglorious start,” as Jaenike recalled. “It crashed the first time they tried to bring it up.” A second, slower start proved successful, but its restrictions were quickly apparent. CCS was limited only to brokers on the NYSE. “The real problem was that delivering securities was not as much between brokers as it was between a broker and the institutional customer,” Jaenike said. “The institutional customer had something called the COD privilege, meaning that the institutional customer wouldn’t pay until the certificates were delivered. Retail customers paid on settlement day and certificates were delivered whenever,” Jaenike said. The large window between payment and settlement left brokers exposed to a great deal of risk. With that quirk in how institutional certificates were delivered, another shortcoming became quickly apparent. CCS lacked “one key ingredient: the institutional customers’ custodian banks,” Jaenike said. It also was still a heavily manual process. John Colangelo, who was hired at CCS in 1971 and stayed when CCS became DTC, helped balance the stock records: Keeping in mind that this is a period where there wasn’t too much automation and a lot of it was manual, very frequently when securities moved, security transactions were booked, mistakes were made and you had to correct those mistakes and balance those, the “daily” as it was called, the stock records.

While CCS was a good early first step, a better solution was needed.

Government Intervention By 1969, Wall Street was getting a handle on the paperwork crisis. On the first day of trading of the new year, the markets resumed a five-day-a-week,

C H A P T E R O N E | C R I S I S C R E AT E S O P P O R T U N I T Y

four-hour-a-day trading cycle. Fully activated, CCS served all 1,200 eligible NYSE-listed securities in February. Average hourly trading volumes remained high, but the actions put in place by the industry—and the development of CCS—provided confidence that the paperwork problem would be solved. The industry was able to shift its focus from the immediate crisis to a long-term solution. Robert W. Haack, the NYSE’s president, called for a nationwide securities depository in an annual message to NYSE members: While many questions still must be resolved, we have set our sights firmly on the establishment of a truly nationwide depository system that will make the benefits of CCS available to everyone involved in the transfer and delivery of securities.

The industry was starting to circle around the same idea, creating the Banking and Securities Industry Committee (BASIC) to tackle the problem. Commercial and investment bankers were wary partners, having been kept apart by the 1933 Glass-Steagall Act. BASIC was formed in 1970 and, for two years, it worked to put the basic process in place. It recommended that stock certificates be held in a comprehensive national securities depository system based in New York. CCS would be the obvious starting place. In 1970, it delivered more than 1.6 billion shares by computerized bookkeeping entry, with 553 million total shares on deposit. Eight clearinghouse banks, which handled the exchange of most payment transactions and served as major securities custodians, began participating in CCS as deliverers and receivers of stock via bookkeeping entry. And in November, CCS began accepting a limited number of AMEX-listed stocks on a trial basis. BASIC had another goal as well: that CCS would be spun out of the NYSE and become its own independent, self-sustaining company with a bank charter. It would not take long for that to begin to take shape, ultimately paving the way for the creation of DTC a few years later. ■

Robert Haack, who served as NYSE president from 1967 to 1972, is pictured here on the Exchange’s trading floor in 1969. By then, Wall Street was getting a handle on the paperwork crisis. On the first day of trading of 1969, the markets had resumed a five-day-a-week, four-houra-day trading cycle. (Photo courtesy of Library of Congress Prints and Photographs Division Washington, D.C. 20540 USA. Collection: U.S. News & World Report magazine photograph collection. Reproduction Number: LC-DIG-ppmsca-56737.)

CHAPTER

1970–1979

Two

In the early days of DTC, it was very much a ground game. It was going firm by firm, going investment manager by investment manager, custodian by custodian and making the case, persuading people, selling people.

Donald Donahue DTCC PRESIDENT AND CEO 2006–2012

Regulation, Regionalization and Reorganization

n the early 1970s, the Banking and Securities Industry Committee (BASIC) worked on 14 projects, all designed to improve the transfer of securities. Key among these steps would be the establishment of the Comprehensive Securities Depository System, which would be an expansion of Central Certificate Service’s (CCS’) work. In September 1971, BASIC announced a memorandum of understanding signed by the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), the National Association of Securities Dealers (NASD) and the 11 member banks of the New York Clearing House Association. Soon, regional banks and markets joined in, and the National Coordinating Group was created, but challenges lay ahead. This process was occurring while Congress was still in its laborious—and eventually five-year—debate for a solution. What was happening in New York could have been upended if Congress went in a different direction.

Soon after its founding in 1973, The Depository Trust Company (DTC) moved into new offices at 55 Water Street in downtown New York City. The move marked a separation from the New York Stock Exchange.

T H E S T O R Y O F T H E D E P O S I T O R Y T R U S T & C L E A R I N G C O R P O R AT I O N

Despite the uncertainty, the expanded role for CCS quickly proved its worth. CCS outlined several key facets, including a corporate structure and a commitment to technology investments. Even with those foundations in place, it would still take several years and steps for CCS to fully move into its role as a national depository. To do so meant changing laws on a state-by-state basis while convincing banks and securities dealers to commit to the new process.

Learning the BASICs BASIC’s leadership was comprised of three large bank CEOs and representatives of the three main exchanges. It had its own staff as well. Herman Bevis, who had just retired as CEO of Price Waterhouse, was tapped as executive director. Bill Jaenike, who worked for AMEX, was assigned to handle the technology. Jaenike was up front with Bevis about his knowledge—or lack thereof— about the certificate process. “I said, ‘Mr. Bevis, to tell you the truth, I don’t know the difference between a stock and a bond,’ ” he recounted in a 2011 interview with the US Securities and Exchange Commission (SEC) Historical Society. “He said, ‘You’re just the guy I want.’ We were off to the races at that point.” Before taking the role, Jaenike had been told that working with Bevis was “like getting a master’s in the securities business.” As the two worked together, Jaenike quickly realized that was incorrect. “It was like getting your Ph.D., not just in the securities industry, but also in how to live your life.”

1971

1972

1973

SEPTEMBER

JUNE

OCTOBER

MAY

The Banking and Securities Industry Committee (BASIC) announces a memorandum of understanding signed by the New York and American Stock Exchanges (NYSE and AMEX), the National Association of Securities Dealers (NASD) and the 11 member banks of the New York Clearing House Association.

William Dentzer is named chairman and CEO of Central Certificate Service (CCS). Dentzer had recently resigned as the New York State Superintendent of Banks.

CCS launches as a subsidiary of NYSE. By the end of the year, CCS would have more than 1 billion shares on deposit, totaling a value of more than $50 billion.

CCS becomes The Depository Trust Company (DTC). In October, DTC would move its offices to 55 Water Street in New York City.

C H A P T E R T W O | R E G U L AT I O N , R E G I O N A L I Z AT I O N A N D R E O R G A N I Z AT I O N

With Bevis at the helm and young technology experts like Jaenike on board, BASIC began to explore several options for streamlining the handling of stock certificates. CCS would play a large role in developing a solution for BASIC. They would buy out the CCS-type solutions from the stock exchanges, then make them cooperatives owned and controlled by the users, including banks. “The banks said, ‘We’re not going to put our securities into this thing unless we have a voice on the board of directors and the management,’ ” Jaenike said. Another obstacle that needed to be discussed was what to do with stock certificates in the first place. Some on the committee wanted to move away from stock certificates altogether. At BASIC, “it was a debate that lasted about 15 seconds,” Jaenike said. “It was driven by strong feelings out of Congress that there were too many Americans who wanted to have their physical stock certificate. If we try to legislate it out of business, you’re going to have a lot of angry voters.” A contingent of brokers urged BASIC to move to a punch card stock certificate. “Everybody from the brokerage side saluted this and said, ‘Isn’t it wonderful?’ ” Jaenike said. “Even some of those people on the BASIC task force, including me, said, ‘Maybe we should go down this path as well, in case something goes wrong, and CCS gets derailed. We’ll have this as a backup.’ ” As the task force technologist, Jaenike ordered a few thousand punch card stock certificates that had been stored in an ordinary office environment with no special humidity control, the way anyone would assume punch cards could be stored. Jaenike took them to the back office of Shields & Company, one of the leading proponents of the punch cards.

1974

1975

1978

DTC announces new policies to limit profits and return revenues for excess funds. It would keep half a million in its reserves and return about 10 percent of its total expenses—$2.4 million— to users this first year.

JUNE

OCTOBER

President Gerald Ford signs the Securities Acts Amendments of 1975. The act establishes a national securities market system and a national clearance and settlement system, among other provisions.

The US Securities and Exchange Commission approves NYSE’s proposal to sell DTC. By 1976, broker-dealers would be allowed to purchase shares in DTC directly.

DTC begins accepting over-the-counter issues. The move is designed to accommodate a merger of clearing corporations of NYSE, AMEX and NASD that form National Securities Clearing Corporation, centralizing the clearance and settlement of brokerto-broker trades.

T H E S T O R Y O F T H E D E P O S I T O R Y T R U S T & C L E A R I N G C O R P O R AT I O N

They used a Honeywell high-speed reader that had the capability of reading 3,000 cards per minute. As the cards were inserted into the reader, they were supposed to go down a belt and be read by a photocell reader. Instead, all 3,000 cards went flying across the room. Other tests with other readers showed similar problems. “The crushing of the fibers in this card made it something different,” Jaenike said. “We gave it to IBM. IBM put it through their labs and concluded that it was not a punch card. This was a famous story that not many people remember— on purpose.”

Leading the Way In 1972, William Dentzer was tapped as chairman and CEO as the new entity that would become CCS began its step toward independence. Dentzer had just announced plans to retire from his role as New York State Superintendent of Banks, which regulated the banking industry in the state. Dentzer believed he was nominated for the role as chairman and CEO “because of my background, including a two-year public record as state bank regulator, and because I was not likely to be opposed by the constituencies involved. Many banks thought well of my regulatory tenure, though some felt otherwise. These mixed feelings may have helped assuage securities industry officials who might have opposed appointing a banker as CEO,” Dentzer wrote in a history of The Depository Trust Company (DTC). Diran Kaloostian was named president and chief operating officer, bringing his expertise in depository operations along with him, something Dentzer admitted he knew nothing about.

BILL DENTZER: FOUNDING CEO When he was named the first CEO of the Central Certificate Service (CCS) in 1972, Bill Dentzer brought a tremendous amount of state, federal and international experience. As student body president at Muskingum College in New Concord, Ohio, he began to work with the National Student Association and later became president after his graduation. Dentzer’s job was to travel to colleges and universities to “help make them more relevant.” He visited more than 30 states, all for the salary of $2,000 per year. Dentzer soon joined the Army and was assigned to the CIA and later worked for the Foreign Aid Task Force overseeing US foreign aid programs. Shaken by the problems

in the United States in the late 1960s, he turned his attention toward home, becoming director of the New York Council of Economic Advisors. In 1970, Dentzer was named New York State Superintendent of Banks, a position he held for two years. One of his signature achievements was the Bank Redistricting Bill of 1971, which allowed banks to expand beyond protected markets. “That was a recipe for a lack of competition, and breaking down those barriers to competition was important to me,” he would later say. In 1972, Dentzer announced plans to retire from the state role and was asked to lead CCS, later The Depository Trust Company, a position he would hold for 22 years.

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Dentzer may have known little about clearinghouse operations, but he did know regulations. He began to separate CCS from NYSE, first incorporating CCS, Inc., in October 1972 as a subsidiary of NYSE. By the end of that year, CCS, Inc. had more than 1 billion shares on deposit, with a value of more than $50 billion.

New Name, Broader Mission Incorporating CCS, Inc., was just the first step in true independence. In May 1973, CCS became DTC, which was designed to be owned by the financial institutions that used its services and would operate as a not-for-profit. DTC became a member of the Federal Reserve System. Dennis Dirks, who started with CCS in 1972 and eventually became president and chief operating officer of DTCC, described some of the challenges involved with establishing DTC: DTC was basically such a novel concept that we had many issues that we had to overcome to try to become successful. One was to make more securities issues eligible to DTC services, but more importantly, we needed to get the banks involved. Brokers would actually settle transactions by book entry within CCS, later DTC. But at the end of that process, frequently, it was a bank and a bank’s customer who were the ultimate buyer of the shares. The broker would have to withdraw physical certificates from DTC and send them over to the bank, which basically made the entire process much less efficient. So, part of the planning was to try to come up with ideas as to how we could engage the banks and have them agree to use DTC.

The banks were not the only holdouts in those early days. Brokers, transfer agents and banks all had their own communication standards. Getting them all on the same page took some work, Jaenike remembered, because some brokers said they would not convert to the standard format. That quickly became a role for DTC, which would be to standardize the instructions from the broker and format them for the transfer agents. That was enough to get the transfer agents on board as DTC saved them the cost and effort in programming. “The operations people at the time, too many of them, were not farsighted. They couldn’t see that, five years out, this thing was going to save us a lot of money,” Jaenike said. “They had a short-term view of the future, so convincing them took a lot. Gradually, it was such a good idea that enough people signed on to it and it became a great success.”

In May 1973, DTC was formed. It grew out of Central Certificate Service (CCS).

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DTC is responsible for providing custody and asset servicing for securities such as equities, bonds and money market instruments. It is also a central securities depository and central counterparty, settling trades and managing risk for its participants.

DTC announced its transition away from CCS through a newspaper advertisement. The ad highlighted CCS’ successes of removing 75 percent of the manual operations of the delivery of stock and money settlement.

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Regional Wins There were more challenges to overcome before DTC could become that “great success.” BASIC and Dentzer had to work state by state to revise laws that would allow full participation by banks in DTC. Article 8 of the Uniform Commercial Code had limited depositories to those owned by stock exchanges and associations. By the end of 1973, some 31 states had adopted the changes, clearing the way for DTC to expand its services. Getting the remaining states on board would take more work, as Dentzer explained: The education process took a while. Some states’ insurance laws required that their state-chartered insurance companies have custody of the securities owned in the state, but we know we can get them if we need them. We made sure to explain that. If the securities are in DTC, you have the legal authority to access them.

DTC had competition in the form of regional depositories as well, formed in major financial centers like Chicago, Philadelphia, Boston and San Francisco. “The idea was these depositories would relate to us and we to them,” Dentzer said. “They’re catering to broker-dealers and banks in their area.” Some banks, however, saw the power in DTC and chose to join. Boston’s State Street Bank was one of the first outside of New York to become a member of DTC. “Why shouldn’t they? There was no barrier to them,” Dentzer said. “I was delighted. I did not want to restrict DTC to just New York banks.” The relationship with regional depositories was competitive and cooperative. Depositories also had to make sure their individual technology

DTC’s Expediting Group (from left to right): Sylvia Cherry, Monica Loke, Candice Dalby, Bob Ferreira, Jim Rogers, Robert Melillo, Maureen Sullivan, Angie Williams, Maria Ruiz and Eileen Carriero.

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interfaces were compatible. “We had to interface with the other depositories because they would make deliveries from their participants to ours and vice versa,” Dentzer said. “The interface was important. On the other hand, we were always concerned about their financial stability.” The concern was what would occur if DTC made a delivery for one of its participants to one of the regional depository participants who did not want to pay for it. Would the regional depository be able to come up with the funds to cover the amount? This was a risk that weighed heavily on the firm. Despite the risks and challenges the firm faced, DTC continued to grow, and in 1973, it took further steps to separate itself from NYSE by moving its offices to 55 Water Street in downtown Manhattan.

Technology and Innovation at the Forefront From its inception, DTC relied on technology to drive innovation. While the firm drew its initial 800-person staff primarily from CCS, newcomers brought fresh ideas. Thomas Lee was hired to develop a new information technology system, moving DTC away from NYSE’s systems. The Institutional Delivery System (ID) began to operate, processing electronic confirmations for institutional trades, and eventually the stock exchanges required all members to confirm all institutional trades. DTC was charged with training the industry in the new procedures. ID quickly drew a competitor in expanding to processes between broker-dealers and investment managers. Safety and security of technology were always at the forefront. Even in those earliest days, a backup system was in place. “We had the most sophisticated

DTC’s commitment to investing in state-of-the-art technology and security began at the earliest stages of the company as it faced scrutiny from government regulators.

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DTC invested in early computer technology to ensure that every transaction was recorded digitally and that backups were available.

backup system you could imagine,” Jaenike said. “As time went on and the stakes became greater, and the oversight from the SEC and the Fed became greater, we introduced additional backup. We installed a backup site as far away as computer-to-computer technology would permit. We wanted to make sure that if there was ever a tsunami in the New York area, it would not reach this backup site.”

Standing on Its Own In 1974, DTC opted to change its fee structure to one based on service costs, launching a series of annual studies, estimating direct and allocated cost for each service. Each participant, large or small, would pay a fee for each service. Users only paid for the services they used. At year’s end, any excess fees were refunded on a pro rata basis. DTC chose not to pay dividends to its participants. “BASIC had viewed user purchase of depository stocks as a means to participate in DTC’s governance and not as an investment vehicle, but had suggested paying a limited dividend,” Dentzer wrote in his history of DTC. “Even that, however, would require DTC to retain income to pay dividends and pay taxes on that income. It would benefit users, though not the NYSE, to give users refunds of all excess revenues.” DTC repaid NYSE for all start-up costs that had occurred prior to 1972 and, in 1974, announced its new policies to limit profits and return revenues for excess funds. It kept $500,000 in its reserves and returned about 10 percent of its total expenses—$2.4 million—to users that first year.

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DTC had the regulatory pieces in place and had formed the core of its fiscal operations. Now, it was time for the organization to stand on its own. In early 1975, NYSE proposed selling DTC as a separate entity. One final legislative act pushed that sale forward. In 1975, Congress was ready to act on sweeping legislative changes that would impact DTC. The Securities Acts Amendments of 1975, signed into law by President Gerald Ford on June 4, established a national securities market system and a national clearance and settlement system. In October, with the runway cleared by that legislation, the SEC approved NYSE’s proposal to sell DTC. In the beginning, NYSE would maintain 61 percent ownership, with the other 39 percent divided among other exchanges. AMEX and NASD each owned 8 percent, with the remainder offered to entities based on how much they had used DTC’s services in 1974. By 1976, broker-dealers were allowed to purchase shares in DTC directly. At the decade’s end, some 55 entities owned shares in DTC, up from the 24 who initially bought in. With the passage of the Securities Acts, BASIC’s work was complete. Jaenike had returned to AMEX but had continued to serve as the committee’s recording secretary. At one of the final BASIC meetings, Dentzer recruited him to DTC as vice president, Participant Services.

An Immediate Impact Quickly, DTC had enough participants “that people realized this is viable; this works,” said Donald Donahue, who would later become president and CEO. “After the elimination of fixed commissions, you see the acceleration in volumes that that triggered, and those much higher volumes were being accommodated in a way that, 10 years before, had been impossible and had created incredible

S. E. Canaday Jr. and William Stabenow, both of Nuveen asset management, review the benefits of same-day funds settlement eligibility for variable rate demand obligations with then-DTC Vice President Don Donahue.

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disruption. Now it was all happening reasonably smoothly. That let people say, ‘Let’s make a very dramatic shift by using regulatory authority to accelerate this change.’ You saw the balance tilt toward electronic clearance and settlement.” With an increasing number of securities on deposit with DTC as the decade drew to a close, the firm continued pushing to solve other industry problems. Meanwhile, to consolidate clearance and settlement activities for listed and over-the-counter securities transactions, National Securities Clearing Corporation (NSCC) was established and incorporated on March 19, 1976, marking it as the nation’s leading provider of centralized clearance and settlement services to over 1,900 brokers, dealers, and mutual funds. After extensive proceedings on NSCC’s application for registration as a clearing agency, the SEC granted NSCC’s registration on January 13, 1977. NSCC assumed control and responsibility for the operations of the Stock Clearing Corporation, American Stock Exchange Clearing Corporation and National Clearing Corporation on January 20, 1977. From the earliest days, NSCC’s services complemented those of DTC as both firms worked closely together to deliver securities to and from NSCC to DTC’s broker-dealer accounts. In 1977, DTC developed an automated voluntary offerings service, which allowed participants to accept tender offers and other corporate actions for their customers without having to withdraw the certificates and present them to agents. The next year, book entry became available for initial public offerings and other services. In 1978, over-the-counter issues were added to DTC’s portfolio. This was designed to accommodate a merger of clearing corporations of NYSE, AMEX and NASD that formed NSCC, centralizing the clearance and settlement of broker-to-broker trades. Jack Nelson, NSCC’s first president and director, was a leading proponent in automating the clearance of securities and clearing fixed-income securities within the firm’s Continuous Net Settlement System. His vision would help set the stage for the integration of NSCC and DTC into DTCC two decades later. Together, NSCC and DTC had laid an important foundation for their success, which both firms would enjoy for a short period of time before greater challenges would arise. ■

Jeffrey H. Smith of Salomon Brothers and James P. Mahoney of Morgan Stanley, pictured, with DTC’s Senior Underwriting Clerk Natalie Fiore and Anna Lane, a depository vault clerk. The executives were there to see how DTC handled point-ofissue immobilization.

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Why would you steal a registered security if you could steal a bearer bond, where the bearer is presumed to be the owner? Crooks very frequently used bearer bonds as a medium of exchange, which is why Congress eventually changed the law to require municipal bonds to be registered. The decision by DTC to make bearer bonds eligible was driven by our participants, who badly wanted us to do that.

William Dentzer DTC CHAIRMAN AND CEO 1972–1994

Technological Revolution

he first half of the 1980s dawned brightly. The Depository Trust Company (DTC) was expanding on multiple fronts, including holding municipal bearer bonds—and building a 40,000-squarefoot vault in Garden City, New York, to do so. Despite sharp volatility in the bond markets—due primarily to a drop in interest rates—DTC filled the Garden City vault quite ably. By the end of the decade, it held 20.6 million bearer certificates and another 6.9 million registered certificates with a total value of $750 billion. However, paper products were falling out of favor. By 1982, bonds were available as book entry only, with many states and local issuers opting for this method. Technology was becoming more readily adopted throughout the broader securities industry, with DTC playing an important role. Same-day settlement of funds was on the horizon.

With the addition of municipal bearer bonds, The Depository Trust Company (DTC) expanded its vault to include 40,000 square feet of space in Garden City on Long Island. By the end of the 1980s, DTC held 20.6 million bearer certificates and another 6.9 million registered certificates.

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Automation was needed more than ever as DTC faced two unique challenges during this time: a strike in 1985 and a massive Wall Street meltdown in 1987. Each provided DTC an opportunity to showcase its grace under pressure, a theme that would recur many times.

Innovating Through Automation In the early 1980s, when Jacob Feuchtwanger joined DTC as a manager, processing remained a largely manual task. In the withdrawal by transfer area where Feuchtwanger worked, brokerage houses and banks would request a physical certificate for a customer. “They would enter it online, and the system would transfer that into a request to pull it out of the vault and then send it to a transfer agent and monitor it coming back,” said Feuchtwanger, who retired from what became The Depository Trust and Clearing Corporation (DTCC) as managing director and chief information officer in February 2012. When DTC began holding bearer bonds in 1981, the physical handling of documents increased dramatically. Municipal bonds were typically bearer bonds, meaning “whoever has possession of the bond owns it,” said Dennis Dirks, who retired as DTCC president and chief operating officer in 2003. “They’re not registered in anybody’s name.” This meant heightened security was necessary to protect the bonds. They were housed at DTC’s vault in Garden City. Bonds brought additional work, too. They were large pieces of paper and included small coupons that were cut out and sent to an agent to be paid. In 1983, the market began a decades-long process of phasing out the use of

1981

1983

1985

The New England Depository Trust Company is folded into The Depository Trust Company (DTC). In 1987, the Pacific Securities Depository Trust Company closed and its members would move over to DTC.

AUGUST

JANUARY

DTC begins accepting municipal bonds, most of which are bearer bonds. It begins building a dedicated processing facility in Garden City, New York, which would be occupied in mid-1984.

A New York Stock Exchange (NYSE) change requires most institutional trades to be confirmed through DTC’s Institutional Delivery (ID). ID would expand from 667 users in 1980 to nearly 7,400 by the end of the decade.

Automated Customer Account Transfer Service launches at National Securities Clearing Corporation (NSCC). By the end of its first year, 100 firms are participating in the efficient transfer of accounts between brokers.

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One of the most laborious aspects of DTC’s tasks was filming each certificate that passed through its doors. That provided a backup in case anything was missing.

1985

1986

1987

JUNE

MAY

OCTOBER

A union strike tests DTC’s ability to maintain operations. Through careful planning, DTC continues to deliver without interruption.

The NSCC board of directors establishes a government securities committee to explore bringing the firm’s expertise to the government securities market.

A volatile stock market tests NSCC’s and DTC’s capacity as NYSE’s daily trading volume twice surpasses 600 million shares. During the week of October 19, immediately following “Black Monday,” NSCC’s processing volume peaks at 1.7 million sides, nearly triple the daily average, and DTC settles a daily average of 1.7 billion shares.

DTC launches the sameday funds settlement system. It begins processing municipal notes and zero-coupon bonds backed by government securities and installs a computer connection to the Federal Reserve System’s Fedwire Link.

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William Dentzer led Central Certificate Service (CCS) and DTC for 22 years.

coupons, but well into the 21st century, DTC was responsible for clipping the coupons and submitting them. “Brokers didn’t want to do it,” Feuchtwanger said. “So they gave us the bonds to hold. It was a massive process.” DTC soon had custody of millions of municipal bonds. “We had hundreds of people that would sit down with little ruler-like devices tearing coupons off these bonds to present them to get paid,” Dirks said. Because of the inability to track bonds—and ensure taxes were being paid— Congress eliminated bearer bonds by passing the Tax Equity and Fiscal Responsibility Act of 1982. Bearer bonds that were still in existence would be dealt with manually until they matured. Whether bond or stock certificate, much of the manual process was handled by clerks, who were crucial to accuracy and speed. When DTC’s predecessor Central Certificate Service (CCS) spun out of the New York Stock Exchange (NYSE) in 1972, some 800 unionized CCS clerks were part of the new CCS. Still, NYSE continued to negotiate with the union on behalf of itself, DTC and the Securities Industry Automation Corporation. In 1985, after NYSE stopped short of guaranteeing jobs for more than 300 pages and clerks who could be laid off due to automation, talks of a strike began to spread. The last strike against the Exchange had occurred in 1947. As negotiations continued through the first half of 1985, DTC prepared for what it believed was an unlikely event. “We didn’t think they would strike,” said Bill Jaenike, who was then the executive vice president of operations. “But we got ready, just in case.” On a Friday night in June, the union voted to strike in a 911 to 76 vote. With that, about 1,400 employees who were members of the Office and Professional Employees International Local 133 would not be showing up for work on the following Monday. DTC only had two days to prepare, but thanks to the preplanning and assistance from participants, the firm was able to weather what would become a three-week strike. For CEO William Dentzer, the event sent a powerful signal of the importance of building resilience into the firm’s operations:

BILL JAENIKE: DTC CHAIRMAN AND CEO 1994--1999 Bill Jaenike went to college during the Space Race and opted to study electrical engineering, hoping to work for any company in high tech. A summer internship at the New York Central Railroad led to a full-time job, followed by a stint at Xerox, where he worked on a high-speed facsimile machine that transmitted a page in five seconds. Jaenike brought those skills to Wall Street, joining the American Stock Exchange in 1968 as a communications consultant. It was the height of the paperwork crisis and

Jaenike had a front-row seat to the development of a solution: Central Certificate Service (CCS). As CCS morphed into The Depository Trust Company, Jaenike would begin rising in the ranks before succeeding founding chairman and CEO Bill Dentzer in 1994. Jaenike’s tenure as a leader was marked by an increasing sophistication of technology that solidified DTC’s reputation as a technology-driven company founded on crisis and built on solutions.

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DTC placed ads in publications read by municipal bond issuers to let them know about book-entry-only forms of new munis.

People in DTC who came to work realized DTC’s responsibility when I said, “We have to be able to operate through a strike—otherwise, this company doesn’t deserve to exist.” Our whole premise is that we are there all the time. If we can’t operate through a strike, our costs will go way up, and our reputation will go way down. That galvanized all of management as well.

While the strike was settled relatively quickly, DTC would begin to explore new opportunities to innovate many of its operational processes through automation. One of the more laborious processes involved manually filming each certificate that was sent to DTC. “In case something ever got lost, we needed

Pictured here is a security officer inside the underground vault at DTCC’s 55 Water Street headquarters in the 1970s.

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to have records and we had microfilm,” Feuchtwanger said. “Everything had to track, and so we had to film every single piece of paper that went in and out of DTC so that we had a record.” This was an area that was prime for automation. DTC took initial steps to improve the process by turning to new technologies, such as optical scanners to remove the manual filming of documents.

Broadening Industry Support

In 1980, Wall Street was adopting more and more technology. DTC joined in by increasing its capabilities as well.

Streamlining processes was vital. In the 1980s, several of the regional clearinghouses began to close, with settlement and depository functions moving to DTC and clearing moving to National Securities Clearing Corporation (NSCC). “Given DTC’s low fees due to its huge transaction volume and the widespread preference of banks outside of New York to use DTC, it was only a matter of time until regional exchanges tired of losing money on their depositories saw that DTC would not place them at a competitive disadvantage to NYSE,” Dentzer wrote. In 1981, the New England Depository Trust Company was folded into DTC. And in 1987, the Pacific Securities Depository Trust Company closed and its members moved over to DTC. This trend continued into the 1990s, with the Midwest Securities Trust Company being absorbed by DTC in 1995 and the Philadelphia Depository Trust Company in 1997. As the industry consolidated operations, NSCC continued to innovate. In 1985, the Automated Customer Account Transfer Service was launched to provide an efficient transfer of accounts between brokers. By the end of its first year, 100 firms were participating. The entire financial services industry was changing at the time. Several high-profile failures of government securities dealers drew federal intervention. The Government Securities Act (GSA) of 1986 was a sweeping bill that included a requirement for registration of government securities brokers and dealers. At the same time, the Treasury Department was moving away from issuing physical securities.

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Left: DTC’s same-day funds settlement (SDFS) expanded to include municipal variablerate demand obligations. Key players in DTC’s SDFS were (from left) Donald Donahue, Vincent Mauro and Christine Benedict. Below: DTC began holding municipal bearer bonds, a labor-intensive process in its earliest days. Technology would eventually play a role.

NSCC saw an opportunity to bring the same expertise in comparison and netting that it used in corporate and municipal securities to the government securities world. Three weeks after the GSA passed, NSCC moved quickly to fund the Government Securities Clearing Corporation (GSCC) with an initial capitalization of $1 million. By 1988, GSCC had implemented its comparison system, which automated a matching of next-day and future-settling Treasury and agency trades of 30 dealers and brokers. Mutual funds were also drawing increasing sophistication, and NSCC had a solution to improve processing capacity. Fund/SERV streamlined processing time while reducing risk. In 1986, NSCC was about to spark a revolution in the mutual fund market that would lead to explosive growth.

A Dramatic Downturn The most significant challenge of the decade for DTC was just around the corner. The year 1987 had started off with a very strong market, but that was about to change. DTC launched the same-day funds settlement system in June. “At that time, some typically short-term instruments settled against what people referred to as federal funds, meaning that it was money good that day,” said Donald Donahue, DTCC’s former president and CEO. “The vast bulk of securities transactions settled in what was referred to as next-day funds, meaning I would give you a check drawn on a New York clearinghouse bank,

Despite the rattling on Wall Street from the 1987 crash, NSCC and DTC did not miss a beat. On October 20, NSCC’s processing volume peaked at 1.7 million sides, and by the end of that week, DTC had settled a daily average of 1.7 billion shares.

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and it was good money tomorrow. Same-day funds were for shorter maturity instruments. It was the first foray DTC had made into the world of things that were settled in money that was good on the date of the settlement.” The faster turnaround was not the only thing speeding up. By that August, the Dow Jones Industrial Average had gained 44 percent in seven months. By October, however, the market began to correct, starting with a week of large daily losses. The weekend did nothing to stop the slide. On Monday, October 19, the Dow Jones Industrial Average dropped 22.6 percent—the largest one-day decline in Wall Street history. Larry Thompson, then an associate general counsel, remembered when he first got wind of the “Black Monday” crash. “We heard that the market was cratering and had to work diligently,” said Thompson, who retired in 2018 as DTCC’s vice chairman, managing director and general counsel. Donahue remembered walking down Wall Street on the Monday night of the crash and feeling as if he were walking through a dystopian landscape. “It was very calm, very quiet. There was no sign of the turmoil that had gone on. It was a very frightening day. Then at some time the following day, on that Tuesday when the market turned around and all of a sudden started to head up, you could feel the relief in the air.” On October 20, NSCC’s processing volume peaked at 1.7 million sides, nearly triple the daily average and almost double the highest previous single day. “Many of us thought we had learned much about risk over the years, and that we had done a good job of dealing with it,” said David Kelly, NSCC president and CEO, in the firm’s 1987 Annual Report. “While events such as those that occurred in October had been chronicled before, few in the industry fully anticipated the far-reaching effects of such events. Those events have presented the industry and NSCC with an opportunity to forge change in systems and procedures which will increase efficiency and capacity and give us a better understanding of risk.” By week’s end, DTC had settled a daily average of 1.7 billion shares. The firm did not rest in that relief, however. It began to explore any contingency that might arise, as Thompson described: It was something that was embedded into the culture because we always had to be ready for a potential market shock. Employees had to understand what they needed to do instinctively,

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After the “Black Monday” crash of October 19, 1987, Wall Street was quiet, but DTC began to explore potential scenarios.

rather than trying to figure it out on the fly. The ’87 crash was a lesson for all of us. There were some members who didn’t make it out of that crisis, so we had to manage that risk very carefully. We had to have an adequately capitalized participant’s fund that was sufficient to handle any kind of stress, which is why stress testing became so significant.

These stress tests would also ensure that the technology could manage the rapid movements of the market. “You really didn’t want to be in a situation where we would have to close,” said John Colangelo, former managing director of operations, business re-engineering and client services. “We were always running simulations up until that time and beyond on what trades would look like and how much volume we could handle, and what our backup facilities were capable of performing against. Given that our primary regulators were the Federal Reserve and the SEC, we were working in lockstep to make sure that our systems and processes were as bulletproof as possible.” Risk took on even greater importance as the industry sped up and as DTC and NSCC relied more heavily on technological solutions. ■

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One of the SEC commissioners gave a speech and one of his catchy points was, “Nothing good can happen between trade day and settlement day.” The more you think about it, the more that is a profound statement about risk management in the securities business. If you have a trade, and then something happens to that security, the price drops in the second or third day, the person who bought it says, “I didn’t buy that from you. Don’t deliver it to me.” The more time between trade and settlement, the more opportunity for that kind of thing to happen.

Bill Jaenike DTC CHAIRMAN AND CEO 1994–1999

Mitigating Risk, Seizing Opportunity

echnological innovations were driving speed at The Depository Trust Company (DTC), which opened the firm up to different forms of risk, including cybersecurity attacks. To address this, DTC began employing some of the best consultants in the country to penetrate its computers and test its systems to look for any vulnerabilities. DTC also worked with major participants to develop broad-based mechanisms to address the industry’s cybersecurity weaknesses, and these mechanisms expanded to include interactions with regulatory and national security authorities. The firm’s objective of making sure its systems were secure against cyberattacks would be an ongoing effort. For DTC, there was zero margin for error. Its systems had to be robust and bulletproof.

Much of The Depository Trust Company’s (DTC) success derived from its ability to recognize when it needed to make the necessary turns to clear the firm’s vision. By remaining nimble and innovative, DTC was able to effectively identify and address serious risks related to the financial markets it served. (Photo by Jo Wiggijo courtesy of Pixabay.)

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Computer vulnerabilities were hardly the only risk that DTC faced. The 1987 stock market crash had pointed out the need to be able to process an unprecedented number of transactions. One key area of concern was the length between sale and settlement, a time period fraught with risk. It was far from the only threat on the horizon. Virtually anything could pose a threat and DTC had to be prepared on any front for whatever came its way.

A Need for Speed The 1987 market crash provided plenty of lessons for Wall Street, including one suggestion that would have a profound impact on DTC. A group of banking executives and economists, known as the Group of Thirty, recommended shortening the settlement cycle and discontinuing use of next-day funds for settling transactions, said Donald Donahue, who would later become The Depository Trust & Clearing Corporation’s (DTCC) president and CEO. In those days, settlement was scheduled to happen five days after the trade occurred, known as “T+5.” “We realized it would be desirable to narrow the window of unsettled trades,” CEO William Dentzer said. “The question was, ‘Could the broker-dealer workforce do that? Was the industry able to do that?’ ” Dentzer believed the move was a good idea, but he was concerned about whether it could work. “You have to make a prudential judgment. Is this desirable thing possible? Can you get enough people on board so that when it happens, it does not blow up? If you work at it long enough, you can finally get to a three-day settlement, which we did. Three day and in same-day funds.”

1990

1993

1994

As the decade begins, The Depository Trust Company (DTC) is custodian for $4.1 trillion in securities. The firm would collect more than $238 billion in cash dividends and interest, resulting in 14.3 million disbursements.

DTC launches its continuous improvement program to take a more customerfocused approach. A cross-departmental steering committee emphasizes service, quality and efficiency.

FEBRUARY

Founding Chairman and CEO William Dentzer retires. Bill Jaenike, DTC’s president, is named his successor.

A truck bomb at the World Trade Center causes DTC to explore options for a backup site for operations. Brooklyn is ultimately selected.

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Dow Jones (June 19, 1987 – January 1, 1988)

The stock market crash of October 19, 1987, saw the Dow Jones Industrial Average fall 508 points (22.6 percent), making it the largest one-day percentage drop in the index’s history. The crash would impact DTC operations when a group of banking executives and economists known as the Group of Thirty recommended shortening the settlement cycle and discontinuing use of next-day funds for settling transactions.

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Donahue thought Dentzer was more concerned with whether the turmoil and investment would be worth the end result. “Bill certainly conveyed that was his view in some of the market forums. I think it was very clear, very early on, that he was a minority of one at best.” In 1994, as part of its preparations for shortening the trade settlement cycle, DTC replaced the old Institutional Delivery (ID) System with

1995

MAY

JUNE

DTC’s vault and physical securities processing capabilities begin serving Participants Trust Company (PTC), which handled Government National Mortgage Associations securities. In 1998, DTC would acquire PTC.

The US Securities and Exchange Commission mandates that DTC move to a three-day settlement process by this date.

DTC announces that it will remain at its headquarter offices on Water Street in downtown Manhattan, where it will share space with National Securities Clearing Corporation (NSCC) and PTC. The decision would save the firm approximately $26.5 million in real estate taxes and electrical costs.

Midwest Securities Trust Company is absorbed into DTC. In 1997, the Philadelphia Depository Trust Company would join DTC.

In February 1993, a bombladen truck exploded in the basement-level parking garage of the World Trade Center’s North Tower, killing six people and injuring 1,000. (Photo by Documerica courtesy of Unsplash.)

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interactive ID. The firm borrowed 11 employees from participating banks and brokers to help train 10,000 ID users to take full advantage of the new system and its speed. DTC processed nearly 3 billion shares—a heavier volume than normal—during the three-day period in which it converted its settlement system from five days to three. In June 1995, the SEC began requiring the three-day settlement process. Thanks to the broad industry effort that DTC and NSCC had led to prepare for this change, the conversion occurred very smoothly—two days of risk had been taken out of the equation.

A Bomb Rattles Wall Street Yet another risk emerged when the World Trade Center was bombed in February 1993. A truck bomb exploded in the parking garage of the North Tower, killing six and injuring more than 1,000. The masterminds of the terrorist attack had hoped to cause the building to collapse and to bring down the adjacent South Tower with it. DTC recognized that this might not be an isolated incident and was prescient enough to act. It opted to open a backup data center and an alternative operations site, should something

1996

1997

1998

FEBRUARY

NSCC begins its Insurance Services business. This would bring operational and cost efficiencies to the processing of annuities.

Participants deliver $62 trillion of securities through the depository’s book-entry system, up 24 percent over the previous years. Securities in its custody grow to $15.4 trillion, up 27 percent.

After the 1993 World Trade Center bombing, DTC opens a backup data center in Brooklyn, where it also establishes an alternative operational site.

DTC moves to same-day funds settlement, working alongside NSCC.

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similar happen in the future. The Brooklyn site was selected due to its proximity and the ability to move employees from one location to the other as needed. The terrorists’ goals of imploding the World Trade Center—a global icon for Western capitalism—would be met within a decade, and the Brooklyn site would again play an important role. Mitigating risks was deeply ingrained in DTC and practiced so that everyone had “muscle memory,” said Larry Thompson, DTCC’s vice chairman, managing director and general counsel until 2018. “We would have these various exercises that we would do during normal times. ‘What are you going to do? How are you going to contact people? What is your game plan?’ We all had our agendas laid out in front of us, and I think that muscle memory helped us tremendously, because everybody knew what they needed to do.”

Change at the Top In 1994, when CEO William Dentzer reached the company’s mandatory retirement age of 65, DTC would see its first CEO transition in its 20-plus-year history. The Board of Directors created a search committee that landed upon his successor: Bill Jaenike. Jaenike had been named president in 1991; Dentzer saw him as a “natural choice for the job.”

In the aftermath of the 1993 World Trade Center bombing, DTC opened an office in Brooklyn as a backup site. (Photo by Dennis Fraevich courtesy of Flickr.)

1998

1999

DTC participants deliver $77 trillion in securities through DTC’s book-entry system. Securities under custody reach $18.7 trillion.

DTC processes $37 trillion in broker-to-broker equity and bond trades. It processes 250 million institutional trade confirmations.

JANUARY

MARCH

Jill Considine is named chairman and CEO of DTC. She had been on the DTC Board of Directors for six years.

DTC and NSCC announce plans to merge. The two organizations had worked closely together throughout the decade, leading the industry in the move from T+5 to T+3 and instituting same-day funds settlement.

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CELEBRATING A MILESTONE On May 4, 1998, The Depository Trust Company (DTC) celebrated its 25th anniversary as the world’s largest securities depository and as a custodian for its participant banks and broker-dealers. The event— complete with live music and a stock certificate-themed cake—took place on the New York Stock Exchange (NYSE) trading floor and was attended by many industry professionals. By 1998, $77 trillion in securities were processed through DTC’s book-entry system. DTC held in custody 83 percent of the shares of all NYSE-listed companies as well as 99 percent of the commercial paper issued in the United States.

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In 1994, DTC Chairman and CEO William Dentzer (pictured) reached the company’s mandatory retirement age of 65. Bill Jaenike would be named as his successor. Below: To ensure that the securities industry was prepared for its conversion to T+3, DTC’s ID Task Force was made up of individuals who had in-depth knowledge of institutional trade clearance and settlement. Pictured from left to right are task force members James Coulter, Brian Mullarkey, John Galletta, Tanya Paul, Daniel Argueta and Steve Minicone.

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Under Jaenike, DTC would not only move to T+3, but also settlement in same-day funds, which rolled out in 1996. “It was a tremendous conversion effort,” Jaenike said. Previously, DTC participants had settled their end-of-day balances with New York Clearing House bank checks, which became good funds when presented at the Clearing House the following day. The participant would present a check to DTC or pick up a draft. “Because of five-day settlement, you had extra time to make sure you had the money all lined up. The industry was moving away from checks and drafts and toward electronic funds settlement, using the Federal Reserve wire.” Same-day settlement was “much more efficient” and allowed DTC to reduce its staff size. “The industry had many hundreds of people taking in these checks and making sure they were endorsed right and then getting them to the bank. Once we went to same-day funds, it was done automatically by the Fed, untouched by human hands,” Jaenike said. Automation was coming at a time when DTC was growing, adding adjacencies to its existing products to better serve its customer base. Regional depositories continued to be absorbed into DTC, with the Midwest Securities Trust Company closing in 1996 and Philadelphia Depository Trust Company in 1997. The move made sense, Jaenike said. “Depositories cost a lot of money to develop and operate. If you don’t have a substantial number of transactions going through to pay for all of that, you’ve got a loser on your hands. It took a long time for them to realize that.” Once realized, however, regional depositories sought a buyout from DTC, as Jaenike described:

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In 1995, DTC assumed custody responsiblities for Participants Trust Company (PTC). That same year, DTC would share its downtown Manhattan offices on Water Street with NSCC and PTC. Pictured from left to right are Karen Lind of DTC, Leopold Rassnick of PTC, Karen Saperstein of NSCC and Ronald Garguilo of DTC.

The Board spent a lot of time on it, because this was clearly a Board issue. We wound up paying each of them a substantial amount of money, typically in the tens of millions of dollars. We got their business, which didn’t amortize the outlay we had, but politically it was the right thing to do for the industry and everybody came away happy.

DTC was expanding beyond its typical base. In 1997, DTC and National Securities Clearing Corporation (NSCC) formed International Depository and Clearing, a joint venture in which each company held a 50 percent stake. DTC later renamed its offices in London, England, to reflect its part in the venture. The following year, DTC acquired Participants Trust Company (PTC), a depository for mortgage-backed securities. DTC and PTC had been working together since 1995, when DTC began processing and safe-keeping PTC’s Government National Mortgage Association securities in its vault. But the biggest consolidation would come when DTC and NSCC opted to merge in 1999. There had been attempts before, “and they’d all sputtered and failed,” said Jill Considine, who was named chairman and CEO in 1999. The merger made sense, particularly to participants who were “frustrated that you had two organizations that had duplicative human resources, finance departments and attempts to go global,” Considine said. The timing finally came together when NSCC and DTC had vacancies at the top at the same time. “That would take care of an issue of who was going to be running the combined companies, because of personalities and personnel issues,” Considine said. “I was the new kid on the block, so I didn’t have any history of tensions that might have existed at the time.”

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Considine may have been the new kid on the block, but she was well versed in DTC, having served on its Board of Directors since 1991 representing the New York Clearing House Association. In fact, she was co-chair of the committee to select Jaenike’s replacement. “I thought my co-chair would make a wonderful head of DTC. I spoke to him about it, and he was very interested,” Considine said. His employer was not in favor of him leaving, however, making it difficult for him to do so. Other candidates fell short in Considine’s eyes, as she explained: We had interviewed probably 20 candidates in person. At one point, I said, “I just don’t get it. They don’t seem to understand what’s happening out there, they don’t understand globalization, they don’t understand how critical technology is, and the competition that’s really out there.” I can’t remember who it was that turned and said, “Well, why don’t you interview for the position?” I thought they were being sarcastic. I said, “Ok, I’m sorry. I shouldn’t have said that, but I’m a little frustrated at what we’re finding.” They said, “No. We really mean it.” I went home and I thought about it for the weekend, and I came back and said, “Ok, but I’m going to have to recuse myself from anything now.” When the interview came, I actually switched seats and moved to the interview seat, and I was hired.

Considine would face immediate challenges in her new role, both operationally and culturally. As a female executive in a male-dominated industry, Considine would experience bias—sometimes subtle, other times more overt—from her Wall Street peers, but she always pushed back.

JILL M. CONSIDINE: DTC CHAIRMAN AND CEO 1999–2006 Jill Considine may have taken the most circuitous route to the financial world. She studied biochemistry at Bryn Mawr College before joining the research arm of the Red Cross, where she focused on RNA and DNA. Some of the experiments that we did turned out to have some useful benefits in terms of getting unicellular organisms to produce higher-level substances that could be used in drug treatment.

Considine eventually realized she wanted to work around people instead of in a laboratory. A friend suggested she pursue a job at a bank. Despite her initial misgivings, Considine was hired as a systems programmer at Bankers Trust.

That launched a series of financial roles, including as chairman and CEO of First Women’s Bank, a public company. From there, Considine was asked to become the New York State superintendent of banks, a role she held from 1985 to 1991. Uncomfortable working for a bank that she had once regulated, Considine took a job at American Express Bank, which was chartered in Connecticut but did its banking outside the United States, which exposed her to global financial institutions. Joining the Clearing House Association landed her a seat on The Depository Trust Company (DTC) Board of Directors, where she served six years before becoming chairman and CEO.

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“It was important that they understood that I was going to demand respect from them as an individual and as chairman and CEO,” Considine said. There was no time for Considine to ease into the job. She had to oversee the integration of DTC, NSCC, Government Securities Clearing Corporation and International Securities Clearing Corporation. She outlined a 100-day plan to integrate the four companies into a single global organization, but before she could focus on execution, she first had to manage the Y2K issue. Computer codes written in the 1960s were done using a two-digit code for the year, omitting the 19 that marked the century. As the century turned to 20, there were concerns that this could create a massive malfunction, rendering any technology useless. “Everybody was terrified of it,” Considine said. “We thought that might be the end of the world as we knew it. People were taking it incredibly seriously— hiring programmers, rewriting systems, making certain that we had the right dates in place. It was a real threat—a big concern.” DTC did what it always did in a crisis—it tested various scenarios. “It was a matter of going through the checklist, testing, testing, testing, and that was going fine,” Considine said. With the crisis averted, Considine set about on her integration plan, including changing the name of the organization to The Depository Trust & Clearing Corporation (DTCC). Despite the new name and branding, Considine knew among her first priorities would be resolving cultural differences among the organizations. While the merger had brought Considine into leadership, some of the core leaders came from NSCC. “It was a lot of trade-offs. We were trying to integrate the company, and we really needed to take both parts and put them together,” Considine said. “NSCC was very innovative, and that had to be honored and reflected, while DTC stood for safety and soundness. It was a beautiful combination.” Another business imperative for Considine was infusing fresh ideas and new approaches into the firm. Too many of the executives at the combined company had significant longevity and tended to hire people with their same mindset. “We needed diversity of thinking if we were going to be successful at a time when the company and the industry were undergoing rapid change.” This prompted Considine to tell leaders that a diverse slate of candidates would need to be interviewed for all open positions. “It wasn’t called diversity and inclusion at the time, but we were certainly at the forefront before most other companies.” With the integration moving forward and Y2K in the rearview mirror, Considine and her executive team turned their attention to pursuing additional opportunities outside of the United States. ■

Patrick Murphy of J.P. Morgan Investment Management, Inc. (left) looks over an ID System Reference Guide with DTC’s Ken Spinelli and Karen Assenza, both of the ID group.

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Five

A lot of the things we did were way ahead of their time in making the industry more robust, and more innovative and more global. You can talk about innovation now as ho-hum. That’s what you have to be to survive. But in those days, we didn’t think global. We thought it’s either domestic or international, and no one sort of had the holistic view of global.

Jill Considine DTCC CHAIRMAN AND CEO 1999–2006

Going Global

n the mid-1990s, The Depository Trust Company (DTC) began taking its first steps outside the United States in partnership with National Securities Clearing Corporation (NSCC). It had to, as its participants were opening international offices that required DTC’s and NSCC’s expertise and services. That did not mean it was an easy call for DTC. There was a serious debate inside the firm as to how much involvement it should have in international markets and whether or not it made sense to expand beyond the United States. At the time, NSCC had what was called the International Securities Clearing Corporation (ISCC), which offered several services globally. DTC had been very skeptical about that business. Bill Dentzer, who was CEO at the time, did not see international expansion as a meaningful business opportunity for DTC. He understood it was coming, but in his view, it was not there yet.

In 1995, The Depository Trust Company (DTC) expanded internationally, opening an office in London, England, to serve participant affiliates and the growing European market. (Photo courtesy of Pixabay/Public Domain Pictures.)

Mary Ann Callahan, former managing director, Global Relations and Development, traveled to London to begin exploring DTC and National Securities Clearing Corporation’s (NSCC) European expansion.

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“We started by doing a lot of work in the Institutional Delivery System,” said Donald Donahue, president and CEO of The Depository Trust & Clearing Corporation (DTCC) from 2006–2012. “And we asked ourselves, ‘How do we prepare this to handle transactions in securities other than US securities?’ ” Each new country brought a complex system of financial standards and regulations. Then there were the cultural differences. “I like to think of it as our international breakthrough, the beginning of our sharing with fellow CCPs [central counterparty clearinghouses] and CSDs [central securities depositories] around the world,” said Mary Ann Callahan, former managing director, Global Relations and Development, “We linked operating systems, while strengthening relationships and global dialogues, especially with CSDs that opened direct accounts and the many others who contributed to our popular Global Relations Education and Training (GREAT) workshops over six summers.” DTC’s international expansion plans went through several stops and starts, particularly in Europe, with some projects never coming to fruition. However, the firm stayed the course, confident of an increasingly global economy. Its commitment would pay off. In less than a decade, DTC, in partnership with NSCC, would be ready to grow overseas rapidly by stepping into its first international joint venture with a for-profit company.

Looking to London It merited just 18 words in the 1995 Annual Report: “DTC opened an office in London to serve Participant affiliates in the United Kingdom and on the Continent.” But there were growing reasons for DTC to be involved outside the

1994

1995

1996

The Depository Trust Company (DTC) unveils interactive ID, replacing both its Institutional Delivery service and International ID systems with one designed to meet the needs of global trading. By year’s end, the new system would process 157,000 transactions per day.

MARCH

DTC and National Securities Clearing Corporation (NSCC) form International Depository & Clearing LLC to focus on relationships with central securities depositories worldwide. The alliance also would include research, marketing and development.

DTC begins exploring a two-way depository interface with the Canadian Depository for Securities Limited.

DTC and the Society for Worldwide Interbank Financial Telecommunications (SWIFT) announce they will cooperate in providing international electronic trade confirmations based on DTC’s Institutional Delivery (ID) System.

CHAPTER FIVE | GOING GLOBAL

United States. Since 1985, US investors had grown their investment in foreign stocks and bonds by 1,500 percent. And DTC’s global securities program was growing at about 25 percent per year. Since it began accepting global securities in 1990, 5,200 of them had been distributed at a total value of $830 billion. While the London office did not merit much attention in the annual report that first year, a 20th-anniversary retrospective published in the London Financial News was more direct: “DTC arrived in the UK punching,” James Rundle wrote. “Trade confirmation, the signal confirming execution of a securities trade, which until then had been sent by fax, was gradually going digital, and DTC competed fiercely for the business with European giant Thomson Financial.”

In 1997, DTC’s international operations took on the name International Depository & Clearing (IDC). Pictured is the staff at the UK offices.

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2001

MARCH

APRIL

NOVEMBER

DTC becomes an electronic trade confirmation provider on the SWIFT communications network. This allows connectivity between 10,000 ID system users and SWIFT’s 6,000 users.

NSCC forms the Emerging Markets Clearing Corporation as the first truly global clearing corporation guaranteeing cross-border trading activity. It is formed in coordination with the Emerging Markets Traders Association.

International Depository & Clearing (IDC), NSCC and DTC host the first conference on cross-border institutional trade matching and settlement. The conference draws 39 staff members from 19 central securities depositories in 17 countries.

The Depository Trust & Clearing Corporation (DTCC) and Thomson form a joint venture, which would be known as Omgeo. Omgeo would help DTCC expand globally. In 2013, DTCC would acquire 100 percent ownership and rebrand Omgeo as Institutional Trade Processing.

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CHAPTER FIVE | GOING GLOBAL

Jill Considine, speaking at a DTCC Vision and Values event, joined the company in 1999 as its chairman and CEO after serving on the board of directors for six years. During her tenure, she oversaw the creation of DTCC, managed through the crisis of the 9/11 terrorist attacks and launched several strategic initiatives.

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William Hodash, former managing director, Enterprise Data Management, who opened the UK office, explained why the firms chose London: We were pretty much a domestic company until 1995. The firm decided that its main participants—the word we used at the time for our customers—were becoming global. Merrill Lynch was in London. Goldman Sachs International was in London, Morgan Stanley, etc. A lot of the firms were expanding their footprint in Europe and Asia, and we said, “Well, the beachhead needs to be London.” William Hodash, former managing director, Enterprise Data Management, was responsible for opening the DTC and NSCC offices in London prior to the integration of both firms into The Depository Trust & Clearing Corporation. (Photo courtesy of Christopher Elston Photography.)

Opening the office in London was simply a customer-driven move. When Hodash arrived there in the summer of 1995, he formed a user group of the UK affiliates of DTC’s US firms and paid them a visit to see how DTC could service them. One of the first ways was by expanding institutional trade processing. As DTCC had done throughout its history, it grew by slowly developing related areas. “We grew to serve the counterparties or the customers of our customers,” Hodash said. “So while we had about 300 main customers in the US who owned us, they had thousands of customers throughout the world that they were trading with. Our first international foray was to expand that institutional trade processing set of services to their customers.” The International Depository & Clearing, LLC (IDC)—the venture formed by DTC and NSCC in 1997—was intended to expand the relationship with other depositories around the world. DTC’s London office was rolled into IDC. That same year, DTC and NSCC hosted the first CSD conference on US Settlement and Clearance, which drew representatives from 17 countries. IDC led the way in promoting straight-through processing (STP), which aimed to process from trade initiation to settlement with minimal manual intervention. As the 1997 Annual Report outlined, “STP would provide for an open gateway to a common and standard transaction structure that eliminates repetitive data entry for all markets, all instruments and all participants. Once it becomes a reality, STP can help to reduce transaction risks, accommodate shortened settlement cycles, minimize costs while optimizing client service and eliminate volume sensitivity.” Despite the forward-thinking global initiatives, the London office also did what DTC, NSCC and today’s DTCC does best: process securities transactions. In 1997, the London office processed 3,071 deposits of over-the-counter eligible securities on behalf of participants. Nine participant-affiliated offices in Europe were linked to DTC’s and NSCC’s network, allowing for timely information on transactions, reducing the need to wait for the information to come from US-based offices.

CHAPTER FIVE | GOING GLOBAL

In 1995, DTC had formed an alliance with the Brussels-based Society for Worldwide Interbank Financial Telecommunications (SWIFT) cooperative, which provided international trade confirmations based on DTC’s Institutional Delivery (ID) System. At the time, DTC’s and NSCC’s main London competitor, Thomson, was selling their OASYS Global services to SWIFT throughout Europe and Asia. It would soon be abundantly clear that aligning with Thomson would prove better for the industry than competing. Thomson was already well entrenched in Europe and had faced DTC in the United States since the early 1970s. Canada and the United Kingdom in the 1980s were DTCC’s first forays into international, followed by links with Germany, Singapore and Japan. Other links over the years included Switzerland, Italy, Brazil, Hong Kong, Peru, Chile and, most recently, Mexico. Not all attempts at globalization were successful, however. In 2001, Nasdaq acquired the European Association of Securities Dealers Automated Quotations exchange. The newly rebranded Nasdaq Europe asked DTCC to set up a central clearinghouse for its securities there. This would be an ambitious undertaking, as the clearing and settlement structure in Europe

After having successfully expanded into Europe, in 1997, the DTC and NSCC London operation hosted its first conference on US Settlement and Clearance. (Photo by Julius_Silver courtesy of Pixabay.)

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was completely different from the United States. However, EuroCCP was created and received regulatory approval in nine months. Despite DTCC’s speed in getting the new entity up and running, Nasdaq Europe ceased operations in 2002 without sending a single trade to EuroCCP. While its alliance with Nasdaq Europe would not come to fruition, EuroCCP would go on to provide safe and efficient equities clearing and settlement services throughout the continent, forever changing the landscape of European clearing and settlement. In 2007, EuroCCP would be revived to clear trades of multilateral trading facilities like Project Turquoise, a pan-European equities trading platform established through a consortium of seven investment banks. Having learned from its unrealized alliance with Nasdaq Europe, DTCC incorporated seven banks to act as clearing members. In 2020, DTCC sold its stake in EuroCCP, but its impact remains today, as the costs in Europe for clearing and settlement services are about half of what they would have been had DTCC not established the equities clearinghouse. After the 1999 integration of DTC and NSCC into what would now be known as DTCC, the firm looked to expand its footprint outside of Europe into Asia. Its first move was opening a customer service facility in Shanghai, China. (Photo by wu-gongzi courtesy of Pixabay.)

Looking Beyond Europe By the late 1990s, it was time to take its expertise outside of Europe. In 1999, DTCC completed an agreement with the Stock Exchange of Hong Kong, which permitted clearance and settlement of stocks cross-listed on the Hong Kong exchange and Nasdaq.

CHAPTER FIVE | GOING GLOBAL

In 1997, NSCC had launched the Emerging Markets Clearing Corporation in coordination with the Emerging Market Traders Association, a valuable resource for the automated trade comparison, settlement and risk management of emerging markets debt transactions. Working outside the United States was becoming common for DTCC, which opened an operational site for the Global Corporate Actions service in Shanghai in the early 2000s. The firm hired employees in local markets to handle customer service 24 hours a day due to the time zone differences. DTCC reached out to customers and asked them how DTCC could help them, just as it did in its early days to minimize certificate movement. “Those conversations led to client acquisitions to the extent that they were in a position to move other types of activities over to the depository,” said John Colangelo, former managing director of operations, Business Re-engineering and Client Services. DTCC’s global focus would also mean it had to learn about and understand different cultures. “Cultural differences tend to get very much embedded into how people perceive standards, how they perceive where we’re going to go, how they perceive regulation,” said Jill Considine, DTCC’s chairman and CEO from 1999 to 2006. “We need to get on top of how we are going to have a global regulation that really provides the safety and soundness that we need.” As DTCC continued its global expansion, it found a partner in an old foe: Thomson, which at one point had been a fierce competitor in London. Though Thomson already had a mature presence in the UK, it also had a presence throughout the rest of Europe and in Asia. In a 50-50 joint venture, Thomson and DTCC aligned to form Omgeo in 2001. The new entity would serve as a launching pad for DTCC to further expand globally and prove to be a successful, long-standing joint venture. Initially, however, the partnership caused some confusion at DTCC because it was a not-for-profit integrated with a publicly listed company. The joint venture was successful and helped DTCC expand its global reach, as Robert McGrail, DTCC managing director of business management and the founding chairman of the Board of Omgeo, explained: The Omgeo joint venture grew into the leading global provider of post-trade processing for institutional trades, and leveraged the strengths of both parent companies. It was successful for both parents for 13 years, an unusually long term for a joint venture, and was structured in a way to ensure that if Thomson’s strategy changed to focus more on other parts of their broader businesses, DTCC would acquire their stake.

In 2014, DTCC acquired Thomson’s half of Omgeo and rebranded it as DTCC Institutional Trade Processing. ■

Above: DTCC’s former Chairman and CEO Jill Considine made it a top priority for the firm to expand beyond its US borders while expressing the importance of developing a standard for global regulation.

CHAPTER

2001–2004

Six

We were planning for employee appreciation day when one of the staff came in and said, “A plane has just hit the World Trade Center.” We, as so many others, assumed it was probably a private plane that had veered off course or had a major system failure. Then the second plane flew right by our windows and hit the second tower. There was no information. Papers were flying all over Wall Street. And then the towers collapsed.

Jill Considine DTCC CHAIRMAN AND CEO 1999–2006

A Day Unlike Any Other

he new millennium capped off two years of breakneck pace for The Depository Trust & Clearing Corporation (DTCC). First came the integration between The Depository Trust Company (DTC) and National Securities Clearing Corporation (NSCC). Then came the Y2K concerns that never fully materialized. A beautiful September day seemed a perfect time to stop and honor the employees who had weathered these challenges. Those plans, however, changed when terrorists hijacked four commercial aircraft—two of which were purposely flown into the Twin Towers of the World Trade Center— sending Wall Street and the rest of the country into chaos. In some ways, the financial industry at large had made preparations to handle an event of this nature. Business continuity was not an issue that was born on the morning of September 11, 2001. Crisis planning and management

The 9/11 Memorial, located on 8 of the 16 acres comprising the World Trade Center, is a space designed for remembrance and contemplation. The Memorial opened on September 11, 2011, 10 years after the coordinated terrorist attacks claimed 2,977 innocent lives. While The Depository Trust & Clearing Corporation (DTCC) had contingency plans in case of a catastrophic emergency, the emotional toll of the tragedy was not something the firm could ever prepare for. (Photo by Alejandro Luengo courtesy of Unsplash.)

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were constantly top of mind. It was vital for financial firms to develop contingency plans for their organizations. DTCC and its subsidiaries, DTC and NSCC, certainly had their own contingency plans in place, but no amount of planning could prepare the organization for what was unimaginable. The criticality of the role of DTCC in overcoming the looming threat to the global markets, US market and the US economy cannot be overemphasized. The movement of money and the ability to communicate clear direction were the highest priorities on that fateful day. Immediately put to the test was the relationship between DTCC and the Federal Reserve to ensure settlement payment could be accomplished. While the world financial markets froze in the aftermath of the attack, trading never began at the US exchanges. And at the London Stock Exchange, trading stopped until word came through that DTCC was settling payment obligations. Successfully managing the complexity and volume of calls between DTCC, the Federal Reserve and major banks, brokerage firms and corporations was critical. Throughout the halls of DTCC, the attacks created understandable chaos. Were employees safe? Were their families safe? After a few minutes for leadership and staff to gather themselves, the thoughts quickly turned to the day’s task—settling. John Faith, managing director, Global Business Operations, said of DTCC’s response: In those instances, we certainly go above and beyond, but what we do on a daily basis is critical to protecting the safety of the markets, which is why, organizationally, we adapt so well to crisis. It’s something that every employee learns early on, and then from time to time, there are events that reinforce that for us.

2001

The Depository Trust & Clearing Corporation (DTCC) fees generate $819 million in revenue, down from $914 million in 2000 because of a reduction in fees. DTCC also returns $177 million in discounts and rebates to its customers.

Standard & Poor’s awards AAA ratings to The Depository Trust Company (DTC) and National Securities Clearing Corporation (NSCC). The ratings would be reaffirmed the week of 9/11.

APRIL

SEPTEMBER

Wall Street makes the switch from trading in fractions to trading in decimals. Most of the changes required by DTCC subsidiaries would be implemented during reprogramming as part of the Y2K initiative.

In the week after the terrorist attacks on 9/11, DTCC settles $1.8 trillion in securities transactions.

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A Close Call When employees began gathering for work on September 11, the day was expected to unfold very differently. Chairman and CEO Jill Considine had organized an employee appreciation day event, and all DTCC leaders were expected to be on hand. It was the duty of flipping burgers that kept Donald Donahue from a planned risk conference on an upper-level floor at the World Trade Center. Before the grills were fired up, senior management was in a committee meeting when someone sent word that a plane had struck the North Tower of the World Trade Center.

With brilliant sunshine, a deep blue sky and mild temperatures, the morning of September 11, 2001, gave no warning as to what would unfold that day and its lasting effects on DTCC, New York City, the country and the world.

2002

Government Securities Clearing Corporation, Mortgage-Backed Securities Clearing Corporation and Emerging Markets Clearing Corporation are all consolidated under the DTCC holding company umbrella.

NSCC achieves a record low cost of 4.7 cents per side to clear a trade. It processes 4.1 billion transactions, up 17 percent over the previous year.

Fund/SERV sees the volume and value of its transactions increase by 14 percent. Processing costs would remain at the same low rate of 17.5 cents per transaction.

Dividend and interest income payments processed top $1 trillion, up 19 percent over the previous year.

Despite surviving a terrorist truck-bomb attack on February 26, 1993, the World Trade Center remained a target. On September 11, 2001, 19 terrorists hijacked four commercial airliners, deliberately crashing two of the aircraft into the upper floors of the North and South Towers of the World Trade Center complex and a third aircraft into the Pentagon in Arlington, Virginia. The Twin Towers ultimately collapsed (pictured) due to damage from the impacts and the heat from the resulting fires. Passengers on the fourth hijacked airliner, Flight 93, fought back against the terrorists. Utlimately, the aircraft was forced down in an empty field located in western Pennsylvania, about 20 minutes by air from Washington, DC. (Photo by Julien Maculan courtesy of Unsplash.)

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Donahue made a beeline to the data center, and when he returned to the 49th floor of the Water Street building, the elevator lobby was filled with people who were all trying to evacuate. By that point, a second plane had struck the South Tower. “People were looking out the west side of our building,” Donahue said. “They had a front-row seat to what happened, and they were completely freaked out. I remember getting everyone to take a deep breath and calm down from the horrible thing that they had just seen, but that was easier said than done.” Despite the chaos, DTCC employees immediately went back to work. The firm had approximately $250 billion worth of transactions being processed at that time and had to make sure that all transactions proceeded toward completion. “People really did go back to their desks,” Donahue said. “I remember standing in the data center, which looked out over FDR Drive, and seeing it was jammed with pedestrians walking north, leaving the financial district. Meanwhile, all of the DTCC people are at their desks continuing to do their jobs because we would need to close out settlement that day. Everybody was very focused on, ‘We have to keep this thing going, we have to settle, we have to make sure that things remain on track and on course.’ I think having that to cling to was psychologically a very good thing for all of us that day.”

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The conditions in the area were challenging. Because of the polluted air from the collapsed towers and the debris they generated, the air conditioning at DTCC’s offices had been turned off. A debris cloud hung over the building, and the smell of fire was overwhelming upon stepping outside the doors. Making matters worse, because electricity was out in much of the surrounding area, food was hard to come by. Considine and her leadership team were tracking the dozens of issues that would need to be addressed, from how the firm would clear and settle amid a catastrophic event to where they would find food to feed employees who would need to remain on-site. Considine was also walking from floor to floor talking to employees, telling them to call their families to see how they were doing and to let them know they were safe. Because there was no way for her to get home and she did not want to leave the area in case the authorities would not let her back in, Considine made the decision to stay at the DTCC offices for the entire week, where she slept on a couch in her office. “DTCC was open and operational, and we were running and we actually processed $280 billion that day,” Considine said. “It was a horrendous time, but it was probably one of the finest hours for DTCC. We showed our resiliency and were able to continue processing.”

Pictured below is what remained after the Twin Towers collapsed on September 11, 2001. The terrorist attacks killed 2,977 people from 93 nations, with 2,753 victims in New York alone. The site would forever be remembered as “Ground Zero.” (Photo by David Mark courtesy of Pixabay.)

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PHOTOS BY DAVID MARK COURTESY OF PIXABAY.

THE FDNY 9/11 MEMORIAL WALL Holland & Knight Charitable Foundation, Inc., established the New York City Firefighter Memorial Wall Fund on behalf of Glenn J. Winuk, a Holland & Knight partner. In addition to being an attorney, Winuk was also a volunteer firefighter on Long Island, New York. On that Tuesday morning, Winuk rushed from his nearby law office to the Twin Towers to try to help others. Winuk lost his life in that effort.

Presented to the FDNY, the 56-foot-long by 6-foottall bas-relief bronze sculpture was a gift from the law firm of Holland & Knight. The Wall serves as a lasting tribute to the sacrifices of the 343 fire department personnel who perished in the aftermath of the terrorist attack on the Twin Towers, depicting the technical and organizational challenges first responders faced that fateful day.

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Up and Running While DTCC was able to complete settlement on 9/11 just a few hours later than normal, Considine received a call from the White House later that week telling her that a decision had been made to reopen the markets again on Monday: “Will you be ready?” I said, “Of course we’re ready,” and they asked, “What can we do for you?” I said, “I’d really like to get some people in over the Above: As DTCC’s general counsel, Larry Thompson coordinated with New York’s Office of Emergency Management team as the events of 9/11 continued to unfold. Below: Despite the 9/11 attacks, DTCC was still able to settle that same day, a few hours later than normal. The majority of the work was done at the Brooklyn site (pictured), which was set up as the firm’s backup site following the 1993 World Trade Center bombing.

weekend because we had $32 billion worth of securities in our vault.” They heard that number and said, “We’re sending you the National Guard, and we’re just gonna guard your building.” I said, “That’s the last thing we need. I don’t want to draw attention to the building and the assets we have in custody. But if you could assist with getting some staff in, that would be very helpful.” They asked, “Is there anything else we could do?” I jokingly said, “Well, I’d appreciate a change of clothes and some real food. I’m sick of eating microwave popcorn and oatmeal.” But we were ready and we were up and running again on Monday.

Maintaining settlement was vital to keeping a fragile economy going. “This is before we went to T+3,” said Larry Thompson, DTCC’s vice chairman, managing director and general counsel. “Even though the equity market didn’t open on 9/11, which meant you didn’t have any new trades taking place, you

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Tribute in Light is an art installation created in remembrance of the 9/11 terrorist attack. Consisting of 88 vertical searchlights arranged in two columns of light to represent the Twin Towers, the installation is located six blocks south of the World Trade Center. First presented six months after 9/11 and then every year thereafter on the night of September 11, the lights can be seen from dusk to dawn from up to 60 miles away. (Photo by Jack Cohen courtesy of Unsplash.)

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had all of the old trades that had to be cleared and settled. We also had a lot of fiscal activity that was beginning to build up, with deposits coming in.” While the markets were closed for a week after 9/11, DTCC continued on, ultimately settling nearly $2 trillion in transactions. DTCC also served as a valuable backup for its industry colleagues, 13 of which were left homeless since their offices were in the World Trade Center. Much of the work was done at the Brooklyn Army Terminal, which had served as DTCC’s backup site and had been set up with an emergency vault. Making the transition was as seamless as possible because of DTCC’s crisis management planning after the 1993 World Trade Center bombing. “We had various exercises that we would perform during normal times and had our agendas laid out in front of us,” Thompson said. “Everybody knew what they needed to do.”

A New Backup Plan Increases Resilience Despite the success of Brooklyn as a backup site, the events of 9/11 had proven that DTCC needed additional contingency planning. While many financial institutions had moved to create computer system backups and locations, DTCC took things a step further, opening a new office in Upper Manhattan that would include a unique stipulation. Similar to the designated survivor who is held in an undisclosed area during the US President’s State of the Union address, one member of DTCC’s senior leadership needed to be present at the Upper Manhattan office at all times. The DTCC senior staff members who were selected for this role were constantly put through drill exercises that challenged them to anticipate how they would respond were they suddenly placed in charge of the entire firm. In hindsight, it was an obvious move, but one that no one else had considered, as Considine described:

DONALD DONAHUE: DTCC PRESIDENT AND CEO 2006–2012 Donald Donahue had a long and successful Wall Street career before joining The Depository Trust & Clearing Corporation in 1986. He had worked for a small brokerage firm and then the Municipal Securities Rulemaking Board. When Donahue joined what was then known as The Depository Trust Company (DTC) as vice president of planning, he played a key role in launching the same-day funds settlement system. As vice president of operations, Donahue helped DTC make the move to a three-day settlement.

No matter what was going on, Donahue was likely to be present. “If there was a problem, Don Donahue was hanging around the areas that were doing the work,” said Jacob Feuchtwanger, former managing director and chief information officer. “He wasn’t up in the ivory tower saying, ‘All right. We’ll see what happens.’ He was there. If there was a problem with settlement, Don was always on top of it.”

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Everybody was into backup on computers and physical locations, but we were also focused on backing up our future staff. I had conversations at the Fed, with the Bank of England, and at the World Economic Forum in Davos on this topic. Most organizations and people weren’t thinking about that. What could be more important than backing up your human resources?

At the time, this was more pointed, given that all but eight DTCC employees were at the 55 Water Street building on that fateful day. The others were based in London. The terrorist attacks made it obvious that DTCC needed a backup center much further away from Wall Street. In early October 2001, DTCC presented its plans to establish an office outside of the greater New York metropolitan area and selected Tampa, Florida, for its new office. “The board didn’t blink,” Donahue said. “They said, ‘Absolutely you have to do that.’ ” In response to the 9/11 terrorist attacks, in 2002 the Federal Reserve, Department of the Treasury and the US Securities and Exchange Commission issued a white paper. It stated that all clearing and settlement organizations would be required to have out-of-region data recovery and building operations. The federal regulators also set a firm deadline. “Essentially, they were saying this is what is viewed by the federal regulatory community as best practice, and this is what we are expecting you to adhere to in this new world, recognizing how things had changed,” Donahue said. DTCC was already well underway in these preparation plans. The new Tampa office would open in Spring 2003 as a backup data site that could handle full business operations by late 2004. Ultimately, the New York and Tampa offices became a dual operation, with both locations able to fully handle any task. Once again, DTCC’s contingency planning would pay off in the coming years. ■

The events of 9/11 made it clear that DTCC needed a backup center away from the greater New York metropolitan area. In Spring 2003, DTCC opened its backup data site in Tampa, Florida, 1,100 miles away from Manhattan.

CHAPTER

2005–2012

Seven

When DTCC is organizing a conversation in the industry about how to deal with a particular challenge, our clients and stakeholders have confidence that our people are approaching the problem from the perspective of “How do we solve this in the best way for everybody?” We are not coming to the table with “What’s in it for us?” That’s not a driver. It makes the conversation move to a much more productive level very quickly.

Donald Donahue DTCC PRESIDENT AND CEO 2006–2012

Twin Storms

he Depository Trust & Clearing Corporation (DTCC) had proven itself through the Y2K scare and the terrorist attacks of 9/11 that followed in close succession. By 2008, the firm was settling $1.88 quadrillion in transactions. That same year, DTCC made its deepest fee cuts ever, saving its clients a total of $260 million. While the firm had been relentless in its focus to drive down core clearing costs, it recognized there was more that could be done. DTCC was hardly resting on its successes. The firm continued to implement a strategy for stress testing and simulating systemic shocks, including the failure of one or more of its members. DTCC was testing its own resilience, too, learning the lessons of 9/11 to shield and diversify its operations.

By 2012, The Depository Trust & Clearing Corporation (DTCC) was used to facing economic storms head-on, but in the aftermath of Superstorm Sandy, the largest Atlantic hurricane on record, the firm had to scramble to save its most important documents. They were stored in the underground vault at DTCC’s 55 Water Street offices in downtown New York City, which were severely flooded. (Photo by Robert Simmon courtesy of NASA Earth Observatory.)

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DTCC would undergo a leadership change in 2007 when Jill Considine retired from the firm. Donald Donahue was installed as DTCC’s new chairman and CEO. In 2007, DTCC was healthy, but the overall financial industry was starting to show cracks. By that time, a trading derivative known as a credit default swap had entered the public discourse. Banks used these swaps to hedge against default of debt instruments, with the seller of the swap essentially insuring the debt instrument against default. Many swaps covered collateralized debt obligations (CDOs), structured financial products made up of a pool of mortgage loans. When it became clear in 2007 that many of these CDOs included risky subprime mortgages, which were defaulting, the markets began to freeze, given the wave of subprime defaults and the great uncertainty about individual banks’ financial commitments to swaps on CDOs holding these defaulted mortgages. Counterparties weren’t willing to trade. Firms had great difficulty getting funding to support their activities. A financial crisis had begun. Not since the Great Depression of 1929 had the US and global markets experienced such a severe economic storm.

The Great Recession In the years prior to the Great Recession, DTCC had put in place a seemingly innocuous policy that would prove prescient. In 2005, the firm began modeling the failure and closeout of a client to test and train new team members in risk. “We had the realization that there have been a lot of changes in risk groups,”

2006

2008

AUGUST

DTCC’s Trade Information Warehouse manages 11 credit events in the over-thecounter derivatives market in 2008. Approximately $285 billion of credit default contracts would be netted down to $12 billion in actual payments.

DTCC settles $1.88 quadrillion in transactions. It also has $27.6 trillion in securities on deposit.

DECEMBER 12

Donald Donahue becomes president and CEO of The Depository Trust & Clearing Corporation (DTCC). Jill Considine takes on the role of executive chairman.

Bernard L. Madoff Investment Securities ceases trading. DTCC’s equity clearing subsidiary takes responsibility for all trades that members have open and closes out all trades with no loss to member firms.

CHAPTER SEVEN | TWIN STORMS

Donahue said. “All of those people were new, and none of them had actually gone through a real live liquidation of a member firm.” In response, Donahue instituted tabletop exercises to simulate failures. He insisted on using real firms and real data. It was clear that the economy was on shaky ground, so the firm upped the simulations to every six months. “The lights were flashing red,” Donahue said. “The Fed and the ECB were pumping in massive amounts of intra-day liquidity to help people bridge funding problems they had, triggered by their portfolios of CDOs throughout late summer/fall of 2007, and we had the forced takeover of Bear Stearns in March 2008.”

The housing bubble in a nutshell: With the United States still recovering from the dot-com bubble and 9/11, the Federal Reserve slashed interest rates, eventually down to 1.13 percent in June 2003. Home prices soon shot up as new home buyer demand exceeded existing housing supply. Coupled with the federal government’s pressure that the “American Dream” of home ownership be made available to everyone, ever riskier mortgages were approved for borrowers who had little chance of paying them back. Eventually, the Federal Reserve started raising interest rates, which adversely affected the adjustable rate mortgages popular with subprime borrowers. The higher interest rates made paying back the mortgage much more expensive than when the mortgage was originally taken out—for millions of borrowers. As a result, the US economy collapsed in 2008 under the pressure of falling home prices and record mortgage defaults, bringing the global economy down as well. (Photo courtesy of Max Pixel.)

2010

2011

2012

DTCC launches DTCC 3.0, which would work to lower DTCC’s risk profile. DTCC’s Systemic Risk Office identifies processes and events that are risks for DTCC and the financial markets more broadly and begins implementing ways to mitigate them.

Robert Druskin is named DTCC’s executive chairman of the board.

AUGUST

OCTOBER 29

Knight Capital has a technology glitch that threatens its viability. DTCC works with the organization to provide a wind down and help keep Wall Street solvent.

Superstorm Sandy comes ashore and water begins to flood the DTCC vaults. DTCC undertakes a yearlong process to save the certificates in its vault, recovering 99.5 percent of them.

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Continuing its simulations, in June 2008, when it came time to select an investment bank to model, DTCC selected Lehman Brothers. Lehman failed three months later. The Lehman Brothers collapse triggered a stock market free fall, with the Dow Jones Industrial dropping 504 points on Monday, September 15, 2008, leading the country into recession. Following Lehman’s bankruptcy, DTCC was able to resolve $530 billion in exposure, what DTCC’s 2008 Annual Report termed “the largest liquidation in US financial history.” It was able to do so with no loss to the industry. Later that year, another crisis emerged when Bernie Madoff would be exposed in what the New York Times called “the largest and possibly most devastating Ponzi scheme in financial history.” DTCC’s equity clearing subsidiary guaranteed all open trades involving Bernard L. Madoff Investment Securities through December 12, 2008—the firm’s last trading day—and subsequently closed out all of this activity with no loss to member firms, according to Susan Cosgrove, who managed the business at the time. This market event reinforced DTCC’s ability to seamlessly manage large-scale systemic shocks. “Our success depended on having the computer capacity and smart people to write programs that could take all data from one gigantic firm and merge it into another gigantic firm, and keep track of every transaction and open position that any individual had or any clearing organization had,” said Joe Trentacoste, DTCC’s assistant vice president and treasurer at the time.

Market Transparency Prior to the financial crisis, DTCC established the Trade Information Warehouse (TIW) in 2006, the financial industry’s first infrastructure for record retention and asset servicing of cleared and bilateral credit

LE H M AN B R OT H E R S

In 2008, DTCC ran a simulation on what it would do if a Wall Street investment bank were to fail. The firm chose Lehman Brothers as its example. That choice would be prescient, as it would be the first investment bank to fail. The collapse of Lehman Brothers was the catalyst for what would become the Great Recession.

CHAPTER SEVEN | TWIN STORMS

TRADE INFORMATION WAREHOUSE While the reasons for the 2008 financial crisis were many, the most widely used derivative product, known as a credit default swap (CDS), played a significant role. A CDS serves as a form of insurance in a contract between two parties where the seller agrees to compensate the buyer in the event of a debt default or massive credit event. The risky nature of CDSs drew the attention of federal regulators, especially due to the fact that most CDSs were written on paper, meaning inaccurate records, manual inputs and a long time for trade confirmation. “Banks really didn’t know what exposure they had to other banks because of these credit default swaps,” said Peter Axilrod, former managing director of strategy/derivatives. “Risk managers were saying this was a big problem because they really couldn’t get a handle on what they owed other banks or what they were owed by other banks.” The Depository Trust & Clearing Corporation’s (DTCC) Trade Information Warehouse (TIW) was a solution. TIW calculates payments due on CDSs and, if an event occurs, it is processed through TIW. “The concern during the crisis was that the regulators had no access to data in that

market,” said Chris Childs, managing director, head of Repository & Derivatives Services. “At that time, the TIW was there purely to facilitate payments and transaction processing in between trading counterparties. It wasn’t there for the purpose of regulators.” During the crisis, DTCC realized it could provide helpful data. “We could actually see that a lot of the news reports were wrong,” Childs said. “The numbers were inflated because people were using gross numbers rather than net numbers, so we went to the industry and said, ‘We can calm the markets down by using information in our TIW to show an accurate reflection of exposure.’ ” In 2009, at the Pittsburgh Summit, G20 companies committed to expanding warehousing data in derivatives. “We were at the forefront of this concept. Warehousing this data and then providing it to regulators was a critical move for the industry,” Childs said. In 2012, TIW expanded its warehousing to the Global Trade Repository. Today, DTCC is the largest recipient of data from the market and the largest provider of that data to regulators.

default swaps. Its infrastructure provides automated operational capabilities for approximately $10 trillion of credit derivatives globally. TIW is a centralized electronic database holding the most current details on the official, or “gold,” record for virtually all cleared and bilateral credit default swap contracts outstanding in the marketplace. The warehouse contains more than 50,000 accounts representing derivatives counterparties across 95 countries. As a reflection of its success, in 2008, TIW managed 11 credit events in the over-the-counter derivatives market. Approximately $285 billion of credit default contracts were netted down to $12 billion in actual payments. In ways large and small, DTCC helped its member firms—and the global economy—navigate the myriad of financial institution failures, forced mergers and bailouts.

Intensifying the Risk Mindset The 2008 recession and the instability on Wall Street provided tremendous lessons for DTCC in the years that followed. In 2010, the firm launched DTCC 3.0, which Donahue told stakeholders meant reshaping DTCC’s systems and services to lower its risk profile, further safeguarding the firm and the financial industry and making DTCC more efficient from a cost standpoint. It also meant reevaluating many assumptions behind the practices DTCC employed and the services the firm had been offering clients

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for decades. In other words, DTCC 3.0 would significantly alter how the firm would support and work with clients to identify and mitigate risk while minimizing costs as much as possible. DTCC’s Systemic Risk Office identified processes and events that were risks for the firm and the financial markets more broadly and implemented new ways to reduce them. DTCC needed to make sure it was reinforcing and emphasizing the importance of risk to its employees, so the firm coined a tagline: “Everyone is a risk manager.” At the same time, DTCC began overhauling the processes and technologies to strengthen the risk management function. “We made a significant change in the infrastructure that supports the work we do, particularly in financials, and then all of the other applications that sit on that infrastructure, including rebuilding our models and adding automation so it makes it easier for people to access information,” said Andrew Gray, former managing director and group chief risk officer. DTCC continued what it would call “default simulation” well beyond the 2008 financial crisis. Gray detailed the process: We’ll take an actual portfolio today, but we’ll add a stress from a prior period and use that to amplify the stresses that could be placed on that portfolio. Then we call the next step to say, “So now they’re defaulted, what do we need to do from a hedging standpoint? What do we need to do from the standpoint of closing out the portfolio? What’s the profit? What’s the loss?” So we can exercise that and make sure we have adequate resources to be able to deal with those situations. We also simulate a multi-firm failure, so not just one firm failing, but multiple firms failing. Then, we game out where that can lead us.

This type of preparation is what helped DTCC seamlessly close out MF Global, a major commodities broker, when they collapsed in late 2011. DTCC’s Fixed Income Clearing Corporation (FICC) subsidiary was able to liquidate MF Global’s Government Securities activity with no impact to clearing fund deposits.

A Dark Knight While failures and frauds occur somewhat infrequently, a technology glitch is much more common. But when it involves a number of erroneous trades being directed to the New York Stock Exchange and then on to DTCC, it can send shudders throughout Wall Street.

CHAPTER SEVEN | TWIN STORMS

In August 2012, Knight Capital launched a new computer program that contained an errant code. The program was supposed to route orders to the markets, but instead made Knight Capital the buyer on every security that was offered for sale. Michael Bodson had just taken on the president and CEO role at DTCC and was leading his first staff meeting when a board member called to warn of an impending crisis. The trades generated by the errant code extended Knight Capital well beyond its ability to pay, but it was a major firm, so shutting it down would have had a severe ripple effect throughout the entire stock market. DTCC worked with regulators, Knight Capital’s management and its board members to keep Knight Capital solvent while it wound down its positions—a move that provided stability to the market during a moment of crisis. DTCC staff knew just what to do. “The lesson I learned as a CEO is, you need to empower people and trust them to do their jobs well,” Bodson said.

In August 2012, Michael Bodson, who had just been named DTCC president and CEO, experienced some of the most challenging moments in his career, as market-making firm Knight Capital launched a new software that was later found to have an errant code. The software glitch caused Knight Capital to extend itself beyond its ability to make payments, which would have created massive ripple effects throughout Wall Street had DTCC not stepped in to provide certainty to safeguard the markets. (Photo by Aditya Vyas courtesy of Unsplash.)

The Knight Capital event remains one of the most high-profile incidents of its kind in Wall Street history. It served as a wake-up call for other financial institutions and reinforced the importance of rigorous testing and oversight in high-stakes systems. (Photo by Aditya Vyas courtesy of Unsplash.)

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CHAPTER SEVEN | TWIN STORMS

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“Our colleagues were not flustered. They knew the situation was a tough one for Knight and a difficult situation for us, but they understood exactly what had to be done. Sometimes, the most important thing you can do is not doing something, in this case not shutting them down, and letting Knight get out of this position. Otherwise, it would have been a massive loss that would have been mutualized across all of our clients.”

Superstorm Sandy There was hardly time to recuperate after the Knight Capital incident before another challenge arose. A massive storm hit the Eastern Seaboard, including New York City, in October 2012. Superstorm Sandy was the largest Atlantic hurricane in diameter on record. When it made landfall in Atlantic City, New Jersey, on October 28, it brought sustained winds of 80 miles per hour. It also came ashore during the full moon and high tides, amplifying its impact. A storm surge of 14 feet, combined with heavy rains, caused the Hudson and East Rivers to flood the streets of Lower Manhattan—right where DTCC’s Water Street offices and vault were located. “There were many predictions on the storm’s trajectory and we assessed the impact it could have on our operations,” Bodson said. “Unfortunately, it turned out to be a once-in-a-generation storm.” The irony of DTCC’s Water Street address quickly became apparent as the building’s lobby flooded with five feet of water. “It didn’t take long for us to realize, if the lobby is at five feet, what does that mean for the concourse and the first and second sublevels?” said James Femia, a former managing director in Global Business Operations and, at the time, the senior officer in charge of the vault. As the water began to rise, security guards who had remained behind were providing updates. Three guards were responsible for shutting the vault doors and monitoring to see if the water was coming in. Once the water breached the sandbags in the lobby and started pouring in, everything flooded. “Two guards went upstairs and realized that the third guard was missing,” Bodson said. “They started going back downstairs. The building’s guards told them not to risk their lives, but they went down there anyway and found the third guard. He was trapped near the vault.” The guard pushed a desk against the wall and his fellow guards were able to save him by pulling him out of the room where he was located. “By the time the guards were leaving the vault area, the water was up to their chests,” Bodson said. “They saved the life of that one individual.” For DTCC, there was no way to retrieve the certificates valued at more than $1 trillion housed within the flooded vault. The firm quickly got to work to

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Left: Superstorm Sandy became one of the most damaging hurricanes ever to make landfall. The total cost of its damage has been estimated at $70 billion. (Edited photo by Cyclonebiskit, background photo by NASA with tracking data from the National Hurricane Center. Photo courtesy of Wikimedia Commons.)

Below: New York City’s MTA advised commuters of its hurricane preparation plans. The city’s subway system was heavily damaged by flooding. (Photo by Danazar courtesy of Wikimedia Commons.)

devise a solution. Tim Geithner, the US Secretary of the Treasury at the time, called Bodson: Secretary Geithner asked, “Do we have a problem?” and all I could say was, “We literally have sent guards out to look at the river in case the interior wall collapsed and the certificates floated out, but we didn’t see any evidence of that. The paper is still in the vault. We don’t know what condition it’s in, but we know it’s going to take a while to get the water out.”

DTCC shifted its major processing and operations to its backup sites in Brooklyn, Tampa and Dallas. The week of October 29, DTCC processed $19 trillion in securities transactions. In a memo issued November 1, DTCC sought to calm its participants: “The DTCC vault and its contents, which include certificates registered to Cede and Company, as well as custody certificates held in customer/firm name and sealed envelopes,

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In the aftermath of Superstorm Sandy, DTCC shifted its operations to the Brooklyn Army Terminal just south of its Manhattan headquarters, which was damaged by the hurricane’s powerful storm surge.

are likely damaged. However, all of DTCC’s computer records are fully intact, including detailed inventory files of all certificates held in the vault.” It was not just the certificates that were swamped. The data center was taken out as well. Bob Garrison had been in his role as managing director and chief information officer for just a few months when Sandy hit New York. “I remember getting a call—it must have been around 8 p.m.—and they said that we’d lost our data center, and my immediate reaction was: ‘What do you mean, we’ve lost our data center? I’ve been working in technology for 30 years and we’ve never lost a data center where I’ve been.’ ” Operations quickly shifted to Brooklyn, which housed extra computers that had been purchased for an impending move of operations to New Jersey. “The IT department did an amazing job of replacing all of the old equipment and we hit the ground running,” Bodson said. “We really didn’t miss a day.” While there was some luck involved, modeling and anticipation of disasters had kept everyone prepared, as Garrison described: You conduct training and practice sessions through the years. You have run books on what you do under various scenarios and, in typical DTCC fashion, we kicked in and followed all of the procedures. People slid right into the roles the way that they had practiced, and we started the process of scaling over from our Manhattan data center to our Brooklyn data center. While it was nerve-racking, I think it was one of the finest examples of what DTCC does and the value that

DTCC HQ

BAT

it brings to the industry.

While the Brooklyn office was an adequate temporary recovery site, it was not the easiest place to work. With the management team sitting side by side in a cramped 15-foot-by-15-foot space for a period of time, it did not take long for Bodson to see on the faces of his colleagues that they were being worn down. “I probably made the best business decision in my career: I stood up on the desk on Friday and thanked everybody for what they had been doing and said, ‘From now on, we’ll have free breakfast and lunch.’ It was such a simple thing to do, but it changed the morale right there. It was a recognition to everybody that we appreciated what they were going through.”

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Drying Out While the Brooklyn office operations continued, there still was the issue of the wet certificates. DTCC’s vault was a disaster—and not just from the water itself. The vault’s location was near a parking garage with a spiral driveway down to the garage’s fifth level. “The water had so much pressure coming in, it basically burst through a cinderblock wall,” Bodson said. “It also created this whirlpool as it filled up the vault. A few weeks later, it was like pulling paper out of a washing machine as the water drained.” Despite the damage to agents, clients and the vault and its contents, DTCC worked with regulators, transfer agents and other stakeholders to identify new approaches to continue processing corporate actions and other time-critical physical processing despite the unavailability of the certificates. By the time DTCC could access the vault, it was cold, it was wet, there was no power and there were 1.8 million wet certificates in excess of 10 million disparate pieces of paper that were strewn about. Making matters worse, the oil tanks for the generators had burst, so the vault reeked of oil. “One of our employees reached out to a contact who was involved in the restoration of paper,” Bodson said. “They gave us the name of a firm that knew how to complete the salvage and another firm that could do the freeze-drying to try

The Brooklyn office (top) housed DTCC’s backup data center (inset) in the event of a natural disaster or other type of catastrophic event that could disrupt its operations. (Top photo by Joanzin courtesy of Wikimedia Commons.)

The DTCC team and audit staff (below and inset) went down to the vault each day in hazmat suits and masks and very delicately sifted through every single document damaged by Hurricane Sandy’s storm surge. Once separated, the waterlogged documents were put into bags and the bags were boxed. Eventually, 5,000 boxes were shipped cross-country to Fort Worth, Texas, where the drying process would take several months due to the sheer number of damaged documents. In all, 99.5 percent of the water-damaged assets were recovered.

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to recover the certificates. We knew nothing about this, but we became experts in about two weeks.” Experts, maybe, but the recovery work was still arduous. Femia’s team from Operations, along with Audit and Compliance staff, teamed with the restoration specialists and went down to the vault each day in hazmat suits and masks to carry out the delicate process of carefully picking every single piece of paper up off the floor. “We began putting these documents into bags, and bags were placed into boxes,” Femia said. “We had somewhere around 5,000 boxes. They were palleted and shrink-wrapped. We built a ramp through the broken wall into the parking lot and began trekking these boxes up to the street level, where the police department had closed off a section of the street for us.” The boxes were shipped to Fort Worth, Texas, in seven refrigerator trucks and placed in vacuum-sealed steel storage containers under intense pressure and heat. The frozen documents were freeze-dried, a sublimation process that converts ice to vapor that bypasses the typical liquid state. The process took several months because the storage containers could not accommodate the sheer volume of boxes that were frozen. Once it was confirmed that the documents inside the storage containers were dry, they were

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repackaged into fresh boxes. Then, before shipping them back to New Jersey, which would be their new home, they were run through a nuclear reactor around a nuclear core to kill any microbes, mold, mildew or any other type of contaminants that could make the handling of them unsafe. Once in New Jersey—part of a long-term plan—the certificates would be housed in a vault on a higher floor. A staging area was created to receive the boxes and the painstaking process of reconciling the inventory began. “We did a complete vault inventory, and that’s when I can say with a certain degree of pride that 99.5 percent of the assets were fully recovered,” Femia said. “Some were damaged, some were in very poor condition. But in some shape, form or other, they were identified and placed back in the vault. Not DTCC nor the participants lost one single dime on any of the transactions.” There was just one hitch, however. The Jersey City vault filled up quickly and, when DTCC had received all of the restored and irradiated certificates, they did not fit. “We planned this so carefully,” said Susan Cosgrove, managing director, president of Clearing & Securities Services. “But if you think about what a piece of paper looks like after it has gotten wet versus a flat piece of paper, it takes up more volume. So by the time we got all 1.8 million certificates back into the vault, we ran out of room. Thankfully, the vault was designed to expand.” DTCC continued its recovery efforts into 2014 to address the unrecoverable certificates. It replaced those that were destroyed or damaged beyond repair and completed a full vault certificate audit to ensure accuracy and proper filing.

Making Moves Just as 9/11 had caused DTCC to expand its operations with the backup center in Tampa and relocation to Jersey City, Superstorm Sandy caused further conversations about resilience. Tampa was a natural site and plans were made to expand operations. The office would no longer just be a backup, but it could serve as DTCC’s headquarters should an event like Sandy happen again. The firm’s leadership was looking for employees from the New York office who were interested in relocating to Tampa to ensure DTCC had a strong presence there. When the Jersey City site opened in December—a move accelerated by the devastation in Lower Manhattan—about 1,700 DTCC employees were housed at the site. The expansion of the offices in Tampa and opening in Jersey City helped DTCC prepare for any new challenges that might come. ■

Susan Cosgrove, managing director, president of Clearing & Securities Services, explained why the 1.8 million certificates that were damaged inside the DTCC vault and later restored would not fit into the Jersey City vault even though it was designed to house the same number of certificates: Though the certificates had dried, the water damage expanded the paper’s volume.

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2010–2015

Eight

Being an industry-owned cooperative, we realize that our clients are also our owners. We aren’t motivated by profits, per se. We are motivated by delivering outstanding service to clients. You have two big things: reducing risk and reducing costs. That is the drive, that is the mentality and that is the DNA of being employed by DTCC.

James Femia DTCC MANAGING DIRECTOR, GLOBAL CORPORATE ACTIONS 2008–2019

A Higher Profile

hile the upheaval of Superstorm Sandy significantly impacted The Depository Trust & Clearing Corporation (DTCC), the firm’s operations never stopped. The Great Recession and a sluggish recovery would be other matters as new regulations impacted DTCC and its clients. Even in that uncertain environment, the firm would continue to expand. In some ways, the upheaval spurred DTCC forward. As the global financial marketplace underwent numerous changes and modernization, the markets looked to a trusted partner for help. DTCC was more than ready to step up. In 2012, the Mortgage-Backed Securities Division of the Fixed Income Clearing Corporation (FICC) started fully guaranteeing mortgage-backed securities trades and acting as a full-fledged central counterparty for those

Learning from the crises it faced as a result of 9/11 and Superstorm Sandy, by 2015, The Depository Trust & Clearing Corporation (DTCC) expanded to having seven US offices. One of the firm’s original backup offices was located in Dallas, Texas. (Photo by Max Fray courtesy of Unsplash.)

In 2018, The Depository Trust Company, National Securities Clearing Corporation and Fixed Income Clearing Corporation filed recovery and wind-down plans with the US Securities and Exchange Commission (SEC) that explained how the firm would respond to another financial crisis. Pictured is the SEC’s headquarters in Washington, D.C. (Photo by APK courtesy of Wikimedia Commons.)

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trades. The firm met new reporting requirements for over-the-counter (OTC) derivatives through its growing Global Trade Repository infrastructure. DTCC also launched a new utility to support derivative reporting requirements and expanded more deeply into mutual funds. The firm’s continued growth into new markets and asset classes was a result of DTCC’s long-held culture of enhancing value to new and existing clients by providing services that would meet their evolving needs and address pain points. In some instances, this meant supporting its clients’ global goals. In others, it meant providing related solutions to their expansive portfolios. Susan Cosgrove, managing director, president of Clearing & Securities Services, described how the firm goes about exploring new markets: One of the ways we grow our business is through “logical adjacencies.” It simply means diversifying into businesses that are related to a segment of our current operations. If something is logically adjacent to what we’re doing, then we can grow into that as a business. For example, implementing a business to match corporate bond trades would be a logical adjacency because we already do it for equities. The next step is assessing the marketplace, performing due diligence and engaging with our clients and other industry stakeholders to gauge interest and support.

2011

2012

2013

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MAY

The Depository Trust & Clearing Corporation (DTCC) splits the roles of chairman and CEO. Robert Druskin becomes executive chairman.

The US Securities and Exchange Commission approves DTCC’s application to launch a central counterparty service for mortgage-backed securities. The goal is to lower costs and risks for customers.

National Securities Clearing Corporation (NSCC), The Depository Trust Company and Fixed Income Clearing Corporation are designated as systematically important financial market utilities as part of the Dodd-Frank Act. This requires the three DTCC subsidiaries to meet prescribed risk management strategies.

DTCC aligns with Euroclear, a leading post-trade services provider headquartered in Belgium, to manage holdings as a single collateral pool. The alignment is another outgrowth of regulations that would come as a result of the Great Recession.

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You figure out if the business is something that you can build within your existing platform or, if you need a new platform, how much you’re going to charge for it.

For DTCC, organic and strategic growth by way of logical adjacencies will continue to shape the firm’s expansion plans into the future.

The Aftermath of the Economic Crisis As the effects of the Great Recession continued into 2010, the US Congress took action to safeguard the economy from similar market vulnerabilities. The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act that year established new rules, including many that directly impacted DTCC. While Dodd-Frank was mainly focused on reducing risk throughout the broader markets, DTCC’s clearing agency subsidiaries—The Depository Trust Company, National Securities Clearing Corporation and the Fixed Income Clearing Corporation—were designated as systemically important financial market utilities. This designation required that DTCC’s clearing agencies needed to, among other things, establish transparent recovery and wind-down plans that, should an economic downturn comparable to or more severe than the 2008 recession occur, the firm would have a well-established and clear approach in place. In 2018, the firm had filed plans with the US Securities and Exchange Commission. To get there, DTCC brought together members, regulators and representatives from an array of the firm’s departments. This comprehensive planning process included a detailed examination of the clearing agencies’ obligations

2013

2014

2015

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FEBRUARY

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DTCC acquires full ownership of Omgeo from ThomsonReuters. The two had shared a 50-50 partnership since Omgeo launched in 2001.

NSCC requires national regional exchanges, as well as qualified special representatives, to submit locked-in trade data in real time. Clients would now receive expedited trade reconciliation and the ability to monitor out-of-balance positions.

DTCC launches a full suite of data products in response to client requests for more centralized, on-demand data provisioning.

DTCC has 7 US offices and 15 worldwide. Its subsidiaries process $1.6 quadrillion in securities transactions.

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Passed by the House of Representatives in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed by President Obama on July 21. Some of these new federal regulations on the financial services industry greatly impacted DTCC’s operations. (Photo by Louis Velazquez courtesy of Unsplash.)

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and exposures to both member defaults and non-default events. This meant planning for the “what if” scenario of the default of a single, large member and subsequent impact to the clearing agencies’ financial resources. It also meant planning for the stress arising from the default of multiple members and the aftershocks of “tail” events sequenced over several days. Meeting regulatory hurdles enacted by Congress lined up with DTCC’s timeline and overarching mission. One key area under regulatory review was instituting a framework for resolving clearinghouse insolvency. The effort would be undertaken by multiple regulators and was at the heart of one of DTCC’s goals: to reduce systemic risk within the industry. In the spirit of collaboration, DTCC worked with lawmakers, regulators and other industry partners in the United States, Europe and Asia to help shape global legislative and regulatory policies on these critical issues. Taking the initiative on the new regulations allowed DTCC to showcase its commitment to its clients and to help them make the most of the changes that had been enacted. Murray Pozmanter, former managing director, president of

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DTCC Clearing Agency Services and head of Global Business Operations, explained: There was a bit of retrenchment and we had to react to many of the new regulations. Some of it opened the door for us to offer more capital efficiency to the markets. So the value of the central counterparty structure, and the ability to get capital relief and balance sheet relief, became that much more important to firms as the new regulations made capital more valuable or more scarce to a certain extent. Being able to utilize the services of FICC and MBSCC, in particular, helped firms weather those changes and allowed them to continue to do robust business.

Throughout the recession and slow recovery, DTCC provided stability in a volatile market. In 2011, credit rating agency Standard & Poor’s (S&P) downgraded the credit rating of the US government in response to the congressional stalemate over raising the debt ceiling. It was the first time this had occurred since S&P first issued the government a AAA rating in 1917. Instability was apparent in Europe, too, where Portugal, Italy, Ireland, Greece and Spain were unable to pay debts over the course of two years, leaving other European Union countries to bail them out. DTCC’s management team worked through multiple scenarios to identify implications for the firm and its clients to prepare for these events. In another example of DTCC’s role in protecting market stability, when MF Global collapsed at the end of October 2011, it closed out all the trades guaranteed by DTCC over the course of just four days and at no cost to its members or the industry. The new regulations created opportunities as well. In 2010, DTCC acquired Avox Limited, a United Kingdom-based company that provided reference data about legal entities. The Dodd-Frank Act called on regulators to reform and bring transparency to the OTC derivatives markets. As a result, many regulators, under the auspices of the Financial Stability Board, joined together to create a Global Legal Entity Identifier (LEI) System. One US regulator, the Commodity Futures Trading Commission (CFTC), became the first regulator to mandate that all OTC derivatives market counterparties be identified by LEIs on regulatory reporting. Many regulators would soon follow the CFTC’s lead. “DTCC didn’t have the tools or know-how to make that happen, but Avox did, ” said William Hodash, former managing director and

Murray Pozmanter, former managing director, president of DTCC Clearing Agency Services and head of Global Business Operations, was part of DTCC’s proactive response to new regulations brought on by passage of the Dodd-Frank Act. (Photo courtesy of Christopher Elston Photography.)

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DTCC’s Tampa office has played a critical role in the company’s operations and has been a driver in its migration to Florida. The Tampa office has also been instrumental in helping to keep DTCC running during times of crisis. For example, during Superstorm Sandy in 2012, the office was essential in keeping DTCC’s systems up and running. The Tampa office has also been praised for its contingency planning and risk management efforts. (Photo by Kody Cheyne courtesy of Unsplash.)

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head of Enterprise Data Management. “We acquired it, and then built an LEI utility on top of it, meeting all the FSB principles and the CFTC regulations. Avox had most of what we needed. We had to develop a front-end registration portal and payment processor and integrate that to the Avox system quickly to meet the requirements of the CFTC’s RFP and a global industry RFP. We saw the emerging need for the LEI first, we acquired the expertise to fill our gaps and we got to market very early.” DTCC would later rebrand the LEI service as the Global Markets Entity Identifier Utility.

Expanding Its Global Footprint In 2013, another acquisition expanded DTCC’s global footprint by purchasing Thomson’s stake in Omgeo. DTCC and Thomson had owned Omgeo as a 50-50 joint venture since 2001. “Full ownership would allow market participants to play a larger role in shaping decisions related to Omgeo’s technology platforms and processes,” said Andrew Gray, then DTCC’s managing director, Core Business Management, and board chair for Omgeo. Ultimately, though, it was the relationship DTCC would have with a new logically adjacent market that would close the deal, as Cornelia “Nellie” Dagdag, managing director, head of APAC marketing, who moved to DTCC from Thomson after the Omgeo acquisition, described: Above: Cornelia “Nellie” Dagdag, managing director, regional manager and head of APAC marketing, moved to DTCC after the firm acquired Thomson’s stake in Omgeo. Right: Omgeo (DTCC Institutional Trade Processing) provides institutional post-trade processing that includes trade enrichment, allocation, matching, confirmation and affirmation and generates settlement instructions. These are critical components of the settlement process at DTC and of the market infrastructure globally.

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The Omgeo acquisition allowed us to drive a single, global value proposition for post-trade processing and settlement while facilitating increased collaboration among the buy-side, sell-side and custodian communities. With the addition of Omgeo, we significantly grew our global footprint to include offices in 15 countries and expanded our subject matter expertise to cover virtually all market segments.

The Omgeo acquisition fit well with DTCC’s expansion plans and enabled the firm to provide a wider array of services to clients. DTCC noted in its 2013 Annual Report: “We view the Omgeo acquisition as a game changer that will allow us to drive a single, global strategy for post-trade processing and settlement, while facilitating increased collaboration among the buy-side, sell-side and custodian communities.” Tim Keady, managing director, chief client officer, who worked for Omgeo prior to the acquisition, said of the integration: The combination of our services fit nicely into the core asset servicing business of DTCC. Our business is also global in nature. It made a lot of sense for DTCC to acquire Omgeo. DTCC shareholders have representations in those markets as well, so it was a strong, strategic fit.

Omgeo would later be rebranded as DTCC Institutional Trade Processing. With its growing complement of adjacent services, DTCC could continue to drive costs down for clients as it grew. “The further you get away from the trading end of the business, scale is important because what happens afterward is essentially administration and you want that to be done as inexpensively, as efficiently and as risk-free as possible,” said Andrew Douglas, former managing director of Government Relations, EMEA and Asia.

Meeting Client Demand In an expanding global market, DTCC remained keenly focused on identifying new ways to provide data to help its clients become more efficient and enhance decision-making. In 2015, DTCC launched a new suite of data products in response to growing client requests for more centralized, on-demand DTCC data provisioning. DTCC clients shared that they were having challenges around risk management, regulatory reporting, capital adequacy, liquidity and market transparency, so DTCC responded with new solutions that leverage data, technology and analytical tools.

Tim Keady, managing director, chief client officer, saw the buyout of Omgeo from Thomson as a sensible and logically adjacent move that would facilitate the firm’s global expansion plans. (Photo courtesy of Christopher Elston Photography.)

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After the DTCC Board decided to divide the roles of board chair and CEO, Bob Druskin was named DTCC executive chair in 2011.

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With a unique vantage point into the post-trade clearing, settlement and asset services infrastructure in the United States, it was clear to DTCC’s clients that the organization had a direct link and access to reliable, enriched and unique data that could help them better serve their clients. Plus, it was a win-win scenario for DTCC. Providing clients with insights to help them assess risk factors and refine their market positions to make informed business, investment and strategy decisions aligned with the company’s long-standing mission of increasing transparency, mitigating risk and driving efficiency for financial firms.

Evolving the Organization Under the tenure of Michael Bodson, who replaced Don Donahue as CEO in 2012 upon his retirement, DTCC would continue to expand. The regulatory changes that occurred in the post-recession period caused the firm to split its board chair and CEO roles. Bob Druskin, who took on the position of executive chairman in 2011, explained what he felt DTCC needed to achieve moving forward: The Fed had essentially mandated that this position of executive chairman be created. While my priority was to address regulatory issues that had been raised, I had opinions about the role of the organization and ideas of how to elevate its role in the industry. I saw an opportunity for the firm to be more of an industry leader that could drive change and strengthen the markets.

MICHAEL BODSON PRESIDENT AND CEO 2012–2022 As a controller for Morgan Stanley during the 1987 crash, Michael Bodson learned early on how to weather crises. “Nobody has the right answer. You look around and all your senior people are dealing with the crisis of the moment. It’s incredibly important to focus and tell people, ‘There is a tomorrow. We will get through this.’ ” Bodson’s calm leadership helped lead The Depository Trust & Clearing Corporation (DTCC) through several crises, including the Knight Capital market event and Superstorm Sandy, which flooded the firm’s underground

vault at their New York City 55 Water Street headquarters. Bodson also led DTCC through the 2021 meme stock event in which readers of online forums began buying large volumes of underperforming stocks. Bodson joined DTCC in 2007 after 20 years at Morgan Stanley and stints at Bear Stearns and Price Waterhouse. His first role at DTCC was executive managing director, followed by chief operating officer and finally president and CEO. Bodson retired from the firm in mid-2022 after a decade leading DTCC.

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Together, Druskin and Bodson focused on shifting DTCC’s culture toward profitability and reinvestment. “This firm is not in a position of profit maximization, unlike a lot of other Wall Street firms that have shareholders or private owners,” Bodson said. “This gives us more latitude to be profitable and reinvest. We can take a long-term view and make the right investments for the firm, our clients and the industry as a whole.” When Donahue announced his retirement, many at the firm believed Bodson was the right man for the job. “When Mike took over, he was a completely different kind of CEO,” said Anthony Portannese, managing director and chief human resources officer. “We’ve been very fortunate to have the right CEO with the right skills and temperament to address the unique issues the firm was handling at the time.”

High Visibility As DTCC expanded in the post-recession years, it also began to take a more prominent leadership role in the global financial markets. “In the early years, we wanted to keep DTCC as a hidden gem because we did all of the clearing and settlement for the industry and we didn’t want to make ourselves a target,” said Marie Chinnici-Everitt, managing director, chief marketing officer and regional manager, DTCC Tampa. In late 2012, that viewpoint was shifting. The firm was continuing to branch out and build new products and services to grow domestically, as well as outside of the United States where it had a lower profile.

Below left: When DTCC expanded south, its Tampa, Florida, offices became the firm’s main backup center, housing all of DTCC’s central business functions and 20 percent of its total population. Below: Along with the Tampa, Florida, offices, DTCC’s Dallas, Texas, facility opened in 2004 without any fanfare to maintain a low presence due to the critical nature of the firm’s activities in supporting market stability and safety.

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When Chinnici-Everitt joined DTCC, she focused on growing the influence and impact of the firm and positioning DTCC as an industry thought leader with unique expertise and insights on a diverse range of market issues. “There were only two people working in marketing,” ChinniciEveritt said. “Within a decade, the marketing and communications department had developed the expertise across our disciplines. Today, the global team is represented across multiple offices to serve the growing needs of the organization and clients.” DTCC emerged from the recession and continued to navigate the regulatory changes in multiple jurisdictions throughout the world. The firm

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To support the global financial markets, DTCC operates 20 domestic and international offices, with locations in Boston, Massachusetts; Brooklyn, New York; Chennai, India; Dallas, Texas; Dublin, Ireland; Hong Kong; Jersey City, New Jersey; London, England; Manila, Philippines; San Francisco, California; Seoul, South Korea; Shanghai, China; Singapore; Stockholm, Sweden; Sydney, Australia; Tampa, Florida; Tokyo, Japan; Toronto, Canada; Washington, D.C.; and Wrexham, Wales.

also capitalized on its leadership role, according to Marisol Collazo, managing director, global head of relationship management. “While market dynamics quicken the pace of change and regulatory mandates place greater pressure on us to deliver products and services to meet new requirements, our corporate positioning line, ‘Securing Today, Shaping Tomorrow’ and new brand identity reflected our commitment to the industry to safeguard the stability and integrity of global financial markets, and our pledge to our clients to play a more active role in driving positive change.” DTCC was ready to step into a more visible leadership role in the broader financial industry. ■

CHAPTER

2016–2019

Nine

DTCC, at its core, is a technology and a risk management company. It does a lot of different things, but its main focus is helping to protect the industry and manage risk. Trillions of dollars a day in transactions come through the firm. There’s a lot of risk that follows, so it must be well managed and well run.

Bob Druskin DTCC EXECUTIVE CHAIRMAN 2015–PRESENT

Risk Management

rom its very founding, The Depository Trust & Clearing Corporation (DTCC) had played a vital role in protecting the integrity of the global financial system and mitigating risk for the industry. That would be needed more than ever, with an increasingly complex global financial market, greater reliance on technology and the rise in sophisticated cyberattacks. DTCC continued its strategy of working to anticipate disruptions and challenges the markets might face. “We are always thinking about what can go wrong,” said Lynn Bishop, managing director and chief information officer. “What are the scenarios that we haven’t thought about that we need to focus on? When we build our systems and want to build solutions, we establish them not only to handle the needs of the day, we also build them to withstand the test of time.”

DTCC was created as an answer to a crisis. That would always be the firm’s mandate, whether it would be in developing solutions to mitigate challenges facing the global financial markets or against active threats including cyberattacks. (Photo by Nikolay Frolochkin courtesy of Pixabay.)

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Rob Gambardella, managing director, Enterprise Product and Platform Engineering, spoke of the global nature of DTCC’s work, the impact on the industry and the opportunities it provides to protect a broad range of stakeholders—from financial firms to the end investor: Our people know they make a difference. They solve problems for the industry and drive efficiencies and optimizations for the most important financial services institutions in the world. They also are at the forefront of mitigating risk, which protects the end investor who is invested in the market through 401(k) plans and retirement accounts. Lynn Bishop, managing director and chief information officer, is responsible for managing DTCC’s technology infrastructure, ensuring a seamless client experience and providing operational and technology resilience.

Providing Certainty During Crises The US presidential election of 2016 capped a year of market volatility that had been sparked by the United Kingdom’s Brexit plans to leave the European Union. On election night, Dow futures dropped more than 900 points. The Mexican peso hit a record low, down more than 12 percent. And stocks in Asia closed down as much as 5 percent. DTCC’s risk management team immediately jumped into action, exploring fluctuations in the US bond market prices, the overnight trading queues and changes in positions and prices. This multipronged approach—completed before the market opened—was yet another example of the emphasis DTCC paid to protecting the financial system through active risk management. Michael Bodson, who was president and CEO at the time, detailed why in DTCC’s 2016 Annual Report:

2016

2017

The Depository Trust & Clearing Corporation (DTCC) launches enhancements to its Mutual Fund Services to meet new regulations from the US Securities and Exchange Commission. The upgrades impact Fund/SERV, Networking and Mutual Fund Profile Service, allowing them to communicate liquidity fees, redemption gates and multiple daily net asset value strikes.

DTCC’s Global Trade Repository (GTR) adds services throughout Canada to cover all provinces and territories. Futures & Options World recognizes GTR as Trade Repository of the Year for the second year in a row.

DTCC launches an updated web-based platform for its Alternative Investment Product (AIP) Services. AIP Services activates more than 250 accounts and processes its 180 millionth transaction.

SEPTEMBER DTCC leads the US markets in moving to a T+2 settlement cycle. It had been more than 22 years since the settlement cycle was shortened.

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In a dynamic market and evolving regulatory environment, nothing is more important than risk management, especially as the nature of risk has become more complex, interconnected and unpredictable. In response, we have broadened the types of issues we track and enhanced our capabilities and supporting technology to keep pace with this evolution.

In response to the 2016 market volatility, Bodson detailed how DTCC was strengthening its risk management system across its clearing agency subsidiaries to provide a greater level of protection for the firm and the industry. Key elements rolled out in 2016 included 15-minute processing, new portals, enhanced reporting, liquidity and margin enhancements for The Depository Trust Company and an expanded risk data warehouse. The firm and clients would use the technology to better manage risk, Bodson said.

MITIGATING RISK FOR THE INDUSTRY The Depository Trust & Clearing Corporation (DTCC) has assumed a global industry leadership role in promoting risk management, particularly around cybersecurity. In 2019, as part of a reassessment of its strategy and vision, DTCC took additional steps forward in helping other entities to improve their own risk management practices. In a white paper that year, “Resilience First: Promoting Financial Stability by Planning for Disruption,” DTCC called on market participants to establish building resilience as a global priority. It provided a roadmap to help these institutions focus on disaster recovery, business continuity management and cybersecurity in a more integrated way.

“We’ve been pleased by the industry’s receptiveness, and we are excited to continue these discussions,” Michael Bodson, who was president and CEO at the time, wrote in the 2019 Annual Report. DTCC helped establish the Financial Services Sector Coordinating Council Cybersecurity Profile, which enables firms and market infrastructures to satisfy compliance rules for multiple regulators at one time, freeing cyber teams from having to answer the same questions repeatedly. As a participant of the Financial Stability Board’s cyber working group, DTCC helped develop a tool kit of effective practices to manage cyber incident response and recovery.

2018

2019

JULY

With the United Kingdom declaring its intention to leave the European Union, DTCC opts to open an office in Dublin, Ireland. The move would allow the firm to continue to serve clients in Europe.

DTCC lands on the Forbes list of best midsize employers for the first time. DTCC also achieves a 100 percent rating on the Human Rights Campaign Corporate Equality Index and is recognized as one of the Best Places to Work for LGBT Equality for the sixth consecutive year.

DTCC expands its global footprint, with 21 office locations and 4,508 employees. A decade earlier, in 2008, DTCC had 6 office locations and 2,584 employees.

DTCC sets a processing record, handling $2.15 quadrillion. It would mark a 16 percent increase over 2018.

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Above: In 2009, DTCC’s UK-based Deriv/SERV subsidiary, in collaboration with Markit, was selected as the provider for the repository for OTC equities derivatives. (Photo by Alev Takil courtesy of Unsplash.)

Below: Chris Childs, managing director, head of Repository & Derivatives Services, sees DTCC’s forward-thinking approach as proactive, not reactive, when it comes to developing problem-solving solutions.

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That same attitude permeates all DTCC functions. DTCC Deriv/SERV, a subsidiary established in 2003, provided confirmation applications and matching service to the over-the-counter (OTC) derivatives markets from credit, rates and equities. The company’s capabilities expanded in 2006 to provide warehousing services for credit default swap trades. In 2009, Deriv/SERV and Markit, a London-based data provider, formed joint venture MarkitSERV to operate the confirmation matching platforms and portfolio reconciliation tools. Deriv/SERV sold its 50 percent stake in the company to Markit in 2016. In 2018, Deriv/SERV underwent a technology makeover, despite it being fairly new at that time. “We realized that we needed to do something to make it more efficient, stable and client-friendly,” said Chris Childs, managing director, head of Repository & Derivatives Services. “We’re constantly trying to innovate because it’s important that we’re always ahead of the game.” Like Deriv/SERV, DTCC’s Global Trade Repository (GTR), which provides services for derivatives and securities financing transactions and is the only industry-owned and governed global provider of trade reporting services, also underwent major technology changes. “In today’s global trade reporting landscape, enhanced flexibility is required to quickly respond to evolving regulatory mandates,” Childs said. “To meet the growing need for scalable, resilient and reliable trade reporting infrastructure, we completed a multiyear re-architecture of our GTR platform. Leveraging the latest cloud technologies has allowed us to simplify our platform infrastructure and enabled it to function across jurisdictions and products while supporting regional nuances in reporting requirements.”

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One way DTCC kept its finger on the pulse of where the industry was heading was to continue expanding internationally. By 2018, DTCC had offices in 21 locations around the world—up from just 6 a decade earlier. Bishop explained the objectives behind the firm’s growth globally: As we’ve taken on more international businesses and built solutions, we continue to expand our global footprint so that we have 24/7 capabilities to support our systems and continue to develop new products and services. That’s also important from a business continuity standpoint. In the spirit of preparing for disasters and extreme scenarios, we have to be ready in case one location or region is unavailable, even from a data center or staff standpoint. We need to be able to pick up processing in other regions and have the skills and capabilities to do that.

The Rise of Fintech DTCC had long been focused on keeping its costs low to reduce fees for clients. When Bodson assumed the leadership role as executive managing director in 2007, he emphasized the need to also invest in strategic priorities that would enable DTCC to better support the industry. “Earlier in our history, we leaned heavily toward fee reductions and rebates,” said Anthony Portannese, managing director and chief human resources officer, who joined DTCC in 1981. “When Mike joined the firm, he continued to emphasize expense management, but he also made reinvesting in our technology, systems and talent a top

As the speed of technological innovation continues, hiring the best and brightest talent to develop and manage DTCC’s innovative products and services is a critical area of importance for the firm. (Photo by Christina Morillo courtesy of Pexels.)

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Having taken a leadership role in embracing new technologies and exploring their potential applications, DTCC’s involvement with Fintech reflects a broader trend in the financial industry toward innovation and digital transformation. As the industry continues to evolve, DTCC will remain a key player in shaping the future of finance. (Photo by AlphaTradeZone courtesy of Pexels.)

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priority. Mike’s emphasis on strengthening the company enabled us to serve our clients in new ways as their needs evolved in the wake of the financial crisis.” Not all of the changes were occurring inside DTCC, however. In the mid-2010s, the advent of new fintech (financial technology) was transforming its clients as well. DTCC, which already had a strong track record in driving innovation and pioneering new technologies, saw great potential for efficiency, but also for risk. For DTCC, balancing innovation and stability would sit at the intersection of two of the firm’s core strengths: managing risk and leveraging technology to enhance the efficiency of post-trade processing. While many fintech offerings across the industry were still in their early stages, the transformational benefits they could potentially deliver over time could be significant. Based on use cases DTCC was pursuing, the firm was optimistic about distributed ledger technology, cloud computing, artificial intelligence and robotic process automation, believing that all of these innovative technologies could help address industry pain points. In fact, in an effort to solidify its leadership position in fintech, in 2016, DTCC made financial investments, such as in the open source Hyperledger Project, putting the company in a position to shape future technology. The explosive growth and evolution of fintech meant keeping a close eye on new opportunities and balancing them with the firm’s proven capabilities, explained Jennifer Peve, managing director, global head of Strategy & Innovation: We need to continue to innovate while still providing superior risk management and client value. There’s so much happening around us with technology advancement. And there’s certainly no shortage of new companies

GIRLS WHO CODE Lynn Bishop, The Depository Trust & Clearing Corporation’s (DTCC) managing director and chief information officer, did not take any computer science courses in college and had no intention of going into this line of work. However, Bishop accidentally discovered the field’s potential as a result of the training and experience she gained during her years working as a consultant and then at DTCC. Today, Bishop volunteers her time making sure that the next generation of young women do not accidentally discover the growing field of computer science, but will actively seek it out. Under her leadership, DTCC partnered with the organization Girls Who Code, which helps to increase women’s exposure to science, technology, engineering and math (STEM) education. The

program works with young women in high school and college. “It has been a passion of mine to help increase interest in STEM amongst everyone, but especially women, given that there continues to be a significant gap in terms of women in STEM and technology careers,” Bishop said. Girls Who Code participants can join DTCC’s summer immersion program, where they learn more about DTCC and the technology the firm utilizes. “Obviously, we hope that through that experience they’ll consider joining us down the road,” Bishop said. “But, mostly, it’s a great opportunity to help support getting more women into STEM and technology, and giving them exposure to opportunities starting at a young age.”

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SETTLEMENT PERIOD

T+1 (2024)

Transaction Date

T+2 (2017)

T+3 (1993)

Settlement Date

that are actively looking and working toward building new capabilities. This creates exciting opportunities for us to help lead the digital transformation of the global markets.

Any highly regulated organization that manages critical and highly complex systems must balance innovation with stability. Around 2018, DTCC established its Business Transformation Office to explore more efficient ways of operating, among other responsibilities. Instead of a “waterfall development,” where a client might not see the development of a product for months or years, DTCC moved to a concept called “Enterprise Agile.” The concept required that the firm’s development, business and quality control teams work under one roof as tribes, aligning into cross-functional teams that would report to one person. The approach would serve as a major cultural shift for DTCC, allowing teams to work in short iterations and become more nimble, enabling the company to provide value to its clients at a much faster pace.

Accelerating Settlement Again DTCC’s focus on innovation took many forms during the 2010s. While the firm was actively exploring new technologies, it was also advancing large-scale, industry-wide initiatives to strengthen the industry market structure. One of the most prominent bodies of work was further accelerating settlement in the US capital markets. DTCC has long emphasized that delays in settling created more risk, so it helped lead the industry in reducing settlement time from trade date

Business Days

In the effort to better limit its risk exposure, DTCC led the financial industry in reducing settlement time to trade plus two days through its T+2 initiative. The primary benefit was to reduce risks for individual investors and financial markets, including credit risk, market risk, liquidity risk and, as a result, systemic risk. The shortened settlement cycle would also result in reductions in liquidity needs and global harmonization with other T+2 markets.

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plus three days, T+3, to two days, or T+2. The move was seen as ambitious and would be the most significant change to the settlement cycle since the transition from T+5 20 years earlier. The markets had grown considerably since then and the shift to T+2 would impact 90 million daily transactions valued at more than $960 billion. After several years of industry engagement and preparation, including partnering with SIFMA and ICE, all the pieces were in place. Over Labor Day weekend in 2017, DTCC and the industry made the move. “There was no playbook to follow, so we had to write one from scratch,” said John Abel, executive director, Settlement and Asset Servicing Strategy, the firm’s point person on the initiative. “We meticulously detailed every process in the US equity, corporate and municipal bond and unit investment trust trade life cycle, and determined how each event would be impacted by the move to T+2. We then documented this information and shared the results with the industry to guide them through the change.” T+2 brought the US settlement cycle into alignment with most European Union member states and countries in Asia. The Canadian markets and a number of South American markets also transitioned that same weekend.

Cybersecurity In an increasingly technology-driven interconnected world, cyber risks are ever-present. DTCC works diligently to ensure its systems are tightly monitored, yet the possibility of a cyberattack requires constant vigilance. “It could be devastating if an attack is successful. It’s an environment where we are seeing increasing sophistication,” said Andrew Gray, former DTCC managing director, group chief risk officer. “It’s akin to an arms race, where you have to make sure you have all the protection, as the people who are trying to attack you get more sophisticated and widespread. As DTCC gains visibility, we become a bigger target.” It was not just DTCC’s visibility that increased risk. The firm’s risk profile continued to evolve in response to changes in market structure, technology, regulation and other dynamics. And new forms of risk emerged that did not previously exist or had historically registered low on the threat spectrum. While cyberattacks have been around for decades, their intensity has grown significantly in just the last few years. According to DTCC’s annual Systemic Risk Barometer, cyberattacks consistently rank among the most serious threats to the financial system. In response, DTCC launched a program to develop and enhance systems and processes to protect the infrastructure. It is an ever-moving target.

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“We recognize that as the complexity, sophistication and frequency of attacks continue to increase, we need to defend against the enemy, as well as to absorb a shock and recover as quickly as possible, while continuing to clear and settle billions of dollars of daily trading activity,” Bodson wrote in the 2018 Annual Report. In some ways, the growth of fintech—which raised the likelihood of cyberattacks—also was a solution. DTCC began to explore cutting-edge technologies to help the firm quickly and efficiently identify risk trends and patterns, with the goal of enabling a more predictive and proactive approach to mitigating or extinguishing potential cyberattacks. In 2018, DTCC took steps to galvanize the industry around business resilience as a global priority and offered core principles and guidelines. Given the increasingly interconnected nature of the global markets, DTCC also launched an attestation program for clients of the firm’s clearing agency subsidiaries to provide assurances that they were following cybersecurity best practices and were knowledgeable of their recovery capabilities. The following year, the focus of DTCC’s attestation program had expanded to include third-party and vendor risks, and to use its vast amount of data to help clients support their own risk management efforts. Risk is ever-present in DTCC’s core businesses and the broader financial industry. But thanks to the firm’s proactive approach, DTCC helped lead the industry to safer practices and stronger outcomes. ■

Despite investing in technologies, analytics and third-party data to manage risk to its clients, DTCC’s leadership and employees understood that what set the firm apart and what carried it through its challenges and crises was its resolve. (Photo by Csaba Nagy courtesy of Pixabay.)

CHAPTER

2021 and Beyond

Ten

We’re a company that has tremendous potential to rise to another level and play a more impactful role supporting our industry. Our clients respect, trust and rely upon us. We have a long history of providing stability, certainty and reliability. And resiliency is inextricably linked to our brand. Most importantly, our colleagues are deeply committed to DTCC and understand that our purpose-driven culture is one of our most important assets. It underpins everything we do, unites us as a team and motivates us to achieve excellence every day.

Frank La Salla DTCC PRESIDENT, CEO AND DIRECTOR 2022-PRESENT

A Bright Future

s The Depository Trust & Clearing Corporation (DTCC) approached its 50th anniversary, it did so in a rapidly changing world. Born out of the paperwork crisis of the 1960s, DTCC has played a role in managing practically every disruption experienced by the financial industry since that time. The firm had endured recessions and stock market crashes. It had seen an increasingly global and interconnected financial marketplace, new types of currencies, new workforce issues and new threats to the stability of global financial markets. “The world is quickly changing,” said Jennifer Peve, managing director, global head of Strategy & Innovation. “At the end of the day what I feel really good about is that DTCC is in lockstep with not only having our finger on the pulse of what’s happening in the world around us, but also responding in kind.”

As the global financial industry continues to evolve, The Depository Trust & Clearing Corporation (DTCC) is committed to meeting the challenges of the future by fostering innovation, just as it has for the last 50 years. (Photo by Pete Linforth courtesy of Pixabay.)

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An unprecedented event: The COVID-19 pandemic lockdowns, which began in the United States in March of 2020, saw major cities and popular tourist areas like New York City’s Times Square as well as the subway become desolate overnight. (Photo by Michael Walter courtesy of Unsplash.)

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As DTCC marched toward the half-century mark, it faced opportunities to expand and unique events that posed risks to both the global economy and DTCC’s operations. The firm responded as it always has done, by pulling together and helping the industry overcome the challenges that it faced.

The COVID-19 Pandemic For all the changes that have occurred over the past two decades, no event is more defining than the COVID-19 pandemic. It would be the most severe viral outbreak since the Spanish Flu Pandemic of 1918. COVID-19 created economic uncertainty for the industry and the entire global economy, but DTCC’s response ensured stability during a period of intense market volatility and provided a level of confidence in the market that helped it sustain the disruptions. Throughout the pandemic, the firm kept its focus on two areas: its clients and its employees. It did so by leaning on lessons learned from past crises. The experience of Superstorm Sandy, when many of DTCC’s New York–based employees moved to new sites, provided an opportunity for the firm to upgrade the robustness of its remote work infrastructure. To keep everyone safe and do its part to slow the spread of COVID-19, DTCC, like

2021

The Depository Trust & Clearing Corporation (DTCC) processes $2.37 quadrillion in securities transactions.

DTCC has 5,850 clients in 93 countries around the world.

FEBRUARY

MARCH

DTCC issues a white paper supporting the move to T+1 settlement. DTCC joins the Securities Industry and Financial Markets Association and The Investment Company Institute in working toward achieving that goal by 2024.

DTCC’s ALERT, a global database for the maintenance and communication of account and standing settlement instructions (SSI), surpasses 10 million SSIs in service. This marks a 12 percent increase over the previous 12 months.

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many other businesses, sent about 95 percent of its employees to work from home. Not everyone was able to work remotely, however. “There were certain areas of the company that had to report to the office on a daily basis right through the pandemic such as Global Business Operations, Global Security Management, End User Support, Information Technology and Workplace Design and Services. They were our frontline heroes,” said Murray Pozmanter, former managing director, president of DTCC Clearing Agency Services and head of Global Business Operations. “During this time, we placed greater emphasis on employee health and well-being, despite all the disruptions associated with the pandemic.”

In the efforts to keep DTCC employees safe while many were still needed to come to the office in person during the height of the COVID-19 pandemic, the firm followed government mandates and developed its own internal protocols.

2021

2022

MAY

APRIL

JUNE

AUGUST

The US Securities and Exchange Commission (SEC) approves DTCC’s request to provide security-based swap data reporting services. This gives the industry a single reporting platform across asset classes and markets.

DTCC announces plans to build a prototype to test how a US central bank digital currency would operate in the clearance and settlement process.

The SEC approves the Securities Financing Transaction Clearing Service proposed by National Securities Clearing Corporation.

DTCC President and CEO Michael Bodson retires after a decade leading the organization. Frank La Salla joins DTCC from Bank of New York Mellon as the firm’s new president, CEO and director.

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The COVID-19 pandemic had a significant impact on DTCC. The pandemic forced the company to adapt quickly to new ways of working while responding to heightened market volatility. DTCC ran pandemic war games prior to the COVID-19 crisis and implemented public interventions during the pandemic. (Photo by David Jones courtesy of Unsplash.)

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As employees began to slowly return to in-office work after two years of working remotely, DTCC navigated changes in the workforce by further expanding its footprint and diversifying its talent pool. One example of that outgrowth meant creating a presence in McLean, Virginia. Having the agility to move quickly during the early days of the pandemic, and learning those lessons, helped to build a stronger company as the pandemic waned. Marie Chinnici-Everitt, DTCC’s chief marketing officer and regional manager, Tampa, described how the firm responds to challenges: We are absolutely amazing in a crisis, but that’s certainly not what our brand is about, or what we want to be known for. We couldn’t be as good as we are in difficult situations unless we are outstanding at everything else. The reason that we’re good in a crisis is because we are focused on doing what is in the best interests of our clients and the industry. So, when there is a business disruption, the culture of our company is one where we all come together with the singular purpose to seamlessly keep the markets running.

What’s in a Meme? In the midst of the pandemic, DTCC and the financial sector had to face a new and unique challenge in 2021. The meme stock event, which was brought on by investors using online forums and social platforms, drove the stock price of certain stocks, including video game retailer GameStop, significantly higher. With thousands of small trades occurring simultaneously, the

ENVIRONMENTAL SUSTAINABILITY With office space throughout the world, The Depository Trust & Clearing Corporation (DTCC) is working to positively impact the communities where it operates and the world at large. With the aim of becoming carbon neutral by 2030, the firm is working in three key areas of sustainability: water conservation, clean energy and recycling. “We recognize this isn’t just a question of how we heat and cool our buildings and how much power we use, although these are very important issues,” said Susan Cosgrove, managing director, president of Clearing & Securities Services. “It’s about broadly assessing our systems and policies and identifying areas where we can reduce consumption and improve efficiencies.” These goals impact every aspect of DTCC’s operations, from how it designs and renovates its facilities to which vendors the firm partners with.

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unusually high volume of trading activity stressed the financial system. While DTCC typically handles about 120 million transactions a day, COVID-19 spiked that to nearly double. During the meme stock event, DTCC peaked at 475 million transactions in a single day. “Our IT people know they must have the capacity to handle peak volumes like this,” said Michael Bodson, who was president and CEO at the time. “They understand what can go wrong and how to manage the surges. They plan for it and they react to it, and the firm performs flawlessly.” Successfully handling the high volume of trades during the event would serve as a prime example of DTCC efficiently working to provide stability and certainty during market shocks.

Accelerating Settlement Yet Again While the meme stock market event brought renewed focus on settlement times, DTCC had already started to lay the groundwork to further accelerate settlement in the securities markets soon after the industry transition to T+2 in 2017. The firm issued a white paper the following year, which focused on opportunities to modernize the post-trade infrastructure underpinning the US equity markets, including ways to enhance clearing and settlement processing efficiency to promote settlement finality. Building on the success of that effort, DTCC set in motion plans to move to T+1, or trade date plus one day. It began a series of meetings with industry stakeholders in 2020, using that feedback as the basis for a new white paper published in early 2021 outlining steps to achieve T+1. Soon after, the firm engaged with the Securities Industry and Financial Markets Association (SIFMA) and the Investment Company Institute (ICI)—the three organizations led on the move to T+2—to further galvanize industry support. “The benefits of a T+1 cycle are clear,” said Murray Pozmanter, former managing director, president of DTCC Clearing Agency Services and head of Global Business Operations. “It will mitigate risk, particularly during periods of high volume and volatility, reduce costs and liquidity requirements, modernize infrastructure and standardize industry processes.” With support for accelerating settlement gaining momentum, a steering committee and industry working group were formed to develop consensus for the transition, evaluate potential risks or impacts and develop an implementation approach. The organizations also worked closely with the US Securities and Exchange Commission, which has since called for implementation of the shortened settlement cycle in 2024.

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THE THREE PILLARS OF DTCC’S ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) PROGRAM

Building the Workforce of Tomorrow

Keisha Bell, head of talent management and diversity, equity & inclusion, believes DTCC’s culture, which places a high value on respecting people from all walks of life, sets the firm apart, especially when it comes to addressing sensitive topics and having important conversations. (Photo courtesy of Christopher Elston Photography.)

While DTCC has always had a stellar reputation for making a positive impact on the global financial markets, it also places a premium on supporting local communities through engagement programs, philanthropy and volunteerism. In 2020, the firm was looking for other ways to strengthen these efforts with a cohesive strategy for capturing a broader set of actions and metrics. “Our Environmental, Social and Governance program is an exciting area of focus for our company and a critical business imperative that reflects our commitment to serve as responsible corporate citizens,” said Keisha Bell, managing director, head of talent management and diversity, equity & inclusion. “We prioritize supporting the communities where we live and work and making a broader positive impact on society and our planet.” At a time when diversity, equity and inclusion were at the forefront of a national conversation, DTCC could point to significant initiatives already in place. The firm had established a number of laudable programs focused on creating and expanding opportunities for growth and development. One of them is Advancing Women Leaders, which is a two-year program that equips women with the skills and tools necessary to expand their careers at DTCC. Participants in the program are assigned to an executive coach who closely works with them to create a leadership vision and career plan tailored to their specific needs.

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Bell said of DTCC’s proactive approach in promoting a workplace culture that makes everyone feel at home: It’s very important for us to be able to tell the DTCC story and why someone should come and work here. The culture of the organization is one of respect and excellence. A lot of companies say: “Bring your whole self to work.” But we really mean it at DTCC.

New Leadership for a New Era When Frank La Salla took office as president, CEO and director of DTCC in August 2022 following the planned retirement of Mike Bodson, the firm was in a strong position financially and operationally. It had a decades-long reputation for trust, integrity and consistency among clients, regulators and market participants. In addition, the industry valued its role in providing stability to the financial system and bringing to market innovative solutions to solve operational pain points. However, the firm had also arrived at an inflection point. The pace of change was accelerating due to dramatic shifts in the macroeconomic and regulatory environments, as well as technological advancement. La Salla devoted his initial months as CEO to conducting a self-described “listening tour” across the company’s offices globally and also met with clients and a broad range of industry stakeholders. The feedback he received reflected his own assessment of the company: DTCC had a unique opportunity to play a broader role in the industry and lead on large-scale, transformational initiatives to strengthen the financial system, but it would also need to evolve to achieve that goal. “Incumbents can lose if they don’t change,” La Salla said. “DTCC is a strong and vibrant organization that

FRANK LA SALLA: DTCC PRESIDENT, CEO AND DIRECTOR 2022– Frank La Salla joined DTCC as CEO-elect in June 2022 before assuming the role of president, CEO and director in August with Michael Bodson’s planned retirement. La Salla is a member of the board of directors and serves as president and CEO of The Depository Trust Company, National Securities Clearing Corporation and Fixed Income Clearing Corporation. With more than 30 years’ experience in the financial services industry, La Salla brings a deep background on

key issues facing the global financial services industry. Before joining DTCC, he spent 28 years at BNY Mellon, where he most recently had been CEO of BNY Mellon’s Issuer Services business and a member of the firm’s Executive Committee. Prior to that, he was CEO of Corporate Trust, where he was responsible for depositary receipts, served on the Executive Committee of Pershing LLC, a subsidiary of BNY Mellon, and was president of BNY Clearing Services LLC. PHOTO BY NEIL VAN NIEKERK.

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is performing well, but we have a responsibility to strengthen the firm now to put us in the best position possible to lead and drive positive change for the industry in the future.” La Salla quickly began to formulate his plans. He sharpened the firm’s digital strategy as part of plans for a refresh of the corporate strategy, articulated the behaviors and values that underpin DTCC’s purpose-driven culture and launched an internal effort to more effectively prioritize work and optimize for growth to deliver maximum value to clients. As he reflected on the 50th anniversary of DTCC, La Salla said, “The best way we can honor our company’s legacy is by acting now to accelerate our evolution and position the firm for a new era of industry leadership.”

Clients at the Forefront While having a front-row seat to the largest financial challenges in modern history allows employees to play a role in shaping the future direction of the financial system, clients play a key role in setting DTCC’s course for the future, too. And that comes by listening, said Marisol Collazo, global head of Relationship Management: It’s important to hear what our clients are saying. We always have to be prepared to respond and act as strategic advisors. That helps create more authentic relationships, where you really get to earn the trust of your clients. They come to rely on what you say because they know that they can trust DTCC Marisol Collazo, global head of Relationship Management, has worked in various leadership roles for DTCC and its subsidiaries for the past 15 years. (Photo courtesy of Christopher Elston Photography)

no matter the circumstances.

Those relationships not only provide value to the clients but give DTCC insight into how it can better serve them. “I’m committed to building upon DTCC’s strong reputation for advancing key industry issues and initiatives and partnering with our clients and stakeholders to address the complex challenges they face,” said La Salla. “DTCC is one of the most critical organizations in financial services because of the roles it plays in safeguarding the global markets and promoting financial stability.”

Opportunities Ahead The future certainly will hold more disruptions, whether driven by natural disasters, global pandemics or something as yet unseen. Technology changes will come, too. With technology being the backbone of DTCC, there is a

CHAPTER TEN | A BRIGHT FUTURE

133

constant need to upgrade systems. These days, it means modernizing them in a way where the firm can make workflows more efficient and be prepared for the oncoming digitalization of global markets. No matter what the future holds, DTCC continues to seek out opportunities to broaden its role and impact within the financial services industry. Using the standard of unmet needs within the financial industry as a basis of expansion is another deeply held belief at DTCC, as Peve described: We’re looking at areas where clients have unmet needs and overlaying that with areas where we have adjacent businesses, unique expertise and the ability to deliver a solution that can solve an operational challenge or pain point.

The Future Is Now As disruptive technologies gain wider acceptance, DTCC stands ready to meet the growing needs of its clients and the ever-changing global financial markets. As the firm advances its strategy for the future, it will continue to engage with clients, regulators, policy makers, partners and other stakeholders to build consensus and lead the industry forward. While DTCC has experienced countless challenges and unforeseen circumstances throughout its 50-year history, the firm has always made it a priority to serve its clients with innovative products that mitigate risk, enhance efficiencies and reduce costs. For the people who proudly work at DTCC, that mission has remained at the heart of everything they do. ■

Despite the challenges COVID-19 presented, Jennifer Peve, managing director, global head of Strategy & Innovation, was instrumental in the effort to make sure DTCC adapted to the changes brought on by the pandemic and continued its work to meet the growing needs of its clients.

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140

Index References to photographs and illustrations are given in bold type. 9/11 Memorial, 69 9/11 terrorist attacks, 63, 70–71, 71, 73, 77, 79, 81 Jill Considine on, 68, 73 1929 stock market crash, 13 1933 Glass-Steagall Act, 19 1987 stock market crash, 44, 44–45, 48, 49, 106

A Abel, John, 120 accelerating settlement again, 119, 119–120 yet again, 129 Advancing Women Leaders, 130 ALERT, 124 Alizzi, Anthony, ix Alternative Investment Product (AIP) Services, 112 American Stock Exchange (AMEX), 12–13, 16, 21–22 Ames, Mike, ix Argueta, Daniel, 54 Arning, Lee D., 10 artificial intelligence, 118 Assenza, Karen, 57 attestation program, 121 Automated Customer Account Transfer Service, 36, 42 automation innovating through, 36, 37, 38–39, 42 Avox Limited, 101 Axilrod, Peter, ix, 85

B backup plan, new, 78–79 backup system, 30, 31 Banking and Securities Industry Committee (BASIC), 19, 21–24, 29, 32 bearer bonds, 38 municipal, 35, 35–36, 43 William Dentzer on, 34 Bear Stearns, 83, 106 Bell, Keisha, ix, 130, 130–131 Bellini, Cathie, ix Bellini, Michael, viii Benedict, Christine, 43 Bernard L. Madoff Investment Securities, 82, 84 Bevis, Herman as BASIC executive director, 22–23 as CEO of Price Waterhouse, 22 Bishop, Lynn, ix, 111, 112, 115, 118 Black Monday, 37, 44–45, 45

Black Tuesday, 16 BNY Clearing Services LLC, 131 BNY Mellon, 131 Bodson, Michael on cybersecurity, 121 as DTCC executive managing director, 115 as DTCC president and CEO, ix, 87, 87, 92, 106, 106–107, 129 retirement of, 106, 125, 131 on risk management, 112–113 Brennan, Kevin, ix bright future: 2021 and beyond, 122–133 accelerating settlement yet again, 129 building the workforce of tomorrow, 130–131 clients at the forefront, 132 COVID-19 pandemic, 124–125, 124–126, 128 environmental sustainability, 128, 128 Frank La Salla: DTCC president, CEO and director 2022–, 131, 131 future is now, 133 meme stock event, 128–129 new leadership for a new era, 131–132 opportunities ahead, 132–133 broker-to-broker trades, 23 Brooklyn Army Terminal, 78, 92 Brooklyn backup data center, 48, 50–51, 51, 76, 78, 91–92, 93 Business Transformation Office, 119

C Callahan, Mary Ann, ix, 60, 60 Canaday, S. E., Jr., 32 Canadian Depository for Securities Limited, 60 carbon neutral, 128 Carriero, Eileen, 29 Cede and Company, 91 Central Certificate Service (CSS), 11, 13, 16, 18–19, 21–25, 25 becomes The Depository Trust Company in 1973, 22, 25, 25, 28 launches as subsidiary of NYSE, 22, 25, 38 central counterparty clearinghouses (CCPs), 60 central securities depositories (CSDs), 27, 60 Cherry, Sylvia, 29 Childs, Christopher “Chris,” ix, 85, 114, 114 Chinnici-Everitt, Marie, viii, 107–108, 128 clean energy, 128 client demand, meeting, 105–106 cloud computing, 118 Colangelo, John, ix, 18, 45, 67 collateralized debt obligations (CDOs), 82 Collazo, Marisol, ix, 109, 132, 132

141 combined settlement dates, 13 Commodity Futures Trading Commission (CFTC), 101 Donald Donahue on, 80, 82–83 Comprehensive Securities Depository System, 21 computerized bookkeeping entry, 16, 19 conferences, 65, 71 Considine, Jill M. on 9/11 terrorist attacks, 68, 73 as DTCC executive chairman, 82 as DTC chairman and CEO, ix, 51, 55–57, 56, 67, 67 on going global, 58 retirement of, 82 contingency planning, 78–79, 102 continuous improvement program, 48 Continuous Net Settlement System, 33 Corporate Trust, 131 Cosgrove, Susan, ix, 84, 95, 95, 98, 128 on recovery of certificates, 95, 95 Coulter, James, 54 COVID-19 pandemic, 124–125, 124–126, 128 credit default swap (CDS), 82, 84–85 crisis creates opportunity: 1966–1970, 10–19 government intervention, 18–19 one possible solution, 16, 18 too much of a good thing, 12–13, 16 trade settlement defined, 18 cyberattacks, 111, 111, 120–121 cybersecurity, 47, 120–121 Michael Bodson on, 121

D Dagdag, Cornelia “Nellie,” ix, 104, 104 Dalby, Candice, 29 Dallas backup office, 91, 97 data products, new suite of, 99, 105 day unlike any other: 2001–2004, 68–79 close call, 71–73 Donald Donahue: DTCC president and CEO 2006–2012, 78, 78 FDNY 9/11 Memorial Wall, 74–75, 75 new backup plan increases resilience, 78–79 up and running, 76, 78 debt ceiling, 101 default simulation, 86 Andrew Gray on, 86 Dentzer, William “Bill” on bearer bonds, 34 as CEO of The Depository Trust Company, 12, 29–30, 38, 59 as CSS founding chairman and CEO, 22, 24, 24, 38 as New York State Superintendent of Bank, 22, 24 retirement of, 48, 51, 54, 54 Depository Trust & Clearing Corporation (DTCC) 50th anniversary, vii, 132 bright future: 2021 and beyond, 122–133 crisis creates opportunity: 1966–1970, 10–19 day unlike any other: 2001–2004, 68–79 domestic and international offices, 99, 109, 113 founding of, viii goal of reducing systemic risk within industry, 100 going global: 1995–2001, 58–67 higher profile: 2010–2015, 96–109 mitigating risk, seizing opportunity: 1990–1999, 46–57 regulation, regionalization and reorganization: 1970–1979, 20–33

risk management: 2016–2019, 110–121 technological revolution: 1980–1989, 34–45 twin storms: 2005–2012, 80–95 The Depository Trust Company (DTC), 18, 24–25, 25 25th anniversary, 52, 52 fees based on service costs, 31 going global: 1995–2001, 58–67 limited profits and returned revenues for excess funds, 23, 31 merged with NSCC, 51, 55, 59, 69 no dividends, 31 NYSE proposal to sell, 23, 32 risk management strategies, 98, 98–99 Deriv/SERV, 114, 114 digital currency, 125 Dirks, Dennis, ix, 25, 36, 38 distributed ledger technology, 118 dividends, 71 Dodd-Frank Wall Street Reform and Consumer Protection Act, 98–99, 100, 101 Donahue, Donald close call, 71–72 as DTCC president and CEO, 20, 43, 43, 48, 60, 78, 78 as DTC vice president, ix, 32, 32 on meeting challenges, 80, 82–83 Donner, Craig, viii dot-com bubble, 83 Douglas, Andrew, ix, 105 Dow Jones Industrial, 84 Dow Jones Industrial Average, 44, 49 dramatic downturn, 43–45, 45 drowning, guard saved from, 90 Druskin, Robert “Bob” as DTCC executive chairman of the board, ix, 83, 98, 106, 106–107 on risk management, 110 DTCC 3.0, 83, 85–86 DTCC Institutional Trade Processing, 61, 67, 104 DTCC’s Systemic Risk Office, 83, 86 DTCC Vision and Values event, 63

E-F Emerging Markets Clearing Corporation, 61, 67, 71 Emerging Markets Traders Association, 61, 67 employee appreciation day, 71 Enterprise Agile, 119 Environmental, Social and Governance (ESG) program, 130 environmental sustainability, 128, 128 EuroCCP, 66 Euroclear, 98 Europe, looking beyond, 66, 66–67 European Association of Securities Dealers Automated Quotations, 65 Expediting Group, 29 Faith, John, ix, 70 FDNY 9/11 Memorial Wall, 74–75, 75 Federal Reserve, 70, 83 Federal Reserve System Fedwire Link, 37 Femia, James as DTCC managing director, Global Corporate Actions, 96 as DTCC managing director in Global Business Operations, ix, 90 on reducing risk and reducing costs, 96

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as senior officer in charge of the vault, 90, 94–95 Ferreira, Bob, 29 Feuchtwanger, Jacob as DTCC managing director and chief information officer, 36, 38 as DTC manager, ix, 36 filming certificates, 37, 39, 42 Financial Stability Board, 101, 113 fintech (financial technology), 118 rise of, 115, 115, 116, 118–119 Fiore, Natalie, 33 Fixed Income Clearing Corporation (FICC), 86 Mortgage-Backed Securities Division, 97 risk management strategies, 98, 98–99 Forbes list of best midsize employers, 113 Ford, Gerald (president), 23, 32 freeze-drying, 83, 93–95, 94 Fund/SERV, 43, 71, 112

G Galleta, John, 54 Gambardella, Rob, ix, 112 GameStop, 128 Garguilo, Ronald, 55 Garrison, Robert “Bob,” ix, 92 Geithner, Tim as US Secretary of the Treasury, 91 Girls Who Code, 118 Global Corporate Actions, 67 global financial system security and integrity of, vii–viii Global Legal Entity Identifier (LEI) System, 101, 104 Global Markets Entity Identifier Utility, 104 Global Relations Education and Training (GREAT) workshops, 60 Global Trade Repository (GTR), 98, 112, 114 going global: 1995–2001, 58–67 Jill Considine on, 58 looking beyond Europe, 66, 66–67 looking to London, 60–61, 64–66 Government National Mortgage Association, 49, 55 Government Securities Act (GSA) of 1986, 42 Government Securities Clearing Corporation (GSCC), 43, 57, 71 government securities committee, 37 Gray, Andrew on default simulation, 86 as DTCC managing director, Core Business Management, 104 as DTCC managing director and group risk officer, ix, 86, 120 Great Depression, 12 Great Recession, 82–84, 97, 99 Ground Zero, 73 Group of Thirty, 48, 49

H Haack, Robert W., 19, 19 headquarters at 55 Water Street in downtown NYC, 21, 22, 30 higher profile: 2010–2015, 96–109 aftermath of the economic crisis, 99–101, 104 evolving the organization, 106–107 expanding its global footprint, 104–105

high visibility, 107–109 meeting client demand, 105–106 Michael Bodson: president and CEO 2012–2022, 106, 106 hijacked airliner, Flight 93 downed in western Pennsylvania, 72 Hodash, William “Bill,” ix, 64, 64, 101, 104 Holland & Knight Charitable Foundation, Inc., 75 home prices, 83 housing bubble, 83 Hyperledger Project, 118

I-J-K-L ID System Reference Guide, 57 innovation, 123 automation through, 36, 37, 38–39, 42 Institutional Delivery System (ID), 30, 36, 60, 65 Insurance Services business, 50 interactive ID, 60 interest payments, 71 rates, 83 International Depository and Clearing, 55, 60–61, 61, 64 International Securities Clearing Corporation, 57, 59 Investment Company Institute (ICI), 120 Jaenike, William “Bill” as AMEX communications consultant, 16, 38 as DTC chairman and CEO, 18, 25, 38, 38, 48, 51, 54 as DTC vice president, Participant Services, 32 on risk management, 46 on same-day settlement, 54 as technology manager for BASIC, 22–24, 31 J.P. Morgan Investment Management, 57 Kaloostian, Diran, 24 Keady, Tim, ix, 105 Kelly, David, 44 Knight Capital, 83, 86–87, 88, 90 Lane, Anna, 33 La Salla, Frank, vii, vii, 122, 125, 131, 131–132 Lee, Thomas as developer of DTC information technology system, 30 Lehman Brothers, 84, 84 Leone, Anthony, ix Lind, Karen, 55 logical adjacencies, 98 Loke, Monica, 29 London, England looking to, 60–61, 64–66 office in, 59, 60–61, 63–64 London Stock Exchange, 70

M Madoff, Bernie, 84 Mahoney, James P., 33 markets closed one day a week, 12, 14 week after 9/11, for, 78 market transparency, 84–85 Markit, 114 MarkitSERV, 114 Mauro, Vincent, 43

143

INDEX

McGrail, Robert as DTCC managing director of business management, 67 as founding chairman of Board of Omgeo, 67 McLean, Virginia, office, 128 Melillo, Robert, 29 meme stock event, 128–129 MF Global, 86, 101 microfilm, 37, 39, 42 Midwest Securities Trust Company, 42, 49, 54 Minicone, Steve, 54 mitigating risk, seizing opportunity: 1990–1999, 46–57 bomb rattles Wall Street, 50, 50–51 celebrating a milestone, 52, 52 change at the top, 51, 54–57 Jill M. Considine: DTC chairman and CEO 1999–2006, 56, 56 need for speed, 48–50 mitigating risk for the industry, 113 Morgan Stanley, 33, 106 Mortgage-Backed Securities Clearing Corporation, 71 mortgage defaults, 83 Mullarkey, Brian, 54 municipal bonds, 36, 38 municipal notes, 37 Murphy, Patrick, 57 mutual funds, 43 Mutual Fund Services, 112

N-O-P Nasdaq, 65–66 Nasdaq Europe, 65–66 National Association of Securities Dealers, 12, 16, 21–22 National Coordination Group, 21 national regional exchanges, 99 National Securities Clearing Corporation (NSCC), 23, 33, 36, 42, 49, 125 merged with DTC, 51, 55, 59, 64, 69 risk-management strategies, 98, 98–99 Nelson, Jack, 33 Networking and Mutual Fund Profile Service, 112 New England Depository Trust Company, 36, 42 New York City Fire Department (FDNY), 75 New York City Firefighter Memorial Wall Fund, 75 New York Clearing House Association, 21–22, 56 New York Stock Exchange (NYSE), 11, 11–13, 13, 16, 21–22 Board of Governors, 12–13 trading floor, 16, 52 Nuveen asset management, 32 Obama, Barack (president), 100 Office and Professional Employees International Local 133, 38 Omgeo, 61, 67, 99, 104, 104–105, 105 over-the-counter (OTC) derivatives, 23, 98, 101, 114 Pacific Securities Depository Trust Company, 36, 42 paperwork crisis, 10, 12, 14, 18 late 1960s and early 1970s, of, vii, 38, 123 markets resumed normal trading hours, 19, 19 Participants Trust Company (PTC), 49–50, 55, 55 Paul, Tanya, 54 Pentagon 9/11 terrorist attacks, 72 Pershing LLC, 131 Peve, Jennifer, ix, 118, 123, 133, 133 Philadelphia Depository Trust Company, 42, 49, 54

Ponzi scheme, 84 Portannese, Anthony “Tony,” ix, 107, 115 post-trade processing, 118 Pozmanter, Murray, ix, 100–101, 101, 125, 129 Price Waterhouse, 22, 106 Project Turquoise, 66

R Rand Corporation, 13 Rassnick, Leopold, 55 recovery and wind-down plans, 98, 99 recovery of certificates, 83, 93–95, 94 Susan Cosgrove on, 95, 95 recycling, 128 reducing risk and reducing costs James Femia on, 96 regulation, regionalization and reorganization: 1970–1979, 20–33 Bill Dentzer: founding CEO, 24, 24 immediate impact, 32–33 leading the way, 24–25 learning the BASICs, 22–24 new name, broader mission, 25 regional wins, 29–30 standing on its own, 31–32 technology and innovation at the forefront, 30, 30–31, 31 resilience, 113, 122 risk management Bill Jaenike on, 46 Bob Druskin on, 110 Michael Bodson on, 112–113 role of Tampa office, 102 risk management: 2016–2019, 110–121 accelerating settlement again, 119, 119–120 cybersecurity, 120–121 Girls Who Code, 118 mitigating risk for the industry, 113 providing certainty during crises, 112–115 rise of fintech, 115, 115, 116, 118–119 risk mindset, intensifying the, 85–86 risk profile, lowering, 85 risky subprime mortgages, 82 robotic process automation, 118 Rogers, Jim, 29 Ruiz, Maria, 29 Rundle, James, 61

S Salomon Brothers, 33 same-day funds settlement (SDFS), 35, 37, 43, 50–51 Bill Jaenike on, 54 Saperstein, Karen, 55 science, technology, engineering and math (STEM) education, 118 Securities Acts Amendments, 23, 32 Securities Financing Transaction Clearing Service, 125 Securities Industry and Financial Markets Association (SIFMA), 120, 129 Securities Industry Automation Corporation, 38 securities trade, 18 security, 30, 30 security-based swap data reporting services, 125

144

T H E S T O R Y O F T H E D E P O S I T O R Y T R U S T & C L E A R I N G C O R P O R AT I O N

security certificates, 11 settlement period extended, 12 settlement process trade date plus one day, 124, 129 trade date plus two days, 112, 119, 119–120, 129 trade date plus three days, 49, 78 Shields & Company, 23 simulation of failing investment bank, 84, 84 Smith, Jeffrey H., 33 Society for Worldwide Interbank Financial Telecommunications (SWIFT), 60–61, 65 Spinelli, Ken, 57 Stabenow, William, 32 Standard & Poor’s (S&P) credit ratings, 70, 101 standing settlement instructions (SSI), 124 State Street Bank, 29 Staufer, Matthew, ix stock certificates, 18, 23 punch card, 23–24 Stock Exchange of Hong Kong, 66 straight-through processing (STP), 64 stress tests, 45 strike, 37–39 subprime defaults, 82 Sullivan, Maureen, 29 summer immersion program, 118 Superstorm Sandy, 81, 83, 90–92, 91–92, 97, 124 Systemic Risk Barometer, 120 system upgrades, 133

trading limited hours, 12, 16, 16 switch from fractions to decimals, 70 Trentacoste, Joseph “Joe,” ix, 84 Tribute in Light, 77 twin storms: 2005–2012, 80–95 dark knight, a, 86–90 drying out, 93–95, 94 Great Recession, 82–84 intensifying the risk mindset, 85–86 making moves, 95 market transparency, 84–85 Superstorm Sandy, 90–92, 91–92 Trade Information Warehouse, 85 Twin Towers, 69, 73, 75 underground vault at 55 Water Street headquarters, 40 flooded during Superstorm Sandy, 81, 83, 90, 93 Uniform Commercial Code, 29 union strike, 37–39 United Kingdom’s Brexit plans, 112–113 Upper Manhattan, new office, 78 senior leadership present at all times, 78 US presidential election of 2016, 112 US Securities and Exchange Commission (SEC), 14, 49, 98, 98, 112, 125, 129 US Securities and Exchange Commission Historical Society, 16, 22 vault certificate audit, 95

T-U-V Tampa office, 79, 79, 91, 102 expansion, 95, 107 Tax Equity and Fiscal Responsibility Act of 1982, 38 technological revolution: 1980–1989, 34–45 Bill Jaenike: DTC chairman and CEO 1994–1999, 38, 38 broadening industry support, 42–43 dramatic downturn, 43–45, 45 innovating through automation, 36, 37, 38–39, 42 technology glitch, 83, 86–88, 90 Thompson, Larry, ix, 44, 51, 76, 76 Thomson Financial, 61, 65, 67 Thomson-Reuters, 99, 104, 104, 105 Times Square, 124 Trade Information Warehouse (TIW), 82, 84–85 trade settlement, 18

W-Y-Z water conservation, 128 waterfall development, 119 Williams, Angie, 29 Winuk, Glenn J. as Holland & Knight partner, 75 as volunteer firefighter on Long Island, New York, 75 World Trade Center 9/11 Memorial, 69 9/11 terrorist attacks, 68–69, 71, 72 bombing, 48, 50, 50–51, 72, 76 World War II, 12 Y2K, 57, 69–70, 81 zero-coupon bonds, 37