The Depository Trust & Clearing Corporation (DTCC) reported $819 million in revenue for 2001 from fees charged by its subsidiaries for record volumes of post-trade processing, custody and asset servicing of financial instruments, including equities, municipal and corporate bonds, unit investment trusts, mutual fund and insurance transactions.
The value of transactions processed by DTCC in 2000, including virtually all equity trades in the U.S., represented 66% of the world’s total value in equity trading, according to the U.S. Securities Industry Association (2001 information was not yet available).
Among the key volume highlights for DTCC in 2001:
National Securities Clearing Corporation (NSCC) cleared and settled a record 3.5 billion transactions valued at almost $89 trillion in equity and fixed income securities transactions in 2001, up 25%.NSCC processed a record number of mutual fund transactions, 72.5 million, through its systems that link funds with broker/dealer, bank and financial planner distribution networks. These transactions were valued at $1.4 trillion.
The Depository Trust Company (DTC) held in custody and serviced a record $23.3 trillion worth of securities. Asset servicing for those securities, including underwritings, reorganizations and payment of dividends totaled more than $4 trillion, also a record. About $1.5 trillion of the securities in custody were from 84 countries other than the U.S.
“Although DTCC operates on a not-for-profit basis, we provide customers and shareholders with huge savings derived from innovation, the efficiency of our processing, critical mass, lower cost and tight fiscal management,” said Jill M. Considine, DTCC chairman and CEO. “In fact, in 2001, we returned profits of more than $230 million to our customers through fee reductions, discounts and rebates, and in dividends to shareholders. Our charge of 7 cents per equity transaction for clearance and settlement is the lowest in the world.”
NSCC handled almost $89 trillion worth of transactions during the year, involving some 3.5 billion transactions, up 25% from the prior year’s 2.8 billion. NSCC is responsible for clearing 780 billion shares of broker-to-broker equity, corporate and municipal bond transactions in the U.S. from all stock exchanges and markets, including the New York Stock Exchange, Nasdaq, American Stock Exchange, all the regional exchanges and all electronic communications networks (ECNs) such as Instinet, Island, and Redibook.
Mutual Funds: Its mutual funds business handled 72.5 million transactions in 2001 through its Fund/SERV system, up 4% from 2000. Fund/SERV, the primary service used to link mutual fund companies with distributors such as banks, broker/dealers and financial planners, has spurred a cost-effective way for mutual funds growth in the U.S. The value of transactions processed through Fund/SERV was $1.4 trillion in 2001.
Insurance: NSCC’s fledgling insurance business increased its client base to 161 insurance carriers and distributors, and the money settlement of insurance transactions nearly doubled to more than $3.38 billion from $1.75 billion in 2000. For annuities and life insurance products, NSCC is helping to mainstream those products, linking insurance carriers to distributors and providing a cost-effective way to grow this market segment. Insurance services processed a record 6.3 million commission, application and premium transactions during 2001, an increase of 85% over the 3.4 million transactions handled the previous year.
DTC also showed significant growth in key areas, with eligible securities on deposit increasing to almost 2 million, up 5% from 1.9 million the prior year, and the value of those securities increasing to $23.3 trillion from $23.1 trillion in 2000. DTC charges transaction fees for the safekeeping and servicing of these securities.
Asset Servicing: DTC’s asset servicing business rose to $4 trillion in 2001 from $3.1 trillion in 2000, an increase of more than 29%. Most of that increase came from processing support for underwriting, which rose 42% to $2.4 trillion from $1.7 trillion in 2000 (principally on the strength of new fixed income underwritings). Reorganization services also showed an increase to $710 billion from $670 billion processed in 2000, while dividend and interest servicing dollar volume increased to $880 billion from $730 billion in 2000.
Omgeo handled 200 million institutional transactions in 2001, and is serving 6,000 customers in more than 40 countries. DTCC successfully launched the joint venture with Thomson Financial in May 2001. The new company combined the institutional trade processing infrastructure of both companies to provide for seamless global trade management and an industry solution for straight-through processing.
“We are one of the few organizations globally that offers this breadth of services to our users in each sector of financial services we serve,” Considine said, “and we have every intention of continuing to offer the maximum benefits, lowest cost and certainty of processing.”
On a comparative basis, DTCC reported total revenue at $819 million for 2001, down from revenue of $914 million in the prior year. The decline was principally due to fee reductions DTCC adopted that took effect in January 2001. (Similar reductions were also announced for 2002.) DTCC also discounted or rebated $177 million to customers in 2001, leaving net revenue of $642 million.
“Overall, we had a very successful year, despite the recession that reduced stock values and slowed the growth of trading activity, and we did so despite the four-day trading respite and
-more-additional costs related to Sept. 11,” Considine said. While trading was suspended, DTCC continued to clear and settle some $1.8 trillion in transactions in the four days immediately following Sept. 11 at multiple processing sites, and the company supported customers and the markets to ensure trading resumed that followed Monday.
DTCC is required to provide audited, year-end financial information on each of its subsidiaries to the SEC at the end of February.
Highlights of other business accomplishments:
EuroCCP: In 2001, DTCC developed and launched the European Central Counterparty Limited (EuroCCP) in nine months. EuroCCP is the first central counterparty to offer cross-border clearing, netting, risk management and settlement services for equities traded on a pan-European basis, including U.S. securities traded in Europe. It supports Nasdaq Europe and has capacity to support other markets.
Integration of GSCC, MBSCC & EMCC: At the end of the year, in another significant move that will help reduce costs and improve efficiencies for the industry, the shareholders of the Government Securities Clearing Corporation, MBS Clearing Corporation and the Emerging Markets Clearing Corporation voted to have their organizations become subsidiaries of DTCC, effective Jan. 1, 2002. These organizations bring a combined additional revenue stream of $84.3 million, before discounts.