Regulation Hits ICSDs as DTCC Seeks to Raise $400 million Capital Buffer

The Depositary Trust and Clearing Corporation (DTCC) will go ahead with a $400 million common equity capital raise from its shareholders so it can meet regulations for systemically important institutions.

Shareholders of the DTCC, which is a consortium of banks and brokers in the U.S., agreed to the plan in January 2015 in order to boost the amount of liquid funds available for its settlement and clearing businesses.

According to a letter to stakeholders released on Monday, “(it is) a critical first step that will enable us to execute the second part of our funding plan, which is to raise additional capital from the institutional markets to support the expansion of our products and services…. this will be the first time in our four-decade history that we will be raising new equity capital.”

The funding plan from DTCC comes as regulators look to enforce tough rules to ensure clearing houses boost their capital buffers against their own default and safeguard against systemic risk.

The move comes weeks after Chicago-based Options Clearing Corporation (OCC) filed a motion with the U.S. Securities and Exchange Commission (SEC) to lift the current stay of the approval order of its proposed capital plan.

“OCC is seeking to lift the stay of the approval order and move forward with the implementation of our capital plan,” says Craig Donohue, executive chairman, OCC. “While significantly strengthening our capital base, it allows us to meet the heightened capital requirements critical for SIFMUs like OCC in a timely matter.”

In its annual report, DTCC says it had paid $230 million to purchase the remaining 50% of post-trade services provider Omgeo from Thomson Reuters.

It plans to enhance Omgeo ALERT, the industry’s largest database of standing settlement instructions (SSI), into a new utility to carry collateral SSIs.