Focus on DTCC’s Depository Business

ACSDA Leadership Forum

John Colangelo

October 8, 2007

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A Snapshot of DTCA Snapshot of DTC

•Safekeeping and Custody: the world’s largest depository

•2.8 million securities issues from the US and 100 other countries and territories.

•Valued at $36 trillion.

•Safekeeping and Custody: the world’s largest depository

•2.8 million securities issues from the US and 100 other countries and territories.

•Valued at $36 trillion.

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DTC Asset ServicingDTC Asset Servicing

•Collected and allocated $3.3 trillion dividend, interest, principal and other cash payments to its customers.

•Handled the processing, distribution and settlement of new issues – a record 50,867 issues worth $4.4 trillion.

•Collected and allocated $3.3 trillion dividend, interest, principal and other cash payments to its customers.

•Handled the processing, distribution and settlement of new issues – a record 50,867 issues worth $4.4 trillion.

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DTC SettlementDTC Settlement

• Settled securities transactions (both buy and sell sides) in 2006 with a gross market value of $444.7 trillion.

(This counts the original gross value of net-settling dealer trades initially cleared and guaranteed by NSCC as the central counterparty. It also counts affirmed, gross-settling institutional trades instructed by Omgeo.)

• Handled ultimate book-entry delivery of securities valued at more than $179 trillion in 2006, also settled $142.2 trillion in money market instruments

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DTC: Regulated, Secure, ResilientDTC: Regulated, Secure, Resilient• Regulated by the US Securities and Exchange Commission, New York State Banking Department and Member of the Federal Reserve System

• Ensuring Business Continuity

• Fully Redundant Capabilities for All Critical Business Functions

• Decentralize Staff and Systems

• DTC, supported by DTCC IT and Communications Infrastructure, has Operations staff in:

• New York City

• Tampa, Florida

• Shanghai, China (corporate actions announcement validations only)

• Regulated by the US Securities and Exchange Commission, New York State Banking Department and Member of the Federal Reserve System

• Ensuring Business Continuity

• Fully Redundant Capabilities for All Critical Business Functions

• Decentralize Staff and Systems

• DTC, supported by DTCC IT and Communications Infrastructure, has Operations staff in:

• New York City

• Tampa, Florida

• Shanghai, China (corporate actions announcement validations only)

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What We Do … Immobilize SecuritiesWhat We Do … Immobilize Securities

Immobilizing securities through custody & safekeeping•DTC’s nominee name – Cede & Co.

•DTC-eligible securities maintained by DTC as a fungible mass, accounted for at participant bank or broker/dealer level.

•Client investor-level records are not centrally maintained in the U.S.; DTC participants maintain client-level accounts on their own books.

•Settlements only involve immobilized securities, generally held in either book-entry only form or as one balance certificate with U.S. transfer agent.

•Special physical custody services for ineligible issues.

Immobilizing securities through custody & safekeeping•DTC’s nominee name – Cede & Co.

•DTC-eligible securities maintained by DTC as a fungible mass, accounted for at participant bank or broker/dealer level.

•Client investor-level records are not centrally maintained in the U.S.; DTC participants maintain client-level accounts on their own books.

•Settlements only involve immobilized securities, generally held in either book-entry only form or as one balance certificate with U.S. transfer agent.

•Special physical custody services for ineligible issues.

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DTC’s Eligible Securities TypesDTC’s Eligible Securities Types• Common and Preferred Stock

• Unit Investment Trusts

• Closed End Funds

• Corporate Bonds and Medium Term Notes

• Municipal Bonds/Notes

• Corporate and Municipal Commercial Paper

• Structured Securities (including CMOs and ABS)

• Retail and Institutional CDs

• Bankers Acceptances

• Common and Preferred Stock

• Unit Investment Trusts

• Closed End Funds

• Corporate Bonds and Medium Term Notes

• Municipal Bonds/Notes

• Corporate and Municipal Commercial Paper

• Structured Securities (including CMOs and ABS)

• Retail and Institutional CDs

• Bankers Acceptances

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Identifying Securities Identifying Securities

• CUSIP Number - stands for Committee on Uniform Securities Identification Procedures.

• CUSIP system—owned by the American Bankers Association and operated by Standard & Poor’s.

• CUSIPs identify most securities, including: stocks of all registered U.S. and Canadian companies, and U.S. government and municipal bonds.

• DTC is expanding support for International Securities Identifying Numbers (ISINs), in addition to CUSIPs.

• Reengineering of DTC’s Core Underwriting & Corporate Actions Systems.

• CUSIP Number - stands for Committee on Uniform Securities Identification Procedures.

• CUSIP system—owned by the American Bankers Association and operated by Standard & Poor’s.

• CUSIPs identify most securities, including: stocks of all registered U.S. and Canadian companies, and U.S. government and municipal bonds.

• DTC is expanding support for International Securities Identifying Numbers (ISINs), in addition to CUSIPs.

• Reengineering of DTC’s Core Underwriting & Corporate Actions Systems.

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DTC Custody and Safekeeping DTC Custody and Safekeeping

• Fungible Securities Registered in DTC’s Cede & Co. Nominee.

• Traditional Vault Services - Safekeeping, Deposits, Withdrawals

• Also, Non-Cede & Co. Custody for ineligible issues

• Dematerialization – Eliminating Physical Certificates

• FAST – Fast Automated Securities Transfer Program

• DRS – Direct Registration Service

• Fungible Securities Registered in DTC’s Cede & Co. Nominee.

• Traditional Vault Services - Safekeeping, Deposits, Withdrawals

• Also, Non-Cede & Co. Custody for ineligible issues

• Dematerialization – Eliminating Physical Certificates

• FAST – Fast Automated Securities Transfer Program

• DRS – Direct Registration Service

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What We Do: DTC Asset ServicesWhat We Do: DTC Asset Services

•Handles all aspects of asset servicing:

•Money market instruments – from issuance through redemption.

•Processes initial public offerings (IPOs) and other new security issuances – making securities eligible in a book-entry environment. Newly reengineered Underwriting System now being introduced.

•Works with 4,000+ paying and transfer agents processing and settling payments, corporate actions and entitlements for DTC customers. Currently reengineering Corporate Actions Services for 2009 introduction.

•Provides value-added information on underwriting and announcements to the global securities industry.

•Offers global tax services on corporate actions.

•Handles all aspects of asset servicing:

•Money market instruments – from issuance through redemption.

•Processes initial public offerings (IPOs) and other new security issuances – making securities eligible in a book-entry environment. Newly reengineered Underwriting System now being introduced.

•Works with 4,000+ paying and transfer agents processing and settling payments, corporate actions and entitlements for DTC customers. Currently reengineering Corporate Actions Services for 2009 introduction.

•Provides value-added information on underwriting and announcements to the global securities industry.

•Offers global tax services on corporate actions.

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Asset Servicing for DTC Issues Asset Servicing for DTC Issues

Function NYC Tampa

Announcements √

√

√

√

Underwritings/Eligibility √ √

Principal & Interest Cash Receipts, Allocations and Research/Claims

√ √

Redemption Support √ √

Reorganization Announcements √ √

Voluntary Reorganization Processing √ √

Mandatory Reorganization Processing √ √

Proxy/Shareholders’ Rights √ √

Books & Records (aged transfers, FAST balancing, error research, lost certificate replacements, bank reconciliation)

√ √

Customer Support Center √ √

Shanghai

√

International Operations, Foreign Currency

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What We Do: DTC Settlement RoleWhat We Do: DTC Settlement Role

Settling participants’ securities obligations to one another•As instructed by participants, DTC completes efficient transfers of ownership of securities among broker-dealers, banks, NSCC, and other participants, providing for book-entry delivery of securities (free-of-payment and versus payment in USD and CAD). Current settlement system will be reengineered in next 5 years.

Settling participants’ securities obligations to one another•As instructed by participants, DTC completes efficient transfers of ownership of securities among broker-dealers, banks, NSCC, and other participants, providing for book-entry delivery of securities (free-of-payment and versus payment in USD and CAD). Current settlement system will be reengineered in next 5 years.

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Settlement Role of DTC, the DepositorySettlement Role of DTC, the Depository• Operates central book-entry systems for settlement of securities, including obligations from exchange and OTC market trades, institutional trades, corporate money market issuance and redemptions, collateral movements and financing transactions.

• Depository risk management requires participants to fully collateralize their settlement activities intra-day, with settlement banks taking on the net settlement at end of day.

• Using its account in the Federal Reserve Bank of New York, DTC manages, and for dual participants, integrates its own net settlements with those of NSCC, and in part, FICC cash obligations, via National Settlement Service unit of the Federal Reserve Bank of New York.

• Operates central book-entry systems for settlement of securities, including obligations from exchange and OTC market trades, institutional trades, corporate money market issuance and redemptions, collateral movements and financing transactions.

• Depository risk management requires participants to fully collateralize their settlement activities intra-day, with settlement banks taking on the net settlement at end of day.

• Using its account in the Federal Reserve Bank of New York, DTC manages, and for dual participants, integrates its own net settlements with those of NSCC, and in part, FICC cash obligations, via National Settlement Service unit of the Federal Reserve Bank of New York.

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DTC Settlement & Risk Management Controls DTC Settlement & Risk Management Controls

• Settlement from multiple locations, if necessary

• Participants Fund

• Depository Settlement Risk Management Controls

• Debit Cap

• Collateral Monitor

• LPNC – Largest Provisional Net Credit, special limit for money market instruments

• Net Settlement (with intraday finality for dividend credits, end of day for settlement)

• Scheduled Daily Deadlines

• Cross Endorsement of NSCC and DTC Settlement for Dual Participants

• Final Net/Net Settlement via Settling Banks/FRBNY

• Settlement from multiple locations, if necessary

• Participants Fund

• Depository Settlement Risk Management Controls

• Debit Cap

• Collateral Monitor

• LPNC – Largest Provisional Net Credit, special limit for money market instruments

• Net Settlement (with intraday finality for dividend credits, end of day for settlement)

• Scheduled Daily Deadlines

• Cross Endorsement of NSCC and DTC Settlement for Dual Participants

• Final Net/Net Settlement via Settling Banks/FRBNY

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Leveraging Six Sigma in DTC OperationsLeveraging Six Sigma in DTC Operations

Alignment of quality initiatives with goals

• Financial gains for stakeholders

• Service delivery to customers

• Strategic industry positioning

• Learning and growth for employees

Alignment of quality initiatives with goals

• Financial gains for stakeholders

• Service delivery to customers

• Strategic industry positioning

• Learning and growth for employees

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What We MeasureWhat We Measure

Measure it – you improve it

•Key Business Processes (Balanced Business Scorecard)

•Customer Satisfaction Survey = 91%

•Industry-Facing Benchmarks

•Employee Survey

Measure it – you improve it

•Key Business Processes (Balanced Business Scorecard)

•Customer Satisfaction Survey = 91%

•Industry-Facing Benchmarks

•Employee Survey