The Depository Trust & Clearing Corporation (DTCC) announced today it cleared and settled more than $1.86 quadrillion in securities transactions in 2007.
DTCC also reported record revenue of $1.69 billion and returned $984 million to its customers in the form of discounts and rebates.
Through its subsidiaries, DTCC provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over the counter derivatives, and is a leading processor of mutual funds and insurance transactions. DTCC's depository provides custody and asset services for about 3.5 million securities issues from the U.S. and 110 other countries and territories worth more than $40 trillion.
DTCC's $1.69 billion in revenues last year was up 24% from the $1.36 billion in 2006. Record high volumes and DTCC's tight fiscal management helped reduce costs in some of DTCC's traditional market segments and resulted in record rebates and discounts of $984 million. Because DTCC operates on an "at-cost" basis, excess revenue beyond that required to fund the business is returned to customer firms on a pro-rata basis.
In addition to the rebates, the company announced the largest fee cuts in its history for 2008, driven by the economies of scale and frugal cost management provided by DTCC's operations. These changes are expected to result in a combined total of $198 million in fee reductions to customers for the coming year. That followed fee revisions resulting in almost $90 million in reductions for 2007.
DTCC made significant progress in expanding its services globally in 2007 when its EuroCCP subsidiary was selected to clear and settle trades for Turquoise, a new pan-European multilateral trading facility developed by nine global investment banks. EuroCCP expects to provide the lowest costs for clearing and settlement of trades in Europe and is expected to support other European trading platforms, once it begins operation in 2008.
In support of OTC derivatives trading, DTCC launched its Trade Information Warehouse, the first global, automated repository for OTC derivatives, where contracts can be tracked and serviced in an automated environment over their lifecycle. During 2007, about 3 million contracts were recorded into the Warehouse, with an average of an additional 10,000 new contracts now being added daily. Deriv/SERV's matching and confirmation platform has improved the automated confirmation rate for credit default swaps to more than 95% from 15% in 2003. DTCC also launched automated payment and centralized settlement for Warehouse contracts through a partnership with CLS Bank International. Almost 1,100 global dealers, asset managers, global banks and hedge funds were using DTCC's Deriv/SERV services at the end of 2007, with more being added each week.
Customer satisfaction scores for DTCC across its diverse customer base reached record levels. DTCC scored 91% in overall satisfaction on an annual customer survey conducted by an independent polling company.
"All in all, we had a very successful year at DTCC in handling high transaction volumes, helping to reduce risk and lowering costs for customers across asset classes we support - and we continued to expand our services globally. DTCC recognizes that we are facing a new trading environment where customers require ever-greater levels of efficiency and stronger risk management," said Donald F. Donahue, DTCC chairman and chief executive officer. "We are facing new venues for trading, new and complex instruments and risk transfer vehicles that demand new solutions to reducing risk and implementing technology to reduce costs, and we are responding to that challenge."Volume Growth
DTCC's National Securities Clearing Corporation (NSCC) subsidiary, which clears virtually all trades done on the NYSE, the NASDAQ Stock market and other exchanges, electronic communications networks and alternative trading systems in the U.S., processed 13.5 billion transactions versus 8.5 billion in 2006, up 59%. On an average daily basis, transaction volume jumped to 53.9 million in 2007 from 34 million transactions daily in 2006, an increase of almost 20 million transactions a day. The average cost for clearing of one side of an equity trade through NSCC dropped to $.006 (six-tenths of a cent), down 45% from the $.011 cost in 2006 and a fourth of the cost four years ago. Overall, NSCC netted down (or reduced) transaction value from $283.2 trillion to only $5.2 trillion that actually had to be settled in 2007, a 98% reduction.
The Government Securities Division (GSD) of Fixed Income Clearing Corporation (FICC) also saw significant volume growth. Transactions processed increased to 30.4 million in 2007 from 24.9 million in 2006, a 22% increase. GSD netted down the value of its U.S. government securities transactions from $4 trillion in average daily transaction value to just under $1 trillion, a 75% netting factor.
The Mortgage-Backed Securities Division saw volume increase to 2.1 million transactions from 1.7 million a 22% increase. The MBS division handles only agency-backed mortgages that are issued by Ginnie Mae, Freddie Mac and Fannie Mae. The MBS division reduced the total $61.9 trillion in par value to $3.3 trillion requiring bilateral settlement, a 94.5% netting factor.
DTCC Deriv/SERV LLC, which matches and confirms over-the-counter derivatives transactions, saw its transaction volume jump 123% to 5.9 million transactions from 2.6 million in 2006. The number of customers also increased dramatically, up 43% to 1,078 at the end of 2007 from 753 in 2006.
Among the key highlights of 2007 for DTCC were:
- Increased NSCC's processing capacity to 280 million transactions a day from 160 million, a 77% increase.
- Completed the consolidation of FICC's business applications into DTCC's data replication and recovery technology, the last applications that needed to be brought into the business continuity framework.
- Launched a new Managed Accounts Service with 15 investment managers and three broker/dealers.
- Responded effectively to market turmoil in the second half of the year by handling several instances of defaults on asset-backed commercial paper issues without incurring any loss.
- Implemented service to support matching and netting of U.S. Treasury prime broker transactions.
Other key statistical achievement milestones for 2007 included:
- DTCC's depository held in custody $7.6 trillion of non-U.S. issues of the total $40 trillion value of all securities held by the depository.
- Mutual fund activity through Fund/SERV, NSCC's main mutual fund service, jumped to an average of 676,000 transactions a day, up 19% from the prior year's 569,000 daily volume. Total dollar value of the transactions rose to $2.5 trillion in 2007, up 19% from $2.1 trillion in 2006.
- Insurance Services saw the volume of transactions settled jump to 63.1 million from 53.5 million, up 18%. Dollar value of transactions settled increased to $20.8 billion in 2007 from $16.3 billion settled in 2006, an increase of 28%.
- The number of Underwritings handled by the depository increased 7% to 54,266 in 2007 from 50,867 in 2006, although the value declined 3% to $4.3 trillion from $4.4 trillion.
- Cash dividend, interest, redemption and reorganization transactions processed by DTCC's depository rose 17%, totaling $3.8 trillion compared to $3.3 trillion in 2006.
- The Global Corporate Actions Validation Service provided more than 1 million validated corporate action announcements globally, up 17% compared to just under 900,000 in 2006, and provided 3 million announcements about scheduled payments for fixed income securities. GCA VS maintains service centers in New York, London and Shanghai to provide round-the-clock global coverage of corporate actions events.