Wednesday, June 10, 2009

The Biggest Financial Company You Have Never Heard Of

CDS and option traders love to hate and hate to love the Depository Trust & Clearing Corporation (DTCC). But few aside from those who trade derivatives over-the-counter care about the DTCC. Here is a reason why you should: "Last year DTCC settled $1.88 quadrillion in securities transactions across multiple asset classes. We essentially turnover the equivalent of the U.S. GDP every three days."

Below I present DTCC's full testimony before the House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises titled "Effective Regulation of the Over-the-Counter Derivatives Markets."

Also if you have never heard of DTCC before you are excused. Taken from the testimony:
Now, many of you may not have heard of DTCC before. That’s purposeful. We have traditionally kept a low profile, given the critical nature of the role we play in U.S. financial markets.

DTCC’s depository is the largest securities depository in the world, providing custody and asset servicing for 3.5 million securities issues from the United States and 110 other countries and territories valued at $30 trillion.
Additionally if you care as to who, if anyone, has insight into the dealings of the DTCC:
We are regulated by the SEC, the Federal Reserve Board of Governors and the New York State Banking Department for many of our activities.
Oh, the same Federal Reserve that is a dead end in terms of accountability? How convenient. (We won't even touch on the SEC's effectiveness as a regulator, and have never even heard of the last guys). Wouldn't make sense to have someone actually transparent regulating this most critical of financial enterprises, would it.

So what does the DTCC do:
At its core, DTCC is a huge data processing business, involving the safe transfer of securities ownership and settlement of trillions of dollars in trade obligations, under tight deadlines every day. At the same time, DTCC’s primary mission is to protect and mitigate risk for its members and to safeguard the integrity of the U.S. financial system. Mitigating risk means we not only have the capacity to handle unpredictable spikes in trading volume, but that we have the business continuity and resiliency to withstand both the “unthinkable” –and even the “unknowable.”
But according to Obama, Bernanke and Geithner the unthinkable, and even the unknowable, will never show their faces again? Am I wrong? But, I guess the DTCC is clutch - here is why:
I’d submit to you Mr. Chairman, and Members of the Subcommittee, that had DTCC not had the foresight to create this Trade Information Warehouse and load the Warehouse with all these records of CDS trades in 2007, we might still be sitting here today in 2009 trying to sort out the total exposure of trading obligations following the Lehman bankruptcy, i.e., who traded with whom, at what point in time and at what price?
Oh yeah right, the same database that one is able to download and play with only if one has an advanced degree in computer hacking.

Zero Hedge will write much more on DTCC in the coming days. However, for now it makes sense to get acquainted with this organization: after all, in their own words, without them, not even Goldman Sachs would likely exist. Much more to come.

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