DTCC
DTCC is the backbone of US financial markets, processing $2.5 quadrillion ($2,500 trillion) in securities transactions annually. It settles virtually all US equity trades, most fixed income, and substantial derivatives through subsidiaries DTC (depository), NSCC (equities clearing), and FICC (fixed income).
DTCC is the ultimate 'too big to fail'—if it stopped functioning for even one day, the entire US financial system would freeze. Yet most people have never heard of it.
DTCC nets $2.5 quadrillion down to ~$20-30B actual money movement daily (99%+ netting efficiency). Without netting, financial system would need 100x more capital. GameStop 2021: NSCC raised collateral requirements from $26B to $36B overnight—this triggered Robinhood's buy restrictions, not Robinhood's choice. DTCC is user-owned but 'users' are same banks it serves, creating self-regulation. SEC proposed T+1 settlement; DTCC argued for T+2; DTCC won for years. Moving to T+1 in 2024 after GameStop exposed settlement risk.
Key Facts
Power Dynamics
SEC-registered clearing agency; can set collateral requirements, suspend members, refuse transactions
De facto monopoly on US securities settlement. Can freeze individual stocks or members with margin calls. GameStop showed DTCC's collateral decisions can halt retail trading. Fed has implicit backstop—DTCC literally too big to fail
- Owner-banks control governance
- SEC oversight but rarely overrules
- No alternative for US equities
- Major banks (owners and largest users)
- SEC (primary regulator)
- Federal Reserve (implicit backstop)
- Brokers (subject to collateral calls)
Revenue Structure
DTCC Revenue Sources
- Transaction fees 60%
- Asset servicing fees 25% →
- Data and analytics 10% ↑
- Interest on collateral 5%
Based on $87T+ in custody
User-owned means pricing pressure from largest members. Blockchain/DLT could theoretically disintermediate (but hasn't). Volume concentration in major banks means their interests dominate
Unlike for-profit exchanges, DTCC operates at cost—but 'cost' includes substantial tech investment and salaries
Decision Dynamics at DTCC
GameStop collateral call: NSCC raised requirements from $26B to $36B overnight, triggering Robinhood crisis
T+1 settlement: first proposed 2017, implemented May 2024 (7 years). T+0 still years away
Owner-bank consensus required for major changes; SEC approval for rule changes; industry coordination for settlement cycle
Failure Modes of DTCC
- GameStop 2021: collateral call mechanics exposed to public
- 2008: DTCC processed normally but counterparty fear froze bilateral markets around it
- Lehman: DTCC successfully settled but took weeks to unwind positions
- Single point of failure for US markets
- Owner-bank governance = conflicts
- Collateral calls can cascade
- No competitive alternative
If cyber attack took DTCC offline for 24+ hours, no US equity or Treasury trades could settle. If major member defaulted, DTCC's guarantee fund ($10B+) could be insufficient; would require Fed intervention
Biological Parallel
DTCC is the heart pumping $2.5 quadrillion through financial arteries. 99%+ netting efficiency = heart that only pumps 1% of blood volume yet keeps organism alive. But single heart = single point of failure. GameStop showed arrhythmia: collateral call = heart skipping beat, downstream organs (Robinhood) immediately starved. The organism (financial system) has evolved complete dependence on this single heart—no backup, no alternative. Fed = life support if heart fails.
Key Agencies
Central securities depository; holds $87T in assets; all US equities dematerialized here
Clears $2.5 quadrillion annually; guarantees settlement between parties
Clears $9T daily in US Treasuries and MBS