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What is the purpose of DTC?


Deposit Trust Company (DTC) is the largest securities depository in the world, created by securities industry to imporove efficiences and reduce risk in the clearence and settlement of securities transactions. It was founded in 1973 and based in New York, DTC is organized as limited purpose trust company meaning it is charted by state to perform specific trust functions, acting as a depositor or safekeeper for securities and mortgages. Basically DTC holds securities for banks and investment firms. DTC alos acts as clearing agency, registered with SEC for securities transactions in the U.S. market, invloving equities, corporate and municipal debt, money market instruments, American depositary receipts and exchange traded funds. All movements of securities are made electronically with book-enry adjustments.

Most large U.S broker-dealers and banks are DTC participants, menaing they deposit and hold securities at DTC. Individual investors cannot be participants. DTC appears in an issuer’s stock records as the sole registered owner of securities deposited at DTC. Participants own a proportionate interest  in the aggregate shares of particular issuer held at DTC. Besides safekeeping, recordkeeping and clearing serivices  DTC offers direct registration, underwriting, proxy and dividend services.

Public company is DTC eligible when its securities are able to be deposited through DTC. If the company is not eligible that means that its shares cannot be transfered between brokerage accounts electronically which means that shares cannot be trade easily. only participant can request make a security eligible. The issuer cannot make direct application for DTV eligibility but needs to have relationship with DTC participant that will sponosr the process.

Sometimes problem may arise with company or its securities on deposit and DTC can impose a "chill" or "freeze" on company's securities. "Chill'' is a limitation to a certain services available for a security on deposit at DTC while ''freeze'' is acomplete restriction on all DTC services for particular securty on deposit. Those restriction my last a few days or for extended period of time depending on the reason and can result in removing of security from DTC. There are various reasons why chill or freeze is imposed. If company doesn't have transfer agent that will result in temporary chill. Some of the more serious reason for chill or freeze include legal, regulatory or operational problem with securities.
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