Risk Management (DTC)



Participants Fund

The Participants Fund and the Participants Preferred Stock Investment create liquidity and collateral resources to support the business of DTC and to cover losses and liabilities incident to that business.  For this purpose, every Participant has a Required Participants Fund Deposit and a Required Preferred Stock Investment.  Additionally, a Participant may make a Voluntary Participants Fund Deposit, to further support its activities. The Required and Voluntary Participants Fund Deposits must be in cash, which, if a Participant fails to settle for any reason, are available to DTC as immediate liquidity to complete settlement and collateral to support any borrowing against DTC lines of credit.

 

Amounts


Each Participant must make a minimum deposit of $7,500 to the Participants Fund. Many Participants are required to deposit additional amounts based upon a 60 business day rolling average of the Participant’s six highest intraday net debit peaks. A Participant’s portion of the Participants Fund is in direct relation to the liquidity requirements generated by the Participant and its Affiliated Family, if any, as more fully described below.

The aggregate Participants Fund includes four component amounts, as set forth below: the “Core Fund,” the “Base Fund,” the “Incremental Fund” and the “Liquidity Fund.” The Core Fund is set by DTC at an aggregate amount of $450 million and is comprised of the Base Fund and the Incremental Fund. The Base Fund is the sum of minimum deposits by all Participants, i.e., the amount that is $7,500, times the number of Participants, at any time. The Incremental Fund is the balance of the Core Fund up to $450 million; this is the amount that must be ratably allocated among Participants that are required to pay more than a minimum deposit.1 The Liquidity Fund component (set at $700 million) applies to Participants whose Affiliated Families have Net Debit Caps that exceed $2.15 billion.

The Required Preferred Stock Investment of a Participant must be in a minimum amount of a par value of $2,500. A Participant’s actual Required Preferred Stock Investment is calculated on a substantially similar basis to the calculation of the Required Participants Fund Deposit.

 

_______________

1 Those Participants whose “PF Averages” (as defined below) exceed the total amount of the Base Fund are required to make a Deposit to the Incremental Fund.

DTC monitors the levels of each Participant’s net settlement debits during each Business Day and records the highest net debit. This measure of liquidity is referred to as the Participant’s intraday net debit peak.

 

Required Participants Fund Deposit Calculation


For a Participant, its Required Participants Fund Deposit will include a deposit to the Base Fund and some or all of the following: the (i) Incremental Fund (which together with the Base Fund comprises the Core Fund) and/or (ii) the Liquidity Fund.

The aggregate amount of all Participants’ Required Participants Fund Deposits is $1.15 billion.

 

Core Fund

Each Participant's Required Participants Fund Deposit for the first $450,000,000 (i.e., the total amount of the Core Fund) of the aggregate Participants Fund (for all Participants) is calculated taking account of the following:

The minimum deposit is $7,500 per Participant which, across all Participants (the number of which may vary from time to time) adds up to an aggregate threshold amount of cash in the Participants Fund (i.e., the Base Fund). The difference, if any, between the total amount of the Base Fund and the total amount of the Core Fund, $450,000,000 (i.e., the Incremental Fund) is then allocated among all Participants that are required to deposit more than the minimum of $7,500. The amount assessed above the minimum deposit of $7,500 is based on each Participant’s average (the “PF Average”) of its six largest intraday net debit peaks over a rolling 60 business day period and the ratio of each Participant’s PF Average to the PF Averages of other Participants.

In order to determine the amount a Participant must deposit to the Incremental Fund, DTC makes the following calculations.

First, DTC determines the PF Average of each Participant as the rolling average, over 60 Business Days, of the Participant’s six highest intraday net debit peaks.

Second, DTC arrays these PF Averages from highest to lowest and “ranks” them accordingly. As a result, each Participant will have a “PF Average Rank”, an absolute number that is the Participant’s numerical ranking in this array.

Each Participant’s PF Average is compared to the next lowest ranked PF Average and DTC calculates the difference between the amounts of the two PF Averages as the “Ranked Amount Difference”.

Separately, a “Factor” is calculated by dividing the total amount of the Incremental Fund, by the PF Average of the Participant with the highest PF Average Rank minus the amount of the Base Fund.

Finally, the amount that a Participant shall Deposit to the Incremental Fund (“Required Incremental Fund Deposit”) is calculated as the sum of each Participant’s Ranked Amount Difference divided by the Participant’s PF Average Rank, and multiplied by the Factor, for all Participants with a PF Average Rank that is less than or equal to the PF Average Rank of the Participant.

Note: Pursuant to the calculation set forth above, based on the PF Average for each Participant, the calculation ratably allocates the Incremental Fund to calculate the required cash deposit of each Participant. Participants with the highest PF Averages will, accordingly, be required to make the largest required deposits and Participants with the lowest PF Averages will be required to make smaller deposits or even, potentially, no amount above the $7,500 minimum.

 

Liquidity Fund

The remaining $700,000,000 aggregate amount of Required Participants Fund Deposits (i.e., the Liquidity Fund) is allocated proportionately among the Affiliated Families whose aggregate Net Debit Caps exceed $2.15 billion, up to a maximum Aggregate Affiliated Family Net Debit Cap of $2.85 billion. The calculation to determine a Participant’s portion of the Liquidity Fund is a two-step process, using algorithms described below, to: (i) calculate an Affiliated Family’s portion of the Liquidity Fund, and (ii) determine each Participant’s portion of their Affiliated Family’s allocation.



Step One:

Algorithm used to calculate the Affiliated Family’s portion of the $700,000,000.

  1. Only those Affiliated Families whose Aggregate Affiliated Family Net Debit Cap exceeds $2,150,000,000 will be allocated a portion of the Liquidity Fund.
    1. The greater the Aggregate Affiliated Family Net Debit Cap, the larger allocation the Affiliated Family will receive.  The first step of the calculation is to determine the amount by which the Aggregate Affiliated Family Net Debit Cap exceeds $2,150,000,000.  This is called the “Overage”.
    2. To calculate the allocation percentage for an Affiliated Family of Participants, the program will perform the following:

      Overage of the Affiliated Family
      ------------------------------------------------------- = X%
      Sum of ALL Affiliated Family Overages



    3. X% of $700,000,000 is the amount of the Affiliated Family allocation.
    4. The sum of the Affiliated Family allocations equals $700,000,000.


Step Two:

An algorithm used to determine the Participants portion of its “Affiliated Family Allocation”

2. Calculation will be based on the Participant’s Net Debit Cap (NDC) in relation to its total Aggregated Affiliated Family NDC.



Participant NDC
------------------------------------ = Y %
Affiliated Family NDC

  1. Y% of the Affiliated Family allocation is the Participant’s portion of the “Affiliated Family allocation”.
  2. This calculation will be done for all Participants within each Affiliated Family that has an Overage.



DTC may increase the Required Participants Fund Deposit of a Participant as provided in Rule 9(A), including due to a credit, market, operational, or other concern regarding the Participant. For illustrative purposes, typically, the following factors may be taken into consideration for such an increase:

  1. The Participant’s liquidity arrangements,
  2. The Participant’s overall financial condition,
  3. Published news or reports and/or regulatory observations relating to the Participant, and
  4. The Participant’s internal credit rating, if any.

The following are the steps taken to calculate the Required Preferred Stock Investment Calculation:

1. The minimum investment is $2,500 per Participant which, across all Participants (the number of which may vary from time to time) adds up to an aggregate threshold amount. The difference, if any, between that aggregate threshold amount and $150,000,000 (the “PS Differential”) is then allocated ratably among all Participants based on each Participant’s average (the “PS Average”) of its six largest intraday net debit peaks over a rolling 60 business day period as of the last day of each quarter year.
2. The calculation and reallocation among Participants of the Required Preferred Stock Investments are performed as of the last business day of each quarter. Based on the PS Average as of the last business day of the quarter for each Participant, the calculation incrementally allocates the PS Differential to calculate the Required Preferred Stock Investment for each Participant. Participants having the highest PS Averages will, accordingly, be required to make the largest investment and Participants with the lowest PS Averages will be required to make smaller investments or even, potentially, no amount above the $2,500 minimum.

The Required Participants Fund Deposit for each Participant is recalculated daily. If, in the daily calculation, the amount of the difference between the prior day’s Required Participants Fund Deposit and the newly calculated Required Participants Fund Deposit is equal to or exceeds $500,000 and the difference represents 25 percent or more of the newly calculated required fund deposit, the affected Participant must (to the extent any excess amount of the Participant’s Actual Participants Fund Deposit does not already satisfy the new requirement)  deposit the difference in the Participants Fund on the same Business Day that  the difference was calculated and a report or other notification of the change is made available to the Participant.

In addition, after settlement on the last business day of each month, DTC calculates each Participant’s requirement. Each participant will be notified of their new requirement on the first Business Day of the month. If a Participant’s requirement has increased beyond the value it currently has on deposit at DTC, a debit transaction will process in its settlement account and this deficit will be collected with their DTC settlement that day.

If the Participant is required to increase its deposit, the Participant will be notified, and the amount will be systematically charged to the settlement account of the affected Participant as a Participants Fund contribution (Activity Code 70-01).

If the deposit of a Participant requirement decreases, the Participant will be notified at least quarterly, but the Participant can inquire and withdraw excess deposits monthly. This allows  a Participant to leave excess cash in the Participants Fund and reduce the level of administration that would otherwise be necessary. DTC will also accept voluntary excess deposits to the Participants Fund for this purpose.

 

 

On the first settlement cycle of each quarter, the aggregate of the Required Preferred Stock Investment of all Participants will be reallocated among all Participants, based up the recalculation of each Participant’s Required Preferred Stock Investments. A Participant may be credited a settlement amount if it is selling Preferred Stock or  debited as settlement amount if it is purchasing additional Preferred Stock, as appropriate.

For initial deposits by new Participants and voluntary deposits by existing Participants, wire the funds to DTC, formatting the instruction to conform to Fedwire standards for Fed fund transfers.

In This Field

Enter

Receiving Bank ABA Number

DTC's ABA Number: 026002066.

Receiving Bank Name

DTC's telegraphic name: DTC SDFS.

Originator (ORG)

The name of the Participant whose account is to be credited.

Originator to Beneficiary (OBI)

Settlement Fund Deposit (SFD), followed by a slash and the Participant's account number.
For example:
OBI = SFD/123.

Note- The data in the Originator to Beneficiary Information (OBI) field is required for processing by DTC.

For banks that use another field name, include OBI in your entry.
For example:
BBI = OBI SFD/123.




Risk Management Overview

Risk Management Controls protect DTC and its Participants from the inability of one or more Participants to pay their settlement obligations. Risk Management Controls are based on guidelines established by the Federal Reserve Bank (FRB). DTC currently employs three primary Risk Management Controls for processing securities:

  • Collateralization (Collateral Monitor)
  • Net Debit Cap
  • Issuer/Participant Number (IPN) Collateral Control.

Collateralization ensures that your account has sufficient collateral for DTC to liquidate if you fail to pay your Settlement obligation and become insolvent. DTC's collateralization procedures prevent the completion of transactions that would cause your net debit to exceed the total available collateral in your account.

DTC operates on a fully collateralized basis. You are required to have sufficient collateral in your account to support net debits you incur. Transactions that would cause your net debit to exceed the total value of collateral in your account are held in a recycle (pend) queue until sufficient collateral is available.

Your primary sources of collateral are:

  • Cash deposited to the Participants Fund
  • Proprietary or firm positions (such as dealer, investment, or margin positions) that you designate as collateral
  • Securities received (and not paid for) versus payment
  • Securities added to your account and not received versus payment (such as deposits, free deliveries, free pledge releases, release of segregated securities) that you designate as collateral.



The value of securities designated as collateral is based on the prior business day's closing market price, less a haircut. Haircuts are used to protect DTC and its participants from price fluctuations if DTC is required to liquidate collateral of an insolvent participant. Furthermore, because DTC may have to finance a participant's failure overnight, DTC's haircut structure takes into consideration haircuts imposed by our line-of-credit banks. The full market value of securities is not normally obtainable from a bank that accepts securities as collateral to support a loan; banks generally consider the relative price volatility of the collateral and impose a haircut on the market value of securities. Securities that are not acceptable to DTC's line-of-credit banks do not receive collateral value in our system; therefore, a 100 percent haircut is applied to these securities.

DTC employs haircuts ranging from 2 to 100 percent. Because the collateral value of securities is based on their prior day's closing market prices, these haircuts may not be sufficient in cases where prices fall dramatically intraday. DTC can reprice and modify haircuts of selected issues intraday and can systemically revalue the collateral of participants holding these securities.



DTC tracks collateral in your account by a control position called the Collateral Monitor (CM). At the opening of each business day, your CM is credited with your Participants Fund deposit. At all times, the CM reflects the amount by which the collateral in your account exceeds the net debit in your settlement account. In other words, the CM equals the sum of the value of your collateral and net settlement obligation.

For example, if you have collateral securities with a market value of $10,000 and a 10 percent haircut, the value of your collateral is $9,000. If you also incurred a debit of $8,000, your CM is $1,000 {(10,000- [0.1 x 10,000]+ (-$8,000)}.

 

Conceptually, every transaction translates into a collateral flow and a cash flow, one a credit and the other a debit. The net value of these two flows is used to update the CM. Since the value of securities as collateral is subject to a haircut on the market value, the cash component (for settlement value) of each transaction is generally greater in value than its securities component. Thus, the completion of a delivery versus payment generally results in an increase in the deliverer's CM and a decrease in the receiver's CM, based on the difference between the collateral value of the securities and the settlement value of the transaction. Transactions that do not have a cash component, such as deposits and "free" deliveries, are considered to have a zero cash component.

When processing a transaction, DTC verifies that the deliverer's and receiver's CMs will not become negative when the transaction completes. If the transaction would cause either party to have a negative CM and thereby be undercollateralized, the transaction will recycle until the deficient account has sufficient collateral to complete (see Recycle Processing).



Securities received versus payment are automatically designated as net additions (NA) because the receiver has not yet paid for these securities. Your CM is credited the collateral value (market value minus the applicable haircut) of all positions designated NA. Conversely, your CM is not affected by positions designated as minimum amount (MA).

  • Opening (start-of-day) securities positions as collateral: You can give DTC standing instructions to designate as collateral all securities in your account at the opening of each day. All start-of-day positions are then designated NA, and your CM is credited the collateral value of the start-of-day positions. Contact your Relationship Manager to change your standing instructions. 
  • Unvalued additional securities: You can give DTC standing instructions to designate all unvalued additions of securities to your account (such as deposits and free DOs received) as either NA or MA. Contact your Relationship Manager to change your standing instructions.
  • Warning! Consider the implications of classifying your securities as collateral. Collateral can be used to support your debt and therefore can be liquidated by DTC if you are unable to pay your settlement obligation.
  • Intraday reclassification of securities: You can submit instructions to DTC using the DYMA Collateral Moves (MA/NA) function to reclassify an issue as collateral or non-collateral.
  • Note- A Collateral Moves instruction will not execute if the removal of the collateral from your account would cause your CM or simulated CM to become negative.
  • Settlement Progress Payments (SPPs): You can increase your CM by wiring Settlement Progress Payments (SPPs) to DTC's account at the Federal Reserve Bank of New York (FRBNY). Your CM and your settlement account will be credited for the amount of the SPP; thus, SPPs also reduce your actual net debit. See Wire Instructions for more information. )

To view your CM balance, use PBS's Risk Management Controls Inquiry.



Net Debit Caps help ensure that DTC can complete settlement, even if a Participant fails to settle. They are based on your net debit history at DTC and automatically rise or fall relative to the average of your highest intraday net debit peaks in accordance with the calculation described below (in “Calculating Your Net Debit Cap”). A Net Debit Cap, recalculated daily, is applied to your account to limit the settlement net debit you could incur at any point during a processing day. 

Your Net Debit Cap is limited by DTC's established maximum Net Debit Cap, the value of which is always set lower than DTC's total available liquidity. Currently, the maximum Net Debit Cap you can have is $1.8 billion.


Before completing a transaction in which you are the receiver, DTC calculates the resulting effect the transaction would have on your account, and determines whether your resulting Net Debit Balance would exceed your Net Debit Cap. Any transaction that would cause your net settlement debit to exceed your Net Debit Cap is placed on a pending (recycling) queue until another transaction creates credits in your account (see Recycle Processing for more information). Most credits are generated when you deliver securities versus payment; pledge securities for value; receive principal, dividend or interest allocations; or wire funds (SPPs) to DTC's account at the FRBNY.



Net Debit Caps for a Participant are calculated daily as follows:


1. The system records the Participant’s collateral group's three highest intraday net debit peaks over a rolling 70-business-day period, using net debit peaks. If the Participant has elected to group its accounts into separate families (see Grouping Accounts into Collateral Families) , the system first calculates the average net debit peak of each family, and adds together the average net debit peaks of all of the Participant’s families to obtain the Participant’s overall average net debit peak.


2. The system multiplies the Participant’s average net debit peak by a factor to determine the Participant’s Net Debit Cap, which cannot exceed DTC's established maximum of $1.8 billion. (Factors are based on a sliding scale, between 1 and 2, where smaller average peaks are multiplied by larger factors and larger average peaks are multiplied by smaller factors.)


The established minimum Net Debit Cap is equal to twice the sum of all Participants' minimum deposits to the Fund.


Note: Your Settling Bank can set your maximum Net Debit Cap. However, the maximum amount set by a Settling Bank cannot exceed the Net Debit Cap calculated by DTC's system. DTC may also limit your Net Debit Cap to any amount regardless of your intraday net debit peaks.


Although most transactions are subject to Risk Management Controls, the following activities override collateralization and Net Debit Cap controls:

  • Mutual funds purchases through DTC's Fund/SERV system
  • DTC-generated activity (such as monthly billing charges)
  • Deposit or settlement adjustments
  • Short position charges
  • Principal and income charges
  • Participants Fund charges. 

To view your Net Debit Cap and net settlement balance, use the Risk Management Controls Inquiry function.

As an added measure DTC has also established limits on the maximum settlement obligation that a financial family of affiliated DTC Participants can incur. An Affiliated Family means each Participant that controls or is controlled by another Participant and each Participant that is under the common control of any Person. For purposes of this definition, “control” means the direct or indirect ownership of more than 50% of the voting securities or other voting interests of any Person. The maximum “Aggregate Affiliated Family Net Debit Cap” for the Participants comprising an Affiliated Family is currently set at $2.85 billion.


So that DTC will be able to complete settlement each day in the event of a Participant’s inability to settle, DTC currently maintains liquidity resources of $3.05 billion, including $1.15 billion cash in the Participants Fund and a committed line of credit in the amount of $1.9 billion with a consortium of banks.

If you have multiple DTC accounts, you can group them into families and instruct DTC to allocate a specified portion of your collateral and Net Debit Cap to each family. You must submit instructions in writing to DTC to group your accounts into separate families. Otherwise, all of your accounts will be grouped into one family.


The accounts you designate as a family share a single CM and Net Debit Cap. Securities and cash credited to one of these accounts increase the shared CM and the family's settlement balance, and could therefore serve to benefit transactions of other accounts in the family.


Sharing collateral and Net Debit Caps has advantages and disadvantages. Sharing can be an efficient account structure because it allows accounts to use the available collateral and settlement credits of other accounts in the family. However, you will not be able to designate which account should benefit from specific credits incurred by a member of the family. For example:

Suppose you maintain two accounts, A and B, which are grouped into one collateral family. Assume that both accounts have recycling transactions because of insufficient Net Debit Cap. If account A sends an SPP to DTC, its settlement account is credited. However, because the accounts are set up so that either account can use the available credits, if account B's transactions have a higher priority on the recycle queue, they will complete as a result of the funds that account A sent to DTC. 

Conversely, assigning a separate collateral group for every account allows you to segregate your accounts and to allow the accounts to use only a specific portion of your collateral and Net Debit Cap. However, segregating can decrease processing efficiency and increase your intraday financing requirements because excess collateral in one family is not automatically available to an account belonging to another family. You should carefully evaluate your internal procedures and determine which method is most efficient for your operations.


Note- If you group your accounts into families and do not provide DTC with instructions on the specific percentage of collateral and Net Debit Cap to be allocated to each family, DTC allocates collateral and Net Debit Cap to each family based on your intraday net debit peaks relative to your other families.

You can maintain separate families of accounts to allocate your cap among your families at your own discretion. However, DTC will apply a forced-allocation formula to major issuing paying agents, which are defined as IPAs with average daily maturity presentments measured over the most recent month equal to or greater than 5 percent of DTC's total MMI maturity presentments. A major IPA must allocate up to 40 percent of its total Net Debit Cap to its IPA family.

Collateral in a Participant's account associated with the Participant (such as the Participant's own commercial paper) increases risk to DTC if that Participant failed to pay DTC and its obligation is supported partly or fully by the failing Participant's associated securities. To eliminate this risk, DTC's system monitors collateral received in a Participant's account related to that Participant.

IPN will link to a Participant's account securities related to it and withhold from the Participant any collateral value associated with the security. In effect, transactions processed to a Participant account will remain essentially the same, except that no increase will be applied to the Participant’s collateral monitor for the collateral value of securities received that are associated with the Participant. IPN is based on a Participant's legal entity; therefore, this control will apply to every account of a Participant. For example:

When a Participant has an IPA account that issues MMI securities on its own behalf and has a custody account in the same or a separate collateral group, and the IPA account processes an MMI issuance delivery to its own custody account in its own MMI securities, the custody account will receive no collateral increase for the collateral value of that issuance.

IPN control will not affect a Participant's net debit calculation. Because IPN control affects the collateral value of an associated account, IPAs may wish to monitor their accounts more closely intraday for insufficient collateral, especially if presentments exceed issuances in an Acronym for which they act as IPA on a particular day.




Receiver Authorized Delivery (RAD)

RAD allows Participants to review and either approve or reject incoming deliveries before they are processed. All valued DOs, POs, institutional deliveries, MMI transactions, reclaims, pledges and releases of pledged securities are subject to RAD controls.


Participants are allowed to set their own RAD limits on a global or bilateral level. Global limits apply to all contra-participants and bilateral limits allow Participants to set individual limits against a specific contra-participant.

Participants may establish bilateral and global RAD profile limits specifically for their stock loan and stock loan return activity. Applicable stock lending transactions will be checked against the receiver’s stock lending profile limits for passive approval or will otherwise await the receiver’s active approval based on the parameters of the profile. Absent a Participant establishing a Stock Loan RAD limit profile, a Participant’s transactions will be subject to the RAD functionality applicable to ordinary DOs, including the established DTC limits as well as Participant established bilateral and global limits.



You can approve or cancel transactions received via DTC’s Settlement Web interface or an automated RAD messaging process.



You can turn off RAD limits via DTC’s Settlement Web and allow DTC to process all your incoming deliveries. You may want to turn off your RAD limits, for example, when you are unable to modify the bilateral limits of your contra-participants because of time constraints. Your bilateral RAD limits will not be in effect until you turn them back on via the Settlement Web.

Transactions that are automatically routed to RAD are not affected by your decision to turn off RAD processing; they always require your approval before processing.



Participants can force free receives (DOs) to their RAD if input after 5:00 p.m. eastern time. Forcing them will effectively block free receives from being booked into a Participant's account between 5:00 p.m. and the free delivery cutoff of 6:15 p.m.

Unless designated otherwise by a profile, all MMI free receives are sent to RAD, at all times. Participants who elect to turn on RAD at 5:00 p.m. will have all their free receive activity routed to RAD for approval or cancellation. This will aid Participants who choose not to monitor their account for free delivery activity after 5:00 p.m., and are not aware of these free receives until the next day. Participants can update their accounts to turn on RAD at 5:00 p.m. for all free receives via a profile in the Settlement Web.



You can view and act on MMI transactions in RAD for issues that contain an indexed principal feature. Deliver Order (DO) transactions are directed to RAD whenever:

  •  An issuing/paying agent (IPA) initiates a DO in an MMI program that allows for indexed principal as a possible feature of any issue under the program, or
  •  A dealer/sales agent initiates a turnaround DO in an MMI program that allows for indexed principal of any issue under the program, or
  • A Participant other than an IPA initiates a DO in an issue already designated as having an indexed principal feature.



DTC may, in its discretion, apply RAD to all DOs and POs initiated by a Wind-Down Participant, regardless of value. Receiving Participants may raise their RAD limits to manage such transactions.

.




Settlement Progress Payment (SPP) & Push Profiles

If you approach or reach your net debit cap or have insufficient collateral, you can continue to receive deliveries (and avoid having transactions recycle) by wiring Fed fund payments to your DTC account. This procedure is called Settlement Progress Payments (SPP).

Note- SPPs must be received by 3:10 p.m. eastern time in order to prevent valued transactions from dropping at the 3:10 p.m. valued recycle cutoff.



Your SPP instructions should conform to the Fedwire formatting standards for Fed fund transfers. Include the following information:

For this Fedwire field:

Enter:

Receiving Bank ABA Number DTC's ABA Number: 026002066.
Receiving Bank Name DTC's telegraphic name: DTC SDFS.
Originator (ORG) Your participant name (or the participant name on the account you want to credit).
Originator to Beneficiary (OBI)
(6000)
The purpose of the wire, followed by a slash and your DTC participant number. For example: SPP/2199 or DSP/2199.

 



Using the SPP Returns/P&I Withdrawal Request, you can request that DTC return all or a portion of an SPP you submitted earlier in the day down to a zero balance. You can request that these payments be wired to your DTC Settlement Bank intraday, before the settlement period. Contact your Relationship Manager to obtain access to this update capability. DTC must receive your request no later than 3:20 p.m. eastern time. When DTC receives your reversal request, it:

    • Debits the amount from your settlement account providing you have sufficient collateral and a credit balance.
    • Returns the funds via Fedwire to your Settling Bank as indicated on your standing wire instructions with DTC.

 

Note- DTC will not return the funds if doing so would put your account into a debit balance.



Before using the SPP Return/P&I Withdrawal Request function, you must activate your account for this option and supply DTC with specific wire instructions for your DTC Settling Bank as outlined in Important Notice # 4582-09. This information will be stored in DTC’s wire instruction database and may be accessed when you submit SPP returns or P&I withdrawal requests. Each instruction must include:

  • Your participant number
  • The American Banking Association (ABA) routing number of the receiving bank which must be your Settling Bank
  • Your Settling Bank’s Telegraphic ID
  • Your account number at the receiving bank
  • Beneficiary Name
  • Beneficiary Account Number
  • Beneficiary Address including the Street, City, State, Zip and Country.

 

Note- You can add information to the wire instructions, such as a department name, if desired.

DTC will maintain up to five wire instruction formats in its wire instructions database. Complete the Wire Instructions form for Settlement Progress Payment Returns and Principal and Income (P&I) Payment Withdrawals attached to Important Notice # 4582-09 and send it to:

DTCC’s Membership Onboarding/Account Administration group at least two weeks prior to the desired effective date. he executed form(s) should be sent via e-mail (PDF) to This email address is being protected from spambots. You need JavaScript enabled to view it..



Principal & Income (P&I) withdrawals allow you to withdraw intraday principal and income payments for non-Money Market Instrument issues that DTC has received from paying agents and allocated to your settlement accounts down to a zero balance. You may not make a P&I withdrawal if it will put you into a debit balance. These payments include dividends, interest and other periodic payments, as well as reorganization and redemption payments. You can request that these payments be wired to your DTC Settlement Bank intraday, before the settlement period.



You can submit P&I withdrawal requests via PBS only using the SPP Return/P&I Withdrawal Request option. if you have activated this option. The SPP Return/ P&I Withdrawal Request screen shows the bank account eligible to receive wires of P&I funds from DTC on your behalf. To request a withdrawal, enter the amount of funds to be sent to the chosen bank account destination. You can enter P&I withdrawal requests on business days until 3: 20 p.m. eastern time.

Note- The total amount you withdraw cannot put you into a debit balance. You may withdraw your available P&I funds, (that is, the sum of all your P&I payments allocated to this account, less any previous P&I withdrawals) down to a zero balance. The minimum amount you can withdraw is $100,000.

The SPP Return/P&I Withdrawal Request option in PBS also allows you to view the status of your P&I withdrawal requests. You can view the following:

  • Total P&I payments allocated to your account
  • Total amount of funds requested
  • Amount available for withdrawal (total P&I payments less previous withdrawals submitted)
  • Total amount of funds that have been wired to your bank
  • Total amount of withdrawal requests cancelled by DTC, if any.

P&I withdrawals are subject to Risk Management Controls and will not be permitted if your account will be put into a debit balance. Dropped items are recorded on your Drop report.

P&I Withdrawals that have successfully completed are reflected on your settlement statements as "funds transfer debit transactions" (Activity Code 95-3). DTC will provide you with a recap of your funds transfer activity.



In order to simplify the SPP/P&I withdrawal process and to allow Participants to maximize the return of available liquidity, DTC offers the SPP/P&I “Push Profile” which allows Participants to establish a standing withdrawal request.

Rather than requiring Participants to manually request the return of their SPP/P&I credits, DTC will “push” available SPP/P&I credits to Participants that have established an SPP/P&I profile via the Settlement Web only.

The push of funds will occur after the valued recycle cutoff and the funds will be sent to the Participant’s Settling Bank for the account specified in the SPP/P&I Push Profile.


Participants will be able to set a minimum balance they want remaining in their account based upon their settlement balance at the time of the “push”.




Look Ahead Processing

DTC’s Look-Ahead process runs on fifteen minute intervals and selects pairs of transactions that, when processed simultaneously, will not violate the involved Participants net debit cap, collateral, or other Risk Management system controls.

The Look-Ahead process reduces transaction blockage for securities by identifying a receive transaction pending due to a net debit cap insufficiency and determines whether an offsetting delivery transaction pending because of a quantity deficiency in the same security would permit both transaction pending because of a quantity deficiency in the same security would permit both transactions to be completed in compliance with DTC’s Risk Management system controls. DTC’s processing system, Account Transaction Processor (ATP), calculates the net effect to the collateral and net debit cap controls for all three Participants involved and if the net effect will not result in a deficit in the collateral or net debit cap for any of the three Participants, ATP processes the transactions simultaneously.

DTC’s Look-Ahead process also allows Money Market Issuance Deliveries pending for a Custodian’s or Dealer’s net debit cap to complete against Maturity Presentments pending for an Issuing/Paying Agent’s net debit cap. The processing system calculates the net effect of the dollar amount of offsetting transactions in the accounts of the two Participants involved. If the net of the transactions results in positive risk management controls in those two accounts, the transactions will be completed.



In order to reduce the possibility of mismatched stock loans, Look-Ahead matches on number of shares and dollar amount in addition to CUSIP on stock loan transactions in the OCC account.




Reclaims and Recycle

 

Reclaims

A reclaim is the return of a DO, PO, institutional delivery transaction or MMI transaction received by a Participant. All reclaims are considered original transactions for purposes of DTC processing and are subject to DTC’s risk management controls and RAD.



Recycle

One critical function of ATP is Recycle Processing, also referred to as Pend Processing. DTC's recycle processor holds your transactions that cannot immediately complete. All transaction types recycle if they cannot immediately complete, except:

  • Minimum amount (MA) to net additions (NA) moves (using Collateral Classifications)
  • Releases of collateral
  • Memo segregations (using Memo Segregation/Release)
  • Segregations (using Segregation/Release)
  • Transactions input with the "prevent pend" option.

All reclaims to the OCC account will recycle until the OCC submits a redelivery back to the lender or until the reclaim drops at the recycle cutoff. If the OCC does not submit a delivery to the lender, then the borrower’s reclaim to the OCC will drop at the recycle cutoff, i.e., the borrower will retain the securities and the debit for the stock loan delivery it received from the OCC.

When DTC receives instructions to effect a transaction, it may first be processed through one of several DTC systems before any DTC accounts are updated. For example, a transaction involving a delivery of securities may first be processed through one or more of the following:

  • The IPO Tracking System
  • The Receiver Authorized Delivery (RAD) system
  • The Money Market Instrument (MMI) system.

After the transaction is processed, it is entered into DTC's Account Transaction Processor (ATP) sstem, where it is checked for various criteria (see Reasons for Recycling) before it is completed.

One critical function of ATP is Recycle Processing, also referred to as Pend Processing. DTC's recycle processor holds Participant transactions that cannot immediately complete. All transaction types recycle if they cannot immediately complete, except:

  • Minimum amount (MA) to net additions (NA) moves (using Collateral Moves functions)
  • Releases of collateral
  • Memo segregations (using the Memo Segregation functions)
  • Segregations (using the Account Segregation Releases function)
  • Transactions input with the "prevent pend" option (see below).


Note: These transactions will be dropped if they cannot complete when ATP performs its initial check.

Transactions can recycle because of Risk Management Controls or insufficient position. A transaction may recycle under any of the following circumstances:

  1. The deliverer has insufficient position to complete the transaction.

  2. Completing the transaction would make the deliverer's collateral monitor negative, that is, the total remaining collateral in the deliverer’s account is less than the resulting net settlement obligation. This could happen if the collateral value of the securities to be delivered exceeds the settlement value that would be credited to the deliverer’s account, or if the delivery is free and the deliverer’s collateral monitor is not sufficient to absorb the decrease.

  3. Completing the transaction would cause the total value in the receiver's account, including the securities involved in the transaction, to be less than the resulting net settlement obligation, that is, the receiver’s collateral monitor would be made negative. This could happen if the amount that would be charged against the receiver’s account exceeds the collateral value of the applicable securities and the receiver’s collateral monitor is not sufficient to absorb the decrease.

  4. Completing the transaction would cause the receiver's net settlement obligation to exceed its net debit cap.

The recycling system operates within a single processing day. A transaction that remains incomplete at the end of the processing day is dropped from the recycle processor. Dropped transactions must be reentered on a subsequent day.

Transactions will automatically recycle unless you expressly tell DTC not to recycle it when the transaction is input. This option, referred to as "prevent pend," is available for most types of deliveries. When instructed, DTC drops the transaction if it cannot complete immediately.

Note- The recycle processor also allows you, as a deliverer, to cancel ("kill") a recycling transaction using the Pending Transactions or Activity Inquiry functions. To activate these functions, contact your Settlement Access Coordinator.


How DTC prioritizes risk management recycles differs from how it prioritizes insufficient position recycles. 

DTC automatically gives priority to transactions that are recycling as a result of risk management controls as follows:

  • Specific types of transactions are given priority over others. See the Prioritization Schedule for the priority order.
  • Within the transaction types, transactions are given priority on the basis of:
    1. Settlement value (for valued transactions), or
    2. Market value (for free transactions, such as free deliveries or withdrawals). 

Note- This prioritization schedule defines only the order in which DTC attempts to complete recycling transactions. DTC completes any transaction it can. If the first transaction on the recycling queue cannot be completed, DTC will move to the next transaction and attempt to complete it.


Warning! If you have multiple Participant accounts, you must be aware of how your account structure affects your recycling transactions. If you have grouped your accounts into a family structure (see Grouping Accounts into Collateral Families), all your accounts within that family share the same collateral monitor and net debit caps. This also means that all transactions within a family share the same risk management recycling queues.

For example, suppose you have accounts A and B in a collateral family and have two RVP deliveries recycling against your net debit cap, one for account A and one for account B. The larger of these deliveries is placed first on the recycling queue. Hence, when settlement credits are applied against either account A or account B, the larger delivery is attempted first.

If you enter a transaction to deliver or pledge securities, (such as a transaction to remove securities from your account) and you do not have enough position to complete the entire transaction, DTC will pend the transaction until you have enough position to cover the entire delivery. 

Note- An exception to this rule: DTC does allow for partial NSCC Continuous Net Settlement (CNS) and ACATS deliveries.

DTC offers you two options for recycling your insufficient position transactions:

  • Option 1- Automatic Prioritization
  • Option 2- First In, First Out (FIFO) with Blockage.


To select a recycle option, you must complete a Recycle Option Instruction form, which you can obtain by calling the Compliance Department at (212) 855-4931.

 

Option 1: Automatic Prioritization

If you select option 1, DTC will recycle your transactions using the same criteria used for Risk Management Control recycles. See the Prioritization Schedule for the priority order.

Note- If DTC cannot complete the first transaction on the queue due to Risk Management Controls, the position is immediately made available to complete other transactions. Therefore, once the Risk Management Control requirements have been met, position may no longer be available for the transaction and the transaction will then recycle because of insufficient position.

If you wish to control the order in which your transactions recycle, option 1 may not suit your needs.

 

Option 2: First In, First Out With Blockage

The difference between option 2 and option 1 is that with option 2 the recycle processor maintains the order in which transactions are entered into the Account Transaction Processor (ATP), meaning FIFO ordering. Except for CNS deliveries, which are always given the highest priority, transactions are not prioritized by transaction type or size.

Note- If the first transaction in the recycling queue cannot complete, DTC does not attempt to complete any other transactions in the recycling queue, even if there is sufficient position available, until it has completed the first transaction in the queue. This feature is known as "blockage.”

To further allow you to control the order in which your transactions complete, once a transaction for a specific security recycling exists, DTC automatically recycles all subsequent transactions for that security. This ensures that after sufficient position exists for the first transaction, it will complete.

Note- Segregations do not recycle, so DTC uses the existing position to complete those transactions regardless of what transactions are recycling.



DTC helps ensure the integrity of the FIFO queue by temporarily holding your position for transactions recycling due to risk management controls. This account is called the Pending Delivery Account (PDA). After your position is moved to the PDA, it is not available for other transactions that are recycling for insufficient position.

You can use the POSM function to move your PDA position back to your general free account to complete other items on the recycle queue. You can do this regardless of the deliveries that created the PDA position. For example:

Suppose a single delivery of 100 shares creates a 100-share PDA position in your account. The POSM function's PDA release feature allows you to move any quantity up to 100 shares from your PDA account back to your general free account. Assuming you release 75 shares from the PDA, when the 100-share delivery clears Risk Management Controls, the system looks for 100 shares in the PDA. With only 25 shares remaining in the PDA, the system looks for the additional 75 shares in your general free account to complete the 100-share delivery. If the shares are there, the delivery completes; if not, the delivery is placed at the end of your recycle queue, and the 25 shares in the PDA are released back to your general free account.

At the cutoff for syndicate closings (approximately 1:15 p.m. eastern time), DTC releases all PDA positions back to your general free account. At that time DTC also disables the "blockage" feature of option 2, allowing transactions for which there is sufficient position to complete while attempting to complete transactions you entered in FIFO order.

Warning! DTC cannot ensure FIFO ordering of transactions requiring RAD approval.

Pend Hold allows you to hold and release ("unhold") transactions. DTC will not process held transactions until the holding Participant releases the hold. Participants will be permitted to hold pending deliverer orders and pledge transactions, including reclaims of deliveries, deliveries of Initial Public Offering (IPO) positions, and pending deliveries to Continuous Net Settlement (CNS short covers). Only the initiator (deliverer or pledgor) of a transaction will be permitted to hold or release a pending transaction. Moreover, only transactions that pend for insufficient position may be held.

To give you additional flexibility DTC offers two hold options: hold with blockage and hold without blockage.

DTC maintains separate logical recycle queues for transactions pending for insufficient position and for transactions pending for insufficient IPO position. Therefore, placing a hold with blockage on a transaction pending for IPO position will block only that type of transaction. Similarly, a transaction pending for insufficient non-IPO position will block only that type of transaction.

Newly introduced transactions (including CNS exemption overrides) for securities that have transactions held with blockage will be processed using DTC's current recycle logic. That is, a new transaction that you introduce using option 1 will be processed when the transaction is received. A transaction can either complete or not complete. A transaction that cannot complete because the initiating Participant has insufficient position will be moved to the position recycle queue. There it will be mixed (in order of transaction type or settlement value) with other transactions already in the recycle queue.

New transactions that you introduce using option 2 will not be processed on receipt. Instead, they will be forwarded directly to the position recycle queue of the initiating Participant. Option 2 procedures keep transactions pending for position in FIFO order; therefore, newly introduced transactions will be placed at the bottom of the position recycle queue.

Regardless of the recycle option elected, newly introduced transactions that are placed below a transaction that is held with blockage are subject to the blockage feature. Newly introduced transactions that are placed above a transaction held with blockage are not subject to the blockage feature. DTC's hold procedures will not alter the current process of placing at the top of the position recycle queue deliver orders with reason codes 540, 560, and 570 and deliveries to CNS.

 

You can reserve position for pending transactions in DTC's Pending Transaction Account (PTA) using the PTA indicator available in the Deliver Order functions. If you want specific transactions to be subject to the PTA procedures (to have the position reserved), set the PTA indicator to Y. Transactions with the PTA indicator left blank are not subject to the PTA procedures.

PTA transactions input into DTC's system are subject to DTC's normal editing and processing requirements (including DTC's Risk Management Controls) . PTA transactions that meet all of DTC's editing and processing requirements complete in DTC's system and no position is reserved in the PTA account. Likewise, transactions that recycle for an insufficient position will not affect your PTA account. Only PTA transactions that recycle as a result of risk management controls (which means that the delivering or pledging Participant has sufficient position to complete the transaction) will cause position to be reserved in the PTA account. Non-PTA transactions that recycle as a result of risk management controls do not affect your PTA account. After position is reserved in your PTA account, it is no longer available for any other transactions you may initiate. The transactions associated with positions in the PTA account recycle normally (the PTA indicator does not affect recycle algorithms), and the position remains in the PTA account until any of the following occurs:

  • Your Risk Management Controls change to allow completion of the transaction. The position is automatically released from your PTA account at the PDA cutoff (approximately 1:30 p.m. eastern time).

Note- This condition applies to valued PTA transactions only; positions reserved for free PTA transactions are not automatically released at the PDA cutoff, and positions for valued PTA transactions entered after the PDA cutoff will not be reserved in the PTA

  • The intended receiver cancels the PTA transaction.
  • DTC releases its risk management controls at approximately 5:00 p.m. eastern time. 

Note- Initial Public Offering (IPO) transactions are not subject to PTA procedures. A PTA indicator entered during an IPO transaction will be ignored by DTC's system.

PTA procedures allow delivering Participants to place holds, and holds with blockage, on a PTA transaction that is recycling for insufficient position only. You cannot place holds and holds with blockage on PTA transactions that are recycling for insufficient other NA.

Delivering Participants are permitted to place holds and holds with blockage on non-PTA transactions (a transaction with the PTA indicator set to N) that are recycling for insufficient position or insufficient other net additions (NA). Additionally, free PTA transactions recycling for insufficient other NA that are subject to a hold with blockage (because a non-PTA transaction above the PTA transaction in the position recycle queue has a hold with blockage placed on it) are automatically released from the hold status when DTC releases its risk management controls.



Only receiving Participants can cancel a recycling PTA transaction. Delivering Participants of PTA transactions that recycle for Risk Management Controls cannot cancel them. The position associated with cancelled PTA transactions is automatically released from the PTA account and made available to the delivering or pledging Participant for other PTA or non-PTA transactions.

Receiving Participants can cancel only PTA transactions that recycle for Risk Management Controls (including PTA transactions that recycle for insufficient other NA). Only delivering Participants can cancel non-PTA recycling deliveries and PTA deliveries recycling for insufficient position.

The following table shows the order in which DTC places transactions for Risk Management Controls and option 1 recycling.

Note- These criteria do not apply to CNS deliveries, which recycle for position only.

Order

Transaction

Criteria (Market or Settlement Value)

1 MMI Interest / Principal Presentments Settlement Value
2 MMI Maturity and Reorganization Presentments Settlement Value
3

Voluntary Reorganization Instructions (RRG account)

Note- Instructions processed with contra-CUSIPs, such as tender offers and put bonds, are included with Free Deliver Order/Free Pledge Releases below.

Market Value
4 Valued Pledges and Releases Settlement Value
5 Free Pledges Market Value
6 Valued Deliver Orders Settlement Value
7 Free Deliver Orders / Free Pledge Releases Market Value
8 Payment Orders Settlement Value
9 SPP Return / P &I Withdrawal Requests Settlement Value
10 Rush Withdrawals / CODs Market Value
11 Withdrawals By Transfer Market Value
12 Position Transfers Between MA and NA Market Value