Glossary of DTCC & Industry Terms

This glossary presents a set of common terms and acronyms used in post-trade processes at DTCC and the financial services industry.

 

    A
  • Automated Customer Account Transfer Service. Part of Equities Clearing Service.
  • B
  • Build America Bonds
  • A beneficial owner is an investor who owns a security even though the title is held in the nominee name, which is also known as the street name of a central securities depository. (i.e. DTC) The beneficial owner receives the dividends or interest the security pays, has the right to sell the security, and, in the case of stock, is entitled to vote on certain corporate matters.
  • Book-Entry Only is the accounting system that enables DTC to transfer ownership records for securities held in its nominee name of Cede & Co. electronically from the selling broker’s account to the buying broker’s accounting when the transaction is settled. With book-entry accounting, no physical securities change hands.
  • Broker matching groups.
  • C
  • Cost Basis Reporting Service.
  • A central counterparty is an entity that interposes itself as the buyer to every seller and the seller to every buyer to guarantee that a trade will eventually settle even if the original buyer or seller defaults. The goal of a CCP is to make trade processing easier, cheaper and less risky for all parties. National Securities Clearing Corporation (NSCC) and Fixed Income Clearing Corporation (FICC) provide CCP services.
  • A central securities depository is an organization that has custody of immobilized securities issued in certificate form and dematerialized securities issued in electronic rather than certificate form. A CSD provides a portfolio of services relating to those securities on behalf of its participants.
  • Clearance is one step in the post-trade process that finalizes the transfer of security ownership. It includes confirming the details of the transaction and, when a central counterparty such as NSCC is involved, guaranteeing that the trade will settle even if one of the original parties defaults
  • A clearing fund is made up of posted margin and operates as a default fund to cover any losses resulting from liquidation of the defaulting Member’s open guaranteed obligations.
  • Corporate, Municipals, and UITs
  • Continuous Net Settlement. The CNS® System is NSCC’s core netting, allotting and fail-control engine. Within CNS, each security is netted to one position per Member, with NSCC as its central counterparty (novation).
  • The Continuous Net Settlement (CNS) System is NSCC’s core netting, allotting and fail-control engine. Within CNS, each security is netted to one position per Member, with NSCC as its central counter-party.
  • A corporate action is an event that may impact the value of a company’s securities and generally has a direct or indirect effect on its shareholders and bondholders. Among the range of possible corporate actions include dividend or interest payments, stock splits, tender offers, rights offerings, securities conversions, warrants, and corporate reorganizations
  • CUSIP commonly refers to a security or family of securities issued after 1970. Each security or family of securities is identified by a nine-digit unique number called a CUSIP number. Do not use “CUSIP” to mean “issue” or “security.”
  • A custodian bank is a bank that holds assets such as individual securities and American Depository Receipts (ADRs) for institutional investors, corporations and wealthy individuals. The custodian bank also collects investment income generated by client assets, provides corporate communications to its clients, and participates in the settlement of securities transactions on their behalf.
  • D
  • A Deliver Order refers to the instruction of a Participant to DTC to affect a book entry transfer of a security from its account to the account of another Participant, either free of value or versus payment.
  • A Delivery Versus Payment is the book-entry transfer of securities at DTC from one Participant to another against a funds payment obligation of the receiving Participant.
  • Dematerialization is the process of replacing security certificates with electronic records that reflect the ownership of securities. DTCC issued a white paper to the industry in July 2012 outlining a plan for dematerialization in U.S. capital markets, which will contribute to a more cost-effective, efficient, secure and competitive U.S. marketplace. However, dematerialization is ultimately a decision of the issuer of the security pursuant to laws applicable to the issuance of that security and not within the control of DTCC.
  • The Direct Registration System is a DTC system that affords registered owners of securities the option of holding directly on the books and records of the issuer by receiving records of its interest in the securities in electronic statement form, without holding security certificates to represent those interests.
  • DRIP allows investors to channel dividends directly into purchases of additional shares of the security on which the earnings were paid. The income isn’t paid out to the shareholder, but taxes are due on the reinvested amounts unless the security is held in a tax-advantaged account.
  • A DTC-eligible financial asset is qualified to be held at DTC and traded and serviced through its electronic book entry system. Among the requirements, the issue must meet the definition of financial asset established by the Uniform Commercial Code, meet or be exempt from certain SEC requirements under securities laws, and have a CUSIP number.
  • The Depository Trust and Clearing Corporation. Businesses, subsidiaries, and joint ventures include: DTCC Derivatives Repository PLC (Europe), DTCC Data Repository (U.S.) LLC, DTCC Data Repository (Japan) KK, DTCC Data Repository (Singapore) Pte Ltd, DTCC Deriv/SERV LLC, DTCC Solutions LLC, FICC, NSCC, and DTCC Institutional Trade Processing Business Subsidiaries.
  • E
  • End of day. The conclusion of the business day in question.
  • Electronic Pool Notification.
  • F
  • FAST is the DTC system for the immobilization of securities certificates, through which transfer agents of issuers also act as agents of DTC under an agreement with DTC, for holding securities on behalf of DTC, registered in the name of Cede & Co. as nominee DTC and FAST agents electronically reconcile securities holdings daily.
  • Fixed Income Clearing Corporation. FICC was established in 2003 with the merger of the Government Securities Clearing Corporation (GSCC), which was established in 1986, and the Mortgage-Backed Securities Clearing Corporation (MBSCC), which was founded in 1979.
  • File Transmission Service.
  • G
  • Global Custodian Direct
  • General Collateral Financing. GCF Repo® is part of the GSD area of FICC.
  • Good Delivery (Millions).
  • Government Securities Clearing Corporation (no longer in use). This area is now part of FICC.
  • H
  • A haircut is a risk control measure applied to underlying assets whereby the value of those underlying assets is calculated as the market value of the assets reduced by a certain percentage (the “haircut”). Haircuts are applied by a collateral taker in order to protect itself from losses resulting from declines in the market value of a security in the event that it needs to liquidate its collateral.
  • I
  • Immobilization occurs when securities certificates are placed in the custody of a central securities depository to reduce the movement of physical securities. Ownership records for immobilized securities are updated electronically using a book-entry system, first at the CSD and then at the participant firms whose clients are the beneficial owners.
  • An institutional transaction is a securities trade in which an organization, such as a mutual fund, hedge fund, pension fund, or endowment, purchases or sells a large block of stocks, bonds, or other securities.
  • An issuer is the corporation or government body that offers a security such as a stock or bond for sale to the public or through a private placement.
  • L
  • A Largest Provisional Net Credit is a control that ensures that reversing a failed MMI issue transaction does not cause your Risk Management Controls to be overridden. The LPNC control “withholds” from participants the use of their largest net settlement credit they would otherwise receive in an MMI program that day.
  • Legal Entity Identifier.
  • M
  • The maturity date is the day the term of a bond, money market instrument, or other debt security ends. Repayment of principal and the final interest payment are due at maturity, although the security may be rolled over with a new maturity date.
  • Mortgage-Backed Securities Division.
  • Mutual Fund Profile Service.
  • A money market instrument is a short-term, high-grade debt, securities including commercial paper, bankers’ acceptances, and institutional certificates of deposit. Most MMIs have terms of 270 days or less because those with longer maturities must be registered with the Securities and Exchange Commission (SEC).
  • Municipal Securities Rulemaking Board.
  • Margin Transit Utility
  • Multilateral netting is a process through which buy and sell positions are offset within a brokerage firm, no matter who it traded with, to reduce the number of securities that must be delivered. Financial obligations are also netted within and among brokerage firms to reduce the size of settlement payments that must be made.
  • N
  • A net debit cap is a risk management control that prevents a participant from incurring a debit balance that exceeds its allocated net debit cap limit in a business day. Net Debit Caps are set at levels below DTC’s liquidity ensuring that any single participant’s debit can be financed. The amount is determined separately for each firm, based on the collateral it has on deposit and how much trading it is doing.
  • Netting is a process of reducing the number of trade obligations that require transfer of securities and financial settlement by offsetting purchases against sales.
  • New Issue Information Dissemination Service
  • P
  • A participant fund is a collateral account that each DTC participant must maintain to cover the risk it poses as a result of settlement activity in the DTC system and to provide DTC with a source of liquidity for the settlements of transactions. The required deposit, which is all cash, is calculated daily.
  • The payment date is the day in which a dividend or other entitlement to holders is paid. The issuing company’s board of directors announces the payment date at the same time it announces the dividend.
  • A payment order is a transaction in which a Participant charges another Participant for changes in value for outstanding stock loans or option contract premiums.
  • P&I payments are cash entitlements including dividend, interest, periodic principal, redemption, and maturity payments arising from the servicing of 3.5 million securities eligible at the depository.
  • R
  • The RAD process is a matching process that enables DTC receiving Participants to review and either approve or cancel a Deliver Order (DO)
  • A reclaim is the return of a deliver order or payment order received by a Participant.
  • The record date is the date by which an investor must own a stock in order to be eligible to receive an upcoming dividend. The issuing company’s board of directors announces the record date at the same time it announces the dividend.
  • The record owner is the individual or institution whose name is recorded as the holder of record on the books of the security’s issuer. The record holder is not necessarily the beneficial owner. That is the case when Cede & Co. dematerialized securities in the custody of DTC, which individuals and institutions are the beneficial owners.
  • Redemption is the process of repaying a debt obligation, either at the maturity date or before. Early redemption is handled by calling some or all of the issue.
  • A reorganization is a corporate action that may result in changes to the company’s legal, operational or ownership structures. These changes are generally made to address a problem, improve efficiency, organization, and profitability, or increase the market price of the corporation’s stock.
  • A Repo is a fixed-income product. One party to the agreements sells securities to another and simultaneously agrees to buy back the same or similar securities at a specific future date at an agreed-upon price.
  • Real-Time Reporting System.
  • Real-Time Trade Matching.
  • S
  • A security is a stock, bond, or other investment product issued by a corporation or government as a means of raising capital by offering investors something of value in exchange for cash. For example, purchasing stock givers the buyer an ownership share in the issuing corporation while a bond represents a debt owed to the holder.
  • Settlement is the post-trade process that finalizes the exchange of and payment for securities that have been traded. When these securities are dematerialized or immobilized in a CSD, such as DTC, the change in ownership is recorded electronically on the books of the brokerage firms whose clients authorized the trade. No certificates change hands. Financial settlement is handled by electronic transfer between the accounts that the buying and selling firms maintain at DTC.
  • The settlement date is the date on which a securities transaction becomes final, with the seller’s broker delivering the security and the buyer’s broker delivering payment. Different securities can have different settlement dates. For example, with US stocks and municipal or corporate bonds, the settlement date is three business days after the trade date, or T + 1. Different countries can have different settlement periods.
  • SPPs are intraday funds transfers via Fedwire to the DTC Master Account at the Federal Reserve Bank of New York. SPPs are credited towards any settlement obligation of the Participant and, by reducing the amount of the Participant’s net debit balance, may permit additional DVP transactions to process intraday.
  • A settling bank is a bank that handles the electronic payment or receipt of funds associated with netted securities transactions for the financial firms that have selected the bank to act on their behalf. Payments in the United States move through the Federal Reserve’s Fedwire system and are irrevocable.
  • A SLPO facilitates the exchange of funds between lenders and borrowers involved in stock loans and repurchase payment orders (repos).
  • STP enables the entire trade process for capital markets and payment transactions to be conducted electronically without the need for re-keying or manual intervention, subject to legal and regulatory restrictions.
  • T
  • A tender offer is an offer to purchase some or all of the outstanding stock that investors hold in a target company at a certain price by a certain date. The bidder may offer cash or other securities as payment, provided that a sufficient number of shareholders agree to sell.
  • U
  • Unit Investment Trust.
  • Underwriting Central.