Pledged securities are used as collateral for a loan or for some other purpose. They are moved from the pledgor’s general free account to the pledgor’s pledged account, which prevents them from being used to complete other transactions.
The Collateral Loan Service allows DTC clients to pledge securities as collateral for a loan or for other purposes, as well as to request the release of pledged securities. These pledges and pledge releases can be made free (i.e., the money component of the transaction is settled outside of the depository) or valued (i.e., the money component of the transaction is settled through DTC as a debit/credit to the pledgor's and pledgee's DTC money settlement accounts).
Example:
A broker, or pledgor, borrows funds from another DTC client broker or pledgee bank via the DTC Collateral Loan Service.
Audiences involved in collateral loans at DTC typically include these types of firms:
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DTC Pledgee Banks - DTC clients can submit free or valued pledges or releases to DTC Pledgee Banks.
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Options Clearing Corp (OCC) - A client writing an option on any options exchange may fully collateralize that option by submitting free pledges and release requests of the underlying securities by book-entry through DTC to the (OCC).
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Federal Reserve Bank (FRB) - Clients who are depository institutions maintaining a deposit account at a Federal Reserve Bank (FRB), can make free pledges and release requests to the FRB.
For more information:
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Settlement Web Help. Refer to the Collateral Loans section