The Participants Fund and the Participants Preferred Stock Investment provided in DTC Rule 4 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; the amount of each is based on the Participant's activity at DTC as further explained in this Service Guide. 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.
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.
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.
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.
Algorithm used to calculate the Affiliated Family’s portion of the $700,000,000.
- 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.
- 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”.
- To calculate the allocation percentage for an Affiliated Family of Participants, the program will perform the following:
- X% of $700,000,000 is the amount of its Affiliated Family allocation.
- The sum of the Affiliated Family allocations equals $700,000,000.
An algorithm is used to determine the Participant's 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.
------------------------------------ = Y %
Affiliated Family NDC
- Y% of the Affiliated Family allocation is the Participant’s portion of the “Affiliated Family allocation”.
- This calculation will be done for all Participants within each Affiliated Family that has an Overage.
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.
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:
- the Participant’s liquidity arrangements,
- the Participant’s overall financial condition,
- published news or reports and/or regulatory observations relating to the Participant, and
- the Participant’s internal credit rating, if any.
The Required Participants Fund Deposit for each Participant is recalculated daily.
Settlement of Required Participants Fund Deposits Calculated at the End of a Month
After settlement on the last Business Day of each month, DTC calculates each Participant’s Required Participants Fund Deposit. Each Participant will be notified of its new Required Participants Fund Deposit on the first Business Day of the following month. If a Participant’s Required Participants Fund Deposit, as calculated on the last Business Day of a month, exceeds its Actual Participants Fund Deposit, then the Participant will be notified of the increase, and the amount representing the difference between the Participant’s Required Participants Fund Deposit and Actual Participants Fund Deposit will be systematically charged to the settlement account of the Participant. The amount, once collected through settlement, (a) will be treated as a Deposit by the Participant to the Participants Fund and (b) will be noted on applicable information and/or reports made available to the Participant as a Participants Fund contribution (Activity Code 70-01).
Collection of Required Participants Fund Deposits Calculated on an Intra-month Basis
A Participant is required to Deposit the difference between its Actual Participants Fund Deposit and its Required Participants Fund Deposit calculated on an intra-month basis, i.e., on a Business Day other than the last Business Day of a month, only if the Participant:
(a) has not been placed on the Watch List (as defined pursuant to Rule 1) and the difference between the Participant’s Required Participants Fund Deposit and a reference amount (the determination of which is described below) (“Reference Amount”) (i) is equal to or exceeds $500,000 and (ii) represents a percentage increase of 25 percent or more over the Reference Amount (“Standard Threshold”), or
(b) has been placed on the Watch List and the difference between the Participant’s Required Participants Fund Deposit represents a percentage increase of 10 percent or more over the Reference Amount (“Watch List Threshold”).
The Participant shall satisfy any deficit in its Required Participants Fund Deposit that it is required to satisfy pursuant to this subsection, on the same Business Day that the difference is calculated and a report or other notification of the deficit is made available to the Participant.
The Reference Amount equals the Participant’s Required Participants Fund Deposit as previously calculated on the latter of:
(a) the last Business Day of the prior month;
(b) the most recent Intra-month Business Day (prior to the then current Business Day), when the amount resulting from daily calculation of the Participant’s Required Participants Fund Deposit met or exceeded either the Standard Threshold or the Watch List Threshold and a deficit collection was effectuated; and
(c) the most recent intra-month Business Day (prior to the then current Business Day) when DTC effected an adjustment to the Participant’s Required Participants Fund Deposit in accordance with Rule 9(A).
Return of Excess Deposits
At least quarterly, if a Participant’s Actual Participants Fund Deposit is greater than its Required Participants Fund Deposit, DTC will so notify the Participant. The Participant may request, on a monthly basis, the return of any part of its excess deposit. A Participant may maintain an excess deposit (i.e., Voluntary Participants Fund Deposit) that could reduce administration or activity caused by the monthly calculation or intra-month calculation.
This section shall apply only to the calculation and collection of DTC Participants Fund Deposits, as described above, and does not supersede or limit any provisions of the DTC Rules or any rights of DTC in accordance with applicable law and DTC’s Rule and Procedures, including but not limited to with respect to transactions in securities and money payments.