Background 1960s Wall Street paperwork crisis Before DTC and NSCC were formed,
brokers settled
trades by physically exchanging
stock certificates—that is, hard copy documents which declared their holders to be the owners of so many shares of stock. The mechanisms brokers used to transfer securities and keep records relied heavily on pen and paper, and they employed hundreds of messengers to carry certificates and checks. The exchange of physical
stock certificates was difficult, inefficient, and increasingly expensive. Before 1946, the SEC had allowed for
T+2 settlement (that is, settlement within two days of the trade date), but by the early 1960s, this deadline had been lengthened to four days and then five. In the late 1960s, with an unprecedented surge in trading leading to volumes of nearly 15 million shares a day on the NYSE in April 1968 (as opposed to 5 million a day just three years earlier, which at the time had been considered overwhelming), the paperwork burden became enormous. Stock certificates were left for weeks piled haphazardly on any level surface, including
filing cabinets and tables. Stocks were mailed to wrong addresses, or not mailed at all. Overtime and night work became mandatory.
Back office worker turnover was 60% a year. To help brokerage firms catch up on the overwhelming volume of paperwork, the stock exchanges were forced to close every week (they chose every Wednesday), and trading hours were shortened on other days of the week. One problem was state laws requiring brokers to deliver certificates to investors. Eventually all the states were convinced that this notion was obsolete and changed their laws. For the most part, investors can still request their certificates, but this has several inconveniences, and most people do not, except for novelty value. This led the
New York Stock Exchange to establish the Central Certificate Service (CCS) in 1968 at 44 Broad Street in New York City. The CCS transferred securities electronically, eliminating their physical handling for settlement purposes, and kept track of the total number of shares held by NYSE members. This relieved brokerage firms of the work of inspecting, counting, and storing certificates. Haack labeled it "top priority", $5 million was spent on it, and its goal was to eliminate up to 75% of the physical handling of stock certificates traded between brokers. In 1970 the CCS service was extended to the
American Stock Exchange. This led to the development of the Banking and Securities Industry Committee (BASIC), which represented leading U.S. banks and securities exchanges, and was headed by a banker named Herman Beavis.
Founding Established in 1973, The Depository Trust Company (DTC) was created to alleviate the rising volumes of
paperwork and the lack of security that developed after rapid growth in the volume of transactions in the U.S. securities industry in the late 1960s. DTC was formed under the special incorporation laws of
New York for trust companies. It was headed by William (Bill) T. Dentzer Jr., a former
U.S. intelligence community member and
New York State Banking Superintendent. All the top New York banks were represented on the board, usually by their chairman. BASIC and the SEC saw this indirect holding system as a "temporary measure", on the way to a "certificateless society". He was succeeded by William F. Jaenike, who was Chairman and CEO from 1994 to 1999. In 1999, DTC became a subsidiary of the new
Depository Trust & Clearing Corporation. Today, all physical shares of paper stock certificates are held by a separate entity,
Cede and Company. ==Functions==