The Depository Trust Clearing Corporation (DTCC) processes trillions of dollars of securities on a daily basis and are the centralized clearinghouse for various exchanges and equity platforms in the USA, they settle all transactions between buyers and sellers of securities and are the largest securities depository in the world and holds over thirty-five trillion dollars worth of securities on deposit. DTC accepts deposits of securities from its participants only, who are usually clearing firms. Most brokers clear stock in-house or hire a clearing firm to do so on their behalf. All movements of securities are made to the participant’s account electronically with book-entry adjustments.
Being DTC eligible means that a public Company’s securities are able to be deposited through DTC. If an issuer is not DTC eligible, then its shares cannot be transferred between brokerage accounts electronically, which basically means its shares cannot be traded easily. Major Exchanges such as NYSE and NASDAQ require DTC eligibility.
Only a DTC participant can request that DTC make a security eligible. Most large U.S. broker-dealers and banks are DTC participants. Once an issuer has been approved for trading by FINRA, they must apply to DTC for their initial eligibility to trade. If DTC approves the application, they will hold all of the issuer’s free-trading street name shares on deposit and these shares become the Company’s “float.”
As with a Form 15c-211 submission to FINRA, an issuer cannot make a direct application to the DTC for eligibility. The issuer must first have a relationship with a broker-dealer or other financial institution called a market-maker that is a participant and will sponsor the eligibility process. They carry the initial position in inventory on behalf of their firm.
The issuer must also have a transfer agent that on file that has a DTC Operational Arrangements Agent Letter.
For NASDAQ and NYSE issuers, the companies must also subscribe to DTC’s FAST (Fast Automated Securities Transfer) and DRS (Direct Registration System) program. Transfer agents that are considered limited participants in DTC’s FAST and DRS systems can submit the FAST and DRS applications.
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