© DTCC “ DTC Settlement: Model, Benefits, Challenges Susan Tysk-Cosgrove Managing Director, Settlement and Asset Services ACSDA 15 th General Assembly Antigua, Guatemala April 18, 2013

© DTCC 2 DTC Processing - Model  DTC provides intraday liquidity to its members by allowing them to accept receives and incur debits to a specified amount based on their activity history.  The specified amount is called a “Net Debit Cap (NDC)”. The maximum NDC any member can have is $1.8B regardless of their activity.  When a net debit equals the NDC, the member is required to fund, i.e., prepay additional receives for amounts greater than their NDC.  Members can incur debits without pre-funding, but DTC also ensures that members’ debits are fully collateralized.  Therefore, receivers must have sufficient collateral to cover the difference between the settlement value debit and the collateral value of the securities they are receiving. “Confidential Treatment Requested by DTCC, [DTC, NSCC, FICC, WTC] Pursuant to the Freedom of Information Act.”

© DTCC 3 DTC Processing – Model  DTC’s net debit caps are there to ensure that DTC itself has sufficient liquidity to complete settlement, i.e., net debits cannot exceed DTC’s line of credit from a consortium of banks.  DTC sources of liquidity:  $1.9 Billion in Line-of-Credit (LOC)  $1.3 Billion Participants Fund (P-Fund) contributions  Although securities received in a member’s account are not considered final until the end-of-day payment, collateral controls allow re-deliveries leveraging a member’s other collateral.  In short, the NDC and collateral controls permit efficient intraday liquidity recycling. “Confidential Treatment Requested by DTCC, [DTC, NSCC, FICC, WTC] Pursuant to the Freedom of Information Act.”

© DTCC 4 DTC Processing - Benefits  The main benefit of NDCs is that members can accept receives and redeliver those receives without liquidity burdens.  In contrast, real-time gross settlement (RTGS) systems require members to pre-fund every receive, even if they are simply redelivering.  NDCs provide liquidity efficiencies for high transaction volume systems. “Confidential Treatment Requested by DTCC, [DTC, NSCC, FICC, WTC] Pursuant to the Freedom of Information Act.”

© DTCC 5 DTC Processing – Challenges  There is a cost and risk to the liquidity efficiencies realized from the NDCs and collateral controls. Cost:  The cost of NDCs comes in the form of line of credit fees. Risks:  Loss - DTC faces liquidation risk, i.e., the value of its collateral may drop below the debit amount to be covered by the liquidation.  Liquidity - A major systemic event could result in failure of LOC banks to meet their LOC obligations, or multiple participant failures could exceed the $1.9 B LOC. “Confidential Treatment Requested by DTCC, [DTC, NSCC, FICC, WTC] Pursuant to the Freedom of Information Act.”