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PROFITING FROM DOING BUSINESS IN THE U.S.A.

June 25, 2014

INTERNATIONAL SECURITIES CLEARING / SETTLEMENT HOUSES

 

Banks, private wealth managers, broker-dealers, securities’ custodians, individuals and financial institutions engage cross-border clearing houses for handling international debt and other types of securities. Major players in that field:

 

The Depository Trust Company (DTC), a New York based and SEC-registered clearing company, participates in the Federal Reserve System, acts as the central securities depository (for stocks, corporate and municipal government bonds, money market instruments), electronic records custodian and transfer facilitator of securities, and settlement service provider for brokers/ dealers, institutional investors, settling banks and other financial institutions. See www.dtc.org.

 

The Depository Trust & Clearing Corporation (DTCC) is a US holding company of The Depository Trust Company (DTC) and National Securities Clearing Corporation (NSCC). It settles domestic and international securities transactions. DTCC maintains the world’s largest central securities depository followed by Euroclear and Clearstream, respectively. DTCC operates data processing facilities and provides automatic, centralized, and standardized processing of financial transactions for thousands of institutions worldwide. DTC transfers money and securities for NSCC's net settlements, and settlement transactions between broker-dealers and safekeeping banks. DTC is a custodian of US and foreign countries’ issued securities valued in trillions of US dollars.

 

DTC determines if a company's stock / issuer may be eligible for DTC deposit or delivery services or FAST (Fast Automated Securities Transfer) electronic movement of stock among transfer agents, clearing firms, issuers, security holders, and brokerage houses. DTCC’s subsidiary DTCC Solutions serves as a centralized data provider for stock splits, tender offers, conversions and other types of corporate actions in Europe, Asia and North America. UK based DTCC subsidiary European Central Counterparty Limited (EuroCCP) provides securities central counterparty / clearing services in Europe (15 countries, seven currencies). EuroCCP clears and settles trades via its agent Citi Global Transaction Services.

 

DTCC’s Profile Modification System (Profile) electronically communicates investors’ instructions as to securities’ movements between street-name and direct registration book-entry positions via DTCC participants. DTCC’s Profile Surety Program (PSP) involves issuance of a surety bond to back a party’s obligations arising from the screen-based indemnity to mitigate any risk for DTCC users. http://www.dtcc.com/~/media/Files/Downloads/legal/service-guides/Settlement.ashx.

 

The DTCC Global Trade Repository (GTR) maintains vast data and generates reports for global OTC derivatives transactions in that $650 trillion industry. DTC corporate actions cover information about forthcoming corporate distributions, redemptions, and reorganizations, participants’ entitlements, execution of given instructions, payment allocation and reporting. Global Tax Services include tax relief accounting for non-U.S. securities, U.S. tax withholding on U.S.-sourced income paid to non-U.S. entities, and tax reporting services.

 

Euroclear, a Belgium based clearance house, provides clearing, settling, safekeeping and asset servicing securities (bonds, stocks, derivatives), acts as the International Central Securities Depository (ICSD) and he Central Securities Depository (CSD) for many countries. Settlement means delivery of securities versus payment, or free of payment as collateral against a loan of securities or per a margin call issued by a broker or exchange, if the posted margin falls below the minimum margin requirement. To settle international securities via Euroclear or Clearstream clearance houses, one need to obtain the Euroclear or Clearstream ISIN codes. Euroclear Bank is holding, issuing, protecting, loaning securities from and letting securities owners join its anonymous lending pool, and facilitating straight-through processing round-the-clock settlement of international debt securities on a DVP (delivery-versus-payment) basis.

 

Euroclear screens reflect Euroclear-registered financial documents but not cash on deposit, which is deemed confidential information. To access cash assets’ data, Euroclear screens require ISIN and CUSIP numbers provided for asset protection (and may be associated with an unrelated company stock) plus a Blocking Code. Only after all numbers and codes are entered, the screen would reveal the Blocked Fund number, code, amount, currency, CHIPS, holder’s identity, and other data confirming cash on deposit in the owner’s bank account. This proof-of-funds method is used in lieu of or in addition to the asset availability confirmation by a bank’s letter bearing two bank officers’ signatures and personal codes.

 

Clearstream Banking S.A. (Luxembourg / Frankfurt based clearing and settlement division of Deutsche Börse) serves as International Central Securities Depository (ICSD) facilitating large value money transfers worldwide, Central Securities Depository (CSD) for Germany, custodian for Eurobonds and other financial instruments, and securities’ clearing/ settlement house in 53 countries’ markets. Clearstream like Euroclear may issue XS ISIN codes for securities.  Clearstream provides new issues’ distribution / settlement, income / redemption payments, proxy voting, tax-related and corporate action notification / processing services. Clearstream uses SWIFT messages for communication with clients per its website-published SWIFT User Guide and subscription to Clearstream’s Reports and Notifications. Such messages include MT548 Settlement Status Report, MT537 Statement of Pending Transactions, MT54x Confirmations and/or MT536 Statements of Transactions.

 

Clearstream eligible customers* (*individuals cannot become Clearstream Banking customers) may authorize publishing their account numbers for settlement purposes, but for the safekeeping, corporate actions or other securities connected services, such account publishing to other market participants is not needed. Clearstream monitors and reports to the regulators its customers’ published and non-published accounts activity. It services banks, companies, financial institutions and governments worldwide.

This short summary of major clearing and settlement houses does not cover all of their features or functions and does not include many other houses in that field, such as ACH (“Automated Clearing House”), a low-cost payment network handling debit transfers (payroll, dividends) and credit transfers (loan, insurance premiums and bill payments), and allowing financial institutions to obtain/ exchange check images, to conduct online adjustments, settlement, fingerprinting, electronic check presentment and check clearance. www.electronicpayments.org.

 

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