Reflecting on the World’s Most
Important Financial Instruments
By Joshua Tobias Herbstman
The Depository Trust and Clearing Cor-
poration (DTCC) is undoubtedly the largest
financial services company no one has ever
heard of. To be sure, those who work in
investment finance often have to deal with
the DTCC in one capacity or another. But
it is surprising how many well-established
retail level financial advisors are unaware of
who they are or what they do.
So, what is the DTCC? In a nutshell,
it is a post-trade clearing settlement firm
responsible for the lion’s share of finan-
cial transactions within the United States.
From stocks, bonds and mutual funds, to
mortgage-backed securities, OTC deriva-
tives and futures contracts, the DTCC
processed some $1.5 quadrillion in securi-
ties transactions in 2015.
Beyond the myriad of clearing and set-
tlement services that the DTCC provides
(and there are other institutions that have
similar roles within the global financial
system), it also serves as a custodian for
over $37 trillion in customer assets. (On
a somber note: one five-minute phone
call by the SEC to the DTCC would have
stopped Bernard Madoff years before his
scheme collapsed, as the records would
have shown his account to be bare.) The
safekeeping functions of the DTCC allow
it to clear and settle trades very efficiently.
To accomplish this, it employs a network
of powerful and sophisticated servers. But
this was not always the case.
At one time, trust companies had to
process millions of individual paper secu-
rities: stocks, bonds and their coupon
interest payments. Trades, redemptions,
changes of registry, etc. — everything was
recorded and transacted on paper. As the
global financial system grew, more secu-
rities were created and transacted. Daily
trading volumes increased. Giant trading
$1,000 US Treasury Bond, dated August 15, 1978
and due August 15, 2008.
backlogs were constant. Couriers would
often hand deliver securities in Manhattan.
Even in the safest of institutions, cer-
tificates would get misplaced or sent to a
wrong address. Tens of millions of indi-
vidual interest coupons were hand clipped
by employees. The impracticality of paper
securities was obvious, although there
was (and probably still is) a segment of
the investment community that longs for
the days of high denomination paper in
bearer form.
Today, in an age where billions and
trillions are regularly used in describing
financial matters, the $100 bill is the big-
gest bearer instrument the federal gov-
ernment issues. Gone are the days of the
$500, $1,000, $5,000 and $10,000 bills.
Gone are the days of the paper $100,000
Treasury Bills, $1,000,000 Treasury Bonds
and $500,000,000 Treasury N