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What Does Non- DTC Mean?

About DTCC


The Depository Trust & Clearing Corporation (DTCC), through its subsidiaries, provides clearing, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks. DTCC's depository provides custody and asset servicing for 3.6 million securities issues from the United States and 121 other countries and territories, valued at almost $34 trillion. In 2010, DTCC settled more than $1.66 quadrillion in securities transactions"


DTCC is a holding company for several regulated subsidiaries, including The Depository Trust Company (DTC), Fixed Income Clearing Corporation (FICC) and National Securities Clearing Corporation (NSCC). These subsidiaries provide centralized clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities and money market instruments traded in the U.S. capital markets.


DTCC's core mission is to manage and mitigate risk for issuers and investors and their financial intermediaries. To achieve this mission, DTCC has helped to automate, standardize and streamline processes that are critical to the safety and soundness of the capital markets.


In the normal course of business, DTCC handles member firms' payments of funds related to two key activities: the settlement of transactions entered into by members on behalf of both their customers and their own accounts, and the deposit of collateral ("margin") in relation to DTCC's subsidiaries' role as the central counterparty for the U.S. securities markets.


Clearance and Settlement


Centralizing the process of clearing and settling transactions through NSCC or FICC is a critical component of today's highly efficient securities markets. Through these centralized processes, trades are cleared - matching the "buy" and "sell" sides of trades - and settled (the buyer receiving securities and the seller the related payment for the transaction). Similarly, the payments for transactions are processed through a centralized system.


After a transaction is executed, the details are reported to NSCC (for equities, corporate and municipal bonds and money market instruments) or FICC (for government and mortgage-backed securities). The applicable subsidiary becomes the "central counterparty" to the trade, guarantying completion of the transaction if either the buyer or seller is unable to fulfill its part of the contract.


NSCC settles trades through DTC's centralized book-entry system (FICC settles trades through the Federal Reserve's National Book Entry System). Selling parties deliver securities to buying parties through DTC against an obligation to pay funds for the transaction. A member's payment obligations (amounts it owes and amounts it is owed) are accumulated throughout the settlement day, and result in a final payment processed at the end of the day (from the member to DTC or from DTC to the member) equal to the total of these payment obligations.

Counterparties cannot withhold cash or securities from trades, or no settlement occurs. DTC itself is not involved in deciding how payments are processed or who receives what amounts; further, the total of settlement moneys received from members by DTC equals the total settlement payments DTC makes to other members, with none of these moneys retained at DTC. Payments may relate to transactions settled on behalf of a member firm's customers or transactions for the firm's own account; this transactional information is not reported to DTC.


Securing the Trade Guaranty


As a central counterparty, NSCC or FICC guarantees a member's performance on trades reported to the clearing house. To provide underlying security for this guaranty, NSCC and FICC require members to post Clearing Fund deposits (or margin) collateralizing their guaranteed trades.


DTCC constantly reviews and assesses the amount of collateral (cash and/or securities) required to be posted from each firm. As DTCC's subsidiaries guarantee each trade, the amount of collateral required can vary throughout the day, depending on trading volume, market volatility and a view of the potential risk of a default by a particular member firm.


Clearing Fund deposits and payments relating to transaction settlements are handled through completely separate processes and are not commingled; all deposits and payments are kept separate and distinct. In addition, when a firm sends funds through DTCC to complete its transactions and settle trades, DTCC does not "hold back" any funds for purposes of collateral or margin - all funds are remitted to the parties to whom they are due.


More About DTCC


DTCC, through its subsidiaries, provides clearing, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks.


DTCC's depository provides custody and asset servicing for 3.6 million securities issues from the United States and 121 other countries and territories, valued at almost $34 trillion. In 2009, DTCC settled more than $1.48 quadrillion in securities transactions.


DTCC operates through 10 subsidiaries - each of which serves a specific segment and risk profile within the securities industry:


- National Securities Clearing Corporation (NSCC)

- The Depository Trust Company (DTC)

- Fixed Income Clearing Corporation (FICC)


- The Warehouse Trust Company LLC

- DTCC Derivatives Repository Ltd.

- DTCC Solutions LLC


- EuroCCP Ltd.

- Avox Ltd.





I always love the limited presentation of FTD information, the first thing cited is 13 days to cover the open position. Certainly if a trade has issues for delivery it is 13 days for delivery of shares or else it becomes a required buy from the market, the SEC cites the following causes of such FTDs:


    Quote: Many times the member will experience a problem that is either unanticipated or is out of its control, such as:

    (1) delays in customer delivery of shares to the broker-dealer;

    (2) an inability to borrow shares in time for settlement;

    (3) delays in obtaining transfer of title;

    (4) an inability to obtain transfer of title; and

    (5) deliberate failure to produce stock at settlement which may result in a broker-dealer not receiving shares it had purchased to fulfill its deliver obligations.


    In addition, market makers may maintain temporary short positions in CNS until such time as there is sufficient trading to flatten out their position.




None of these however are ever presented in such “professional authority”, of course there is another thing missing from such self proclaimed knowledge of FTD data, the fact that in most OTC cases delivery can be up to 35 days on debt conversions expecting free trading status of such newly issued shares. I have yet to see citation of SEC Rule 203:


    Quote: Pursuant to the suggestions of other commenters, we are including an additional exception from the uniform locate requirement of Rule 203(b)(1) for situations where a broker-dealer effects a sale on behalf of a customer that is deemed to own the security pursuant to Rule 200, although, through no fault of the customer or the broker-dealer, it is not reasonably expected that the security will be in the physical possession or control of the broker-dealer by settlement date, and is thus a "short" sale under the marking requirements of Rule 200(g) as adopted.70 Such circumstances could include the situation where a convertible security, option, or warrant has been tendered for conversion or exchange, but the underlying security is not reasonably expected to be received by settlement date.71 Rule 203(b)(2)(ii) as adopted provides that in all situations, delivery should be made on the sale as soon as all restrictions on delivery have been removed, and in any event no later than 35 days after trade date, at which time the broker-dealer that sold on behalf of the person must either borrow securities or close out the open position by purchasing securities of like kind and quantity.




There also trade rejections that end up short due to amateur traders who round trip purchases and sales of securities before they settle, of course that is never discussed either. But what really puts a fine point on it all is the fact that there is a failure to understand FTD reporting and Threshold data as presented, none of which even point to NSS or Abusive NSS and yet it is definitively posted as proof in some cases. I often ask if the SEC has to make statement on such data that there is nothing definitive about the cause for such data then how is it that non regulatory entities can make a case from it saying it is in fact NSS? The SEC statement is pretty clear:


    Quote: Please note that fails-to-deliver can occur for a number of reasons on both long and short sales. Therefore, fails-to-deliver are not necessarily the result of short selling, and are not evidence of abusive short selling or “naked” short selling. For more information on short selling and fails-to-deliver, see,, and




How did one determine the FTDs are not “long’ position trades? How did one determine they are a result of short selling or abusive short selling or naked short selling? The SEC spells it out clearly, there is nothing to be certain about the data, however the presence of FTD is not enough, even on threshold doesn’t mean a naked short position exists. In fact the common cause of such large short positions revolve around debt conversions in the first place.


NTEK was incorrectly reported on Reg SHO, it is not an SEC Filer therefore it should have never been on that list. It falls under FINRA non reporting standards of Rule 4320. Some postulated that even though it isn’t correct that there still exists a non delivery issue of shares, that is also false. The FTD data doesn’t represent a continuous aggregate sitting out there of delivery, although one could make a case for 200,000 shares using the last reporting period of FTD data, it would fall back on what was presented in SEC Rule 203.


Market Makers do not buy for their principle account in the OTC, they make their money on each transaction as contracted by brokers in Riskless Principle transactions. They may also make money on Market Orders, but one of the largest money makers is simply selling newly issued shares for block positioners dumping their shares. Unfortunately the myth of MMs profiting by driving price is taken from exchange traded securities, where they do in fact buy and sell based on their own principle accounts. They also make a lot of money on “price improvement” on such listed securities.


I am not a fan of price improvement, it is quite the seedy business of taking advantage of the 4 positions after the decimal point of price, not to be confused with taking advantage of the “spread”. You may enter an order for $10 a share and yet the broker presents you this awesome transaction at a lower price of $9.9999 a share on say a 10,000 share purchase… wow you saved $1 on the transaction. On the other hand they purchased the shares at $9.9990, they banked $99 on the transaction. This creation of a spread based upon the 4th digit is completely legal as they are acting on your best behalf of the purchase of shares. They got you a deal of saving $1.


The point of what I presented above is where manipulation occurs NOW, but it cannot be done here in the OTC since it requires buying and selling from ones own principle account and hoping for the liquidity needed to get back out of the position. Such arbitrage is rarely discussed in the forums, instead old methods employed back in the day before strict Reg SHO requirements and reporting came about are discussed. Certainly many MMs wrote off bad trades in OTC securities, there was nothing to track them accurately, and they were in fact Grandfathered by the SEC for such transaction back in 2008.


Simple facts are the OTC is not a liquid enough environment for such shenanigans any longer, nor does it present an opportunity to hide such transaction due to regulatory over sight. FINRA gets a report for each and every transaction that occurs on the consolidated tape, such NON TAPE TRANSACTIONS are regulatory reports detailing the entire transaction. The non tape transaction report and the consolidated tape are a form of check and balance. This is no different than credit and debit transactions for accounting and in fact once a trade is confirmed it is in fact reported upline to the NSCC who does their own credit and debit function for each trade transaction.


The bottom line is that market makers do not buy this junk any longer, the OTC is not manipulated by MMs dumping non existent shares, it is simply manipulated by insiders, affiliates and debt holders. If one wants to see manipulation they need to experience the exchanges where it is performed daily and in many different forms where it is difficult to spot it or in some cases completely legal under regulatory rules.



"New Equity Post-Trade Risk Management Service Is Set to Launch in Q1


by Bari Trontz


DTCC has received regulatory approval to launch DTCC Trade Risk ProSM, a new post-trade risk monitoring service that will help clearing firms monitor the intra-day exposure of their correspondents, clients and their own equity trading desks.


Scheduled to go live during the first quarter of 2012, Trade Risk Pro will be the only service in the U.S. marketplace that offers a single, centralized view of all U.S. equity trades submitted for clearance.


DTCC created Trade Risk Pro to give clearing firms the ability to easily monitor and set equity trading credit limits in order to mitigate their overall risk.


“We designed this innovative service to help mitigate systemic risk in the U.S. equity markets,” said Murray Pozmanter, DTCC managing director and general manager, Clearing Services. “It will give U.S. clearing firms the ability to monitor their daily trading limits in near-real-time, which, in turn, enables them to more effectively manage the exposure introduced by their correspondents and their own firms.”


In a nutshell


Trade Risk Pro is a web-based service that provides DTCC clearing members with a continuously updated snapshot of their equity trading activities in a centralized and standardized method.


It reports aggregate and net value and share exposure for equity transactions within seconds. It also provides an early warning system that alerts clearing firms to trading activity that is nearing the credit limits they have set for their own and their correspondents’ accounts, enabling them to effectively manage potential risk.


An offering of National Securities Clearing Corporation (NSCC), a DTCC subsidiary, the service sources its data from NSCC’s Universal Trade Capture system. That system combines virtually all broker-to-broker equity, listed corporate and municipal bond and unit investment trust trading in the U.S. The data is available intra-day, and refreshed within seconds, compared to previous reporting systems that regenerated data over minutes or sometimes hours.


As the central counterparty for the U.S. equities market, NSCC leverages trade submissions and position offsets from exchanges and other liquidity destinations to report this information to participants.


How the service works


Through the web-based portal, participating firms create “Risk Entities” that track the activity of their correspondents and their own trading desks. The Risk Entity information entered by the firm will drive position calculations and displays within the system. Customers set and update share and dollar limits with respect to each Risk Entity at gross, adjusted and net levels.


Trade Risk Pro nets, aggregates and displays position information to monitor credit limits. If positions near or exceed the established limits, Trade Risk Pro notifies the customer via screen alerts. The alert allows the firm to view exposure at the CUSIP and individual trade levels.


Because the service offers complex scalability, as well as “off-the-shelf” capability, NSCC’s largest member firms, as well as broker/dealers that typically handle lower trading volumes, are expected to sign up for it."

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