The Depository Trust & Clearing Corporation (DTCC) is quite possibly the biggest company you've never heard of...
Its website says,
"DTCC, through its subsidiaries, provides clearance, 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 has operating facilities and data centers in multiple locations in the United States and overseas.
"In 2011, DTCC’s subsidiaries processed securities transactions valued at approximately US$1.7 quadrillion. Its depository provides custody and asset servicing for securities issues from 122 countries and territories valued at US$39.5 trillion."
DTCC and its subsidiaries hold and process almost all of the physical paper collateral of the financial world.
It looks like DTCC and its subsidiaries have played the main role in leveraging paper collateral (which represents real assets) probably worth several hundreds of billions of US$ into notional assets worth several trillions US$... Most of these so-called assets are TOXIC and existing essentially as electronic data!
DTCC was in the news recently beacuse Hurricane Sandy flooded the DTCC vault at their ironically-named "55, Water Street" address. Potentially destroying several trillions in paper securities!
According to Michael Bodson, Chief Executive Officer and President of DTCC,
"DTCC’s lower Manhattan headquarters, and likely our sealed securities vault, sustained water damage from storm flooding. While it would be premature to make an accurate assessment as to the full impact of the water damage to the vault or its contents, investors who held certificates in the vault as part of the DTCC’s book entry system are not at risk of losing the value of their holdings. These physical certificates represent securities held in paper form. DTCC maintains electronic records of the full contents of the vault which can be replicated if the physical certificates are damaged or destroyed."
BUT IT HAS TURNED OUT TO BE A "CONVENIENT" DISASTER FOR DTCC.
You see, DTCC has been trying (hard) to eliminate paper securities in favour of a purely electronic version!
The reasons sited are familiar...
- it's a meaningless old system (uncool?)
- it's cumbersome & costly
- it's less convenient to hold and transact than electronic version
- there's widespread acceptance of technological alternates
- there's falling demand for the physical version
If you step back, you realise that THESE are the very same lame excuses trotted out against physical/paper money vs. digital/electronic money.
But why is DTCC so keen to get rid of physical securities?
DTCC is accused of being at the centre of a notorious web of financial wheeling-and-dealing that's inflating the value of securities by trillions of US$ by trading 'Phantom Shares' - that is, securities that DO NOT EXIST! All we need to remember is that in an investigation, an inventory of physical securities is much more difficult to manipulate than electronic data.
Here's an award-winning Bloomberg Special Report on 'Phantom Shares' and DTCC from 2007...
IMAGINE A DTCC-LIKE GLOBAL FRANKENSTEIN'S MONSTER IN-CHARGE OF ALL THE DIGITAL CASH IN THE WORLD!
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