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The Depository Trust Company 1976 Annual Report

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The Depository Trust Company 1976 Annual Report The Depository Trust Company 1976 Annual Report The Depository Trust Company performs their securities, and an accounting system for three major functions: it is a custodian for the the book-entry delivery and pledge among its securities of its Participants, a channel for Participants of securities immobilized in its communications between Participants and be­ custody. The nature of its major services is tween Participants and the transfer agents of indicated below. OTC accepts deposits of securities certifi­ cates from or for its Participants at its office or at cooperating Depository Facilities across the country. OTC makes book-entry deliveries of depos­ ited securities between Participants and between a Participant, clearing corporations and other securities depositories acting for their users. It also receives and makes pay­ ment for securities delivered by book-entry, including underwriting distributions. OTC pledges Participants' securities by book­ entry to secure their collateral loans from Pledgees. OTC segregates Participants' securities which underlie options traded on various ex­ changes and settled through the Options Clearing Corporation. OTC holds deposited securities in custody and records each Participant's position on its books in any eligible security issue. OTC passes on to Participants cash and stock dividends and interest related to se­ curities held in custody. OTC facilitates the voting of depoSited se­ curities by assigning the voting rights in equity issues to the appropriate Participant. OTC arranges for the transfer and delivery to Participants of securities registered in the name of any owners, reducing Participants' positions accordingly. OTC provides for withdrawals by Participants of certificates on demand (COOs) when needed within approximately three hours. OTC provides users the ability to confirm securities trades and to acknowledge those confirmations, whether or not the transac­ tions are in OTC-eligible security issues. Table of Contents 2 Board of Directors 3 Chairman's Letter 4 Ownership and Control 6 Growth 7 Developments 15 Services 23 Protection for Participants' Securities 28 Administration 30 Financial Statements 35 Participants 38 Pledgees 39 Depository Facilities 40 Institutions Participating in the Institutional Delivery System 41 Officers Highlights At the End of the Year: 1976 1975 Participants 258 256 Broker-Dealers 211 219 Banks 40 30 Clearing Agencies 7 7 Pledgees 77 59 Depository Facilities 31 30 Eligible Security Issues 9,870 8,165 (in billions) Value of Secu rities on Deposit $111 $ 60 Bank Deposits $ 61 $ 28 Broker-Dealer Deposits $ 50 $ 32 Number of Shares on Deposit 3.8 2.7 Bank Deposits 1.3 .7 Broker-Dealer Deposits 2.5 2.0 Principal Amount of Debt Securities on Deposit $ 7.7 $ 4.4 Bank Deposits $ 3.5 $ .9 Broker-Dealer Deposits $ 4.2 $ 3.5 Value of Securities Pledged for Collateral Loans $ 6.8 $ 3.9 Value of FAST Balance Certificates at Transfer Agents $ 14.3 $ 3.0 Totalforthe Year: (in billions) Market Value of Book - Entry Deliveries $309 $210 Cash Dividend and Interest Payments to Users $ 3.5 $ 2.1 Board of Directors' William T. Dentzer, Jr. Chairman and Chief Executive Officer, The Depository Trust Company Robert C. Hall Chairman and President, Robert S. Driscoll Securities Industry Managing Partner, Lord, Automation Corporation Elliott Averett Abbett & Co. Chairman and Chief Executive Officer, The Bank of New York rge E. Doty General Partner, Goldman, Sachs & Co. Ross B. Kenzie Raymond J. Executive Vice President, Merrill Lynch, Pierce, Kalinowski Fenner & Smith James C. Harris Executive Vice President Incorporated, and Director, and Director, A.G. Vice Chairman of the Merrill Lynch & Co., Inc. Board and Chairman of Edwards & Sons the Trust Committee, Northwestern National Bank of Minneapolis C. Richard Justice Senior Vice President, National Association of Securities Dealers John T. Roche Joseph A. Rice Executive Vice Presid, President, Irving Trust Kidder, Peabody & Co Company, and President. Incorporated Charter New York Arthur Levitt, Jr. Corporation President, Shearson Hayden Stone Inc., and member of the Board of Governors, American Stock Exchange Inc. Francis J. Palamara Executive Vice President, New York Stock Exchange, Inc. Joseph A. Vitanza Senior Executive Vice George A. Roeder, Jr. President, Drexel • Elected March 23,1977. Effective May 1, 1977, Vice Chairman, Burnham Lambert Mr. Hall was to become Executive Vice President-Operations The Chase Manhattan Incorporated and Mr. Palamara Executive Vice President- Bank, N.A. Planning and External Affairs of the New York Stock Exchange. Retiring from the Board of Directors upon completion of their terms of office were: George M. Ferris Jr., President and Chief Executive Officer of Ferris & Company, Incorporated; Dr. John T. Fey, Chairman of the Board of The Equitable Life Assurance Society of the United States; Frederick Moss, Chairman of the Board of Becker Securities Corporation and Industry Representative on the Board of Governors of the American Stock Exchange Inc.; William I. Spencer, President of both Citibank, N.A., and Citicorp. and Robert C. Van Tuyl, Vice Chairman of the Board (Retired) of Shearson Hayden Stone, Inc. Chairman's Letter At The Depository Trust Company during the time-10 directly last year and many more year 1976 indirectly, through their participating corre­ III equity securities on deposit increased by spondent banks. These banks have seen the more than a billion shares, to almost four depository's track-record for safety and effi­ billion shares at year-end, and ciency justify the promise of its unique I!I book-entry deliveries-that is, debits and safeguards and controls. They know of its re­ credits on the depository's books rather than liability under stress as demonstrated during the physical transportation of securities certifi­ the record-high trading volumes early in 1976. cates to complete transactions-increased by Depository Trust's system is now used di­ almost $100 billion to $309 billion. rectly by 210 broker-dealers and 43 banks. These two indicators demonstrate how During the first quarter of 1977, the depository's much the world's largest custodian of corpo­ growth followed the upward trend lines of its rate securities grew in 1976. Why such strong 1976 activity. There is every reason to believe growth took place is even more interesting. this thrust will continue, as financial institutions Financial institutions become users of The continue their conversion to a depository en­ Depository Trust Company's services primarily vironment. Improved cost control, better to reduce their costs and effort in settling se­ customer service and safety are hard argu­ curities transactions. They recognize, as well, ments to beat. that use of the depository provides them more accuracy, better customer service and safety. Until recently, however, relatively few banks made active use of depository services. While securities depositories have been common in Western Europe for years and even decades, they are relatively new in the United States. William T. Dentzer, Jr. In its fourth year as The Depository Trust Chairman and Chief Executive Officer Company and the ninth year since its pre­ decessor, Central Certificate Service, was created by the New York Stock Exchange to serve NYSE member firms, the depository ex­ perienced increased use of its capabilities by banks. This was due both to its greater utiliza­ tion by banks which first joined DTC in 1973 and to added bank participation since that 3 Ownership The Depository Trust Company is owned and financial community in proportion to their use and Control controlled by its Participants or their represen­ of the depository. tatives. The procedures for its governance are During 1976, broker-dealer Participants be­ carefully framed to reflect the need for objec­ came entitled for the first time to purchase tivity in serving diverse users in the financial shares of DTC stock. Previously their shares community. were held by their principal self-regulatory The right to purchase capital stock of the agency representatives-the New York Stock depository is based on a formula defining each Exchange, the American Stock Exchange, and Participant's use of the depository during the the National Association of Securities Dealers. preceding calendar year. The formula calcu­ When the stock of DTC was reallocated in lates such use based equally on fees paid to February 1977, 23 of 210 eligible broker-deal­ the depository and the market value of long ers chose to exercise this option and securities positions in DTC on the last busi­ purchased 11.4 per cent of the depository's ness day of each month. The purchase price outstanding shares. The stock entitlements of the stock is based on its book value as of they did not purchase remained with the self­ the end of that year. regulatory organizations representing them. The amount of stock each Participant is en­ As a result, the American Stock Exchange and titled to purchase is recalculated each year to the National Association of Securities Dealers reflect annual variations in usage. The Partici­ now own 6.5 per cent each and the NYSE pant then may purchase before the annual owns almost 47 per cent. stockholders meeting any part of the stock to Twenty-two of 37 eligible banks hold 28.8 which it may be entitled, or none at all. per cent of the depository's stock. Eleven New At the annual meeting stockholders elect a York City-based banks hold 26.4 per cent and Board of Directors under a system of cumula­ eleven banks with headquarters outside New tive voting which assures that no group York City hold 2.4 per cent. controlling 51 per cent of the stock can elect all The Depository Trust Company was created directors. This makes representation on the in May 1973 to acquire the business of the Board available to users from all parts of the Central Certificate Service of the New York ~I Stock Exchange, a securities depository cre­ ated by the NYSE in 1968 to serve its member firms.
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