1977 AIl.Il.1.l.al Report The Depository Trust C01npany Summary of Depository Services The Depository Trust Company performs Custody three major functions: it is a custodian for DTC holds deposited securities in clJstody the securities of its Participants, a channel and records each Participant's position on for communications between Participants its books in any eligible security issue. and between Participants and the transfer agents of their securities, and an account­ Dividend and ing system for the book-entry delivery .~nd Interest pledge among its Participants of secuntles Payments immobilized in its custody. The nature of its DTC passes on to Participants cash and major services is indicated below. stock dividends distributions and interest Deposits related to securities held in custody. DTC accepts deposits of securities certifi­ Voting Rights cates from or for its Participants at its office DTC facilitates the voting of deposited se­ or at cObperating Depository Facilities curities by assigning the voting rights in across the country. equity issues to the appropriate Partici pant. Confirmations Withdrawals and Acknowledgments By Transfer DTC provides users the ability to confirm DTC arranges for the transfer and delivery securities trades and to acknowledge those to Participants of securities registered in confirmations, whether or not the transac­ the name of any person, reducing Partici­ tions are in DTC-eligible security issues. pants' pOSitions accordingly. Deliveries Urgent and Settlement Withdrawals DTC makes book-entry deliveries of depos­ DTC provides for withdrawals by Partici­ ited securities between Participants and pants of certificates on demand (CODs) between a Participant, clearing corpora­ within approximately three hours. tions and other securities depositories act­ ing for their users. It also receives and Options makes payment for securities delivered by DTC segregates Participants' securities book-entry, including underwriting distribu- which underlie options traded on various tions. ' exchanges and settled through the Options Clearing Corporation. Pledges DTC pledges Participants' securities by book-entry to secure their collateral loans from Pledgees. Chairman's Letter As in prior years, The Depository Trust increased efficiencies through automation Company's growth in 1977 was substantial. and new services to our Participants. A few numbers are indicative: the annual The pages which follow give substance value of securities delivered through the to this introduction of our 1977 report. depository increased by almost $50 billion They indicate why broker-dealers and to $357 billion, and equity securities in DTC banks wishing to reduce securities transac­ custody increased by 1.2 billion shares to 5 tion costs and improve client services can billion shares at year-end. achieve these goals through depository But large numbers such as these tell only usage. part of the story. Some smaller nu mbers are They show how Depository Trust fits into at least equally significant. the developing national clearance and set­ Fourteen banks from 10 states became tlement system. depository Participants in the course of And they suggest why the depository's 1977, raising the number of participating growth in 1978 is likely to be similar to its banks at year-end to 53 headquartered in substantial growth in 1977. 24 states. Many other banks also partici­ pate in the depository, indirectly, through the accounts of correspondent banks which are DTC Participants. Broker-dealers hav­ ing already adapted to the use of deposito­ ries, it is the adaptation of institutions which is of primary current importance. The rec­ William T. Dentzer, Jr. ord in 1977 shows that it is taking place. Chairman and Chief Executive Officer Such statistics, though, do not ade­ quately indicate DTC's progress last year. I refer to enhancements of existing services, Highlights At the End of the Year: 1977 1976 Participants 265 258 Banks 53 40 Broker-Dealers 204 211 Clearing Agencies 8 7 Pledgees 85 77 Depository Facilities 32 31 Eligible Security Issues 10,666 9,870 (in billions) Value of Securities on Deposit $139 $111 Bank Deposits $ 81 $ 61 Broker- Dealer Deposits $ 58 $ 50 N umber of Shares on Deposit 5.0 3.8 Bank Deposits 2.1 1.3 Broker-Dealer Deposits 2.9 2.5 Principal Amount of Debt Securities on Deposit $ 15.1 $ 7.7 Bank Deposits $ 10.3 $ 3.5 Broker-Dealer Deposits $ 4.8 $ 4.2 Value of Securities Pledged for Collateral Loans $ 8.3 $ 6.8 Value of FAST Balance Certificates at Transfer Agents $ 28.0 $ 14.3 Total the Year: (in billions) Market Value of Book-Entry Deliveries $357 $309 Cash Dividend and Interest Payments to Users $ 5.5 $ 3.5 William T. Dentzer, Jr. James C. Harris Chairman and Chief Vice Chairman of the Executive Officer, Board and Chairman of The Depository Trust Robert C. Hall the Trust Committee, Company Executive Vice President, Northwestern National New York Stock Exchange, Inc. Bank of Minneapolis Dwight L. Allison, Jr. President and Chief Executive Officer, The Boston Company, Inc., and Chairman of the Board, Boston Safe Deposit and Trust Company Thomas A. Bigelow Ross B. Kenzie Executive Vice President­ Executive Vice President, Operations, Wells Fargo Merrill Lynch, Pierce, Carl W. Klemme Bank, National Association Fenner & Smith Executive Vice President, Incorporated, Morgan Guaranty Trust and Director, Company of New York Merrill Lynch & Co., Inc. C. Richard Justice Senior Vice President, National Association of Securities Dealers Raymond J. John E. Stoddard Kalinowski John T. Roche Executive Vice President, Executive Vice President, Executive Vice President, Blyth Eastman Dillon & Co. Tre~surer and Director, Kidder, Peabody & Co., Incorporated A.G. Edwards & Sons, Inc. Incorporated Benjamin L. Lubin Managing Partner, Bruns, Nordeman, Rea & Co. Joseph A. Rice Joseph A~ Vitanza Robert B. White President, Irving Trust Senior Executive Vice Executive Vice President, Company, and President, President, Drexel Citibank, N.A. Charter New York Burnham Lambert Corporation Incorporated Retiring from the Board of Directors in March, 1978 were Elliott Averett, Chairman and Chief Executive Officer of The Bank of New York, George E. Doty, Partner, Goldman, Sachs & Co., and Francis J. Palamara, Executive Vice President-Planning and External Affairs of the New York Stock Exchange, Inc., who were among the original Directors of the depository. Also retiring at that time were Robert S. Driscoll, Managing Partner of Lord, Abbett & Co., Arthur Levitt, Jr., recently-elected Chairman of the American Stock Exchange, and George A. Roeder, Jr., Vice Chairman of The Chase Manhattan Bank, N.A. 2 The Depository Trust Company is owned depository's outstanding shares. Five of and controlled by its Participants or their these became owners forthe firsttime. As a representatives. The procedures for its result, 26 broker-dealers now own 11.2 per­ governance are carefully framed to reflect cent of DTC stock. The stock entitlements the need for objectivity in serving diverse they did not purchase remained with the users in the financial community. self-regulatory organizations representing The right to purchase capital stock of the them, so that the New York Stock Exchange depository is based on a formula defining now owns almost 46 percent and the Amer­ each Participant's use of the depository dur­ ican Stock Exchange and the National As­ ing the preceding calendar year. The for­ sociation of Securities Dealers now own 6.3 mula calculates such use based equally on percent each. fees paid to the depository and the market Twenty-two of 48 banks entitled to pur­ value of long securities positions in DTC on chase depository stock now hold 30.2 per­ the last business day of each month. The cent of the stock. Eleven New York City­ purchase price of the stock is based on its based banks hold 26.6 percent and 11 book value as of the end of that year. banks with headquarters outside New York The amount of stock each Participant is City hold 3.6 percent. Total stock entitle­ entitled to purchase is recalculated each ments of banks headquartered outside year to reflect annual variations in usage. New York City amounted to about 8 per­ The Participant then may purchase before cent. the annual stockholders meeting any part It is the policy of the depository not to pay of the stock to which it may be entitled, or dividends to stockholders. This policy is none at all. based on the view that distribution of de­ Atthe annual meeting stockholders elect pository ownership should not provide an a Board of Directors under a system of investment vehicle but rather offer to the cumulative voting which assures that no diverse users of DTC a means by which to group controlling 51 percent of the stock encourage its responsiveness to their can elect all directors. This makesrepre­ needs through exercise of their voting sentation on the Board available to users rights. from all parts of the financial community in The Depository Trust Company was cre­ proportion to their use of the depository. ated in May 1973 to acquire the business of After DTC stock entitlement based on the Central Certificate Service of the New 1977 usage was allocated in February York Stock Exchange, a securities deposi­ 1978,11 of 199 eligible broker-dealers pur­ tory created by the NYSE in 1968 to serve chased a total of almost one percent of the its member firms. The conversion of that Donna Grant Reilly, Assistant Secretary of DTC. 3 depository into The Depository Trust Com­ Arnhold & S. Bleichroeder, Inc. pany and the plan for DTC's evolution as a Shawmut Bank of Boston, N.A. user-controlled entity were developed by F. Eberstadt & Co., Inc. the Banking and Securities Industry Com­ Wood Gundy Incorporated mittee in 1970-1972. Oscar Gruss & Son Incorporated After amendments of various state laws Hartford National Bank and Trust which had restricted depository ownership, Company the initial sale of stock by the NYSE from its H.