DTCC is the largest clearinghouse in the world BY A MILE. It processed $2.15 quadrillion in securities in 2019 - that's $2,150 trillion. Most of that isn't even stocks.pic.twitter.com/ivUJDkGo1c
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Plenty of headlines about Robinhood restricting stock buys & raising cash mention the mysterious clearinghouse behind RH's moves - DTCC. More attention needs to be placed on DTCC, its structure & systemically important role in financial markets. A thread:pic.twitter.com/cGXiT1s8K5
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In addition to centrally clearing every equity trade in the US, DTCC clears Treasuries, corporate bonds, MBS, repos and other fixed income trades. Fixed income makes up 70% of DTCC volume.pic.twitter.com/iZWtDX3eUl
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DTCC's structure mirrors the Federal Reserve. Clients are required to own shares in DTCC in proportion with their use. This ownership doesn't carry economic interest, but it does come with voting rights - banks & large brokers who use DTCC elect their board & management.
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DTCC's leadership is a who's-who of Wall Street establishment. Banks, exchanges, asset managers & regulators all have representation on DTCC's board. Below chart gives you an idea of the scope of leadership's experience & tenure:pic.twitter.com/Rs7an0GeTe
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DTCC requires its customers to hold collateral with the clearinghouse to keep adequate liquidity. If risk thresholds are breached, DTCC can choose to raise its collateral requirements and demand cash from members.
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Brokers are banks at their core. They take deposits in the form of cash & stock & lend it out, collecting the difference. If brokers are like banks, DTCC is like a central bank. They manage liquidity & monitor risks to the financial system directly through trade processing.
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More news outlets are catching on, but DTCC is behind RH's frantic cash raising & account freezes. It required billions in cash immediately from certain brokers to manage the squeeze stock chaos last week. Compound248 explains this even better here:https://twitter.com/compound248/status/1355274739351248898 …
Dear Media, What’s happening with RobinHood? A quick primer. This is a “plumbing” issue. It is esoteric, even for those on Wall Street. A very long thread on how the toilet is clogged.
Read on
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DTCC is extremely important to the financial system & to all investors. Their actions directly impact how stocks trade & how traders make decisions. Journalists need to talk about them more.
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How does DTCC keep up with technology changes? Which brokers use DTCC the most & therefore have the most voting power? Why doesn’t DTCC hold press conferences & broadcast its strategy to the public? Why is CEO Michael Bodson not a household name like JPow?
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I'll be writing more about DTCC in this Friday's newsletter - sign up below if interested:https://frontmonth.substack.com/
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