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CHAPTER TWO | REGULATION, REGIONALIZATION AND REORGANIZATION
Dentzer may have known little about clearinghouse operations, but he did know regulations. He began to separate CCS from NYSE, first incorporating CCS, Inc., in October 1972 as a subsidiary of NYSE. By the end of that year, CCS, Inc. had more than 1 billion shares on deposit, with a value of more than $50 billion.
New Name, Broader Mission
In May 1973, DTC was formed. It grew out of Central Certificate Service (CCS).
Incorporating CCS, Inc., was just the first step in true independence. In May 1973, CCS became DTC, which was designed to be owned by the financial institutions that used its services and would operate as a not-for-profit. DTC became a member of the Federal Reserve System. Dennis Dirks, who started with CCS in 1972 and eventually became president and chief operating officer of DTCC, described some of the challenges involved with establishing DTC: DTC was basically such a novel concept that we had many issues that we had to overcome to try to become successful. One was to make more securities issues eligible to DTC services, but more importantly, we needed to get the banks involved. Brokers would actually settle transactions by book entry within CCS, later DTC. But at the end of that process, frequently, it was a bank and a bank’s customer who were the ultimate buyer of the shares. The broker would have to withdraw physical certificates from DTC and send them over to the bank, which basically made the entire process much less efficient. So, part of the planning was to try to come up with ideas as to how we could engage the banks and have them agree to use DTC. The banks were not the only holdouts in those early days. Brokers, transfer agents and banks all had their own communication standards. Getting them all on the same page took some work, Jaenike remembered, because some brokers said they would not convert to the standard format. That quickly became a role for DTC, which would be to standardize the instructions from the broker and format them for the transfer agents. That was enough to get the transfer agents on board as DTC saved them the cost and effort in programming. “The operations people at the time, too many of them, were not farsighted. They couldn’t see that, five years out, this thing was going to save us a lot of money,” Jaenike said. “They had a short-term view of the future, so convincing them took a lot. Gradually, it was such a good idea that enough people signed on to it and it became a great success.”
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