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THE STORY OF THE DEPOSITORY TRUST & CLEARING CORPORATION
DTCC would undergo a leadership change in 2007 when Jill Considine retired from the firm. Donald Donahue was installed as DTCC’s new chairman and CEO. In 2007, DTCC was healthy, but the overall financial industry was starting to show cracks. By that time, a trading derivative known as a credit default swap had entered the public discourse. Banks used these swaps to hedge against default of debt instruments, with the seller of the swap essentially insuring the debt instrument against default. Many swaps covered collateralized debt obligations (CDOs), structured financial products made up of a pool of mortgage loans. When it became clear in 2007 that many of these CDOs included risky subprime mortgages, which were defaulting, the markets began to freeze, given the wave of subprime defaults and the great uncertainty about individual banks’ financial commitments to swaps on CDOs holding these defaulted mortgages. Counterparties weren’t willing to trade. Firms had great difficulty getting funding to support their activities. A financial crisis had begun. Not since the Great Depression of 1929 had the US and global markets experienced such a severe economic storm.
The Great Recession
In the years prior to the Great Recession, DTCC had put in place a seemingly innocuous policy that would prove prescient. In 2005, the firm began modeling the failure and closeout of a client to test and train new team members in risk. “We had the realization that there have been a lot of changes in risk groups,”
2006 AUGUST
2008 DTCC’s Trade Information Warehouse manages 11 credit events in the over-the- counter derivatives market in 2008. Approximately $285 billion of credit default contracts would be netted down to $12 billion in actual payments.
2008 DTCC settles $1.88 quadrillion in transactions. It also has $27.6 trillion in securities on deposit.
2008 DECEMBER 12 Bernard L. Madoff
Donald Donahue becomes president and CEO of The Depository Trust & Clearing Corporation (DTCC). Jill Considine takes on the role of executive chairman.
Investment Securities ceases trading. DTCC’s equity clearing subsidiary takes responsibility for all trades that members have open and closes out all trades with no loss to member firms.
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