DTCC finalises $400m equity capital raising

The Depository Trust and Clearing Corporation, one of the world's largest clearing and settlement houses, is finalising a $400m equity capital raising from its user-shareholders so it can meet tougher new regulations for market risk managers.

The group, owned by a consortium of banks and brokers, made the disclosure in its annual report on Monday. The fundraising will boost the amount of liquid funds available for its settlement, equity, corporate debt and fixed income clearing businesses.

Global regulators are keen to underpin companies such as DTCC, the principal US securities clearing house, as part of a series of post-crisis reforms of markets.

The New York-based group processed securities such as equities, corporate debt and US Treasuries with a value of $1.6 quadrillion last year and its role has earned it the designation of "systemically-important market infrastructure" by US authorities.

New laws such as the Dodd-Frank act have mandated clearing houses strengthen their capital buffers against their own default and guard against systemic risk. A clearing house stands between two parties and ensures a deal in the event one counterpart defaults.

As an 'at cost' utility, DTCC earns little from its operations. Last year to December 31 it had net income of just $18.7m from total revenues of nearly $1.5bn. However operations that are overseen by US banking regulators currently exceed Federal Reserve capital standards.

The group held a special meeting with shareholders at the end of January to approve a new mechanism for DTCC to sell, and to require shareholders to buy, newly issued common shares. At the same meeting the shareholders approved the capital raise, it said. DTCC has about 28,500 shares of common stock.

Common shareholders who are full service members of the three clearing agency subsidiaries will be required to purchase the new common shares, the DTCC also said. However, contributions will be based on the revenues that each user contributes to the clearing houses.

The settlement date is scheduled for the end of April. "While we received board approval last year and broad shareholder support in January, we nevertheless wanted to provide ample time to communicate the rationale for this effort to all our shareholders and afford them the opportunity to prepare for the funding of additional shares of DTCC common stock," it said in a statement to the Financial Times.

The move comes only a few months after OCC, a US options clearer, concluded long-running discussions with its shareholders over ways to raise its equity capital requirements.

In the report, DTCC also disclosed it had paid for $230m to purchase the 50 per cent it did not own of Omgeo, a post-trade services provider, from Thomson Reuters.

The venture was intended to automate post-trade processes, such as trade confirmations, that pass between investment managers, broker-dealers and custodian banks. The area, known as the "middle office", is where swaths of banking risk analysis and control takes place.

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