is....
TRANSCRIPT
1976 ·NSCC is incorporated to consolidate the clearance and settlement of listed and OTC securities transactions.
'Jack Nelson named first NSCC president.
1980 ' Newly installed IBM 3033N8 computer upgrades processing capacity and shows NSCC's cOlllmitment to latest technology.
1978 ' NSCC's rule filing for processing Municipal Bonds is approved by the U.S. Secu rities and Exchange Commission (SEC).
' NSCC registered by the SEC as a clearing agency.
' NSCC begins work to take over clearance and settlement operations of NYSE, AMEX and NASD. Combined trade volume approaches 8 billion shares.
'SIAC hired as t~1Cilitics manager for NSCC.
1977
' Link to DTC expanded to include all duallyeligible securities.
' Branch offices of NSCC established in 10 cit ies.
'Consol idatio n of clearing operations of SCC, NCC and ASECC completed.
'Stock Borrow program allows NSCC to borrow securities to meet broker priority requests and buy-ins submitted by participants.
'Consol idation of clearance and settlement of listed and OTC transactions in NSCC pays off by savin g participants $11.8 million.
' 1,000 new equity issucs made eligible for CNS.
' Enhancements are made to the OTC comparison system to handle executed by and demand as-of trades.
' NSCC implements centralized compa riso n system for all OTC transactions including those from members of regional clearing corpo rations.
' NSCC offers full range of automated output through its direct CPU-to-CPU transm ission.
'NSCC begins to clear transactions frolll the Boston Stock Exchange, ITS frolll Cincinnati Stock Exchange.
1979 1981
1984
1982 ·Envelope Control System uses bal'code technology to record and monitor envelopc deliverics.
' Participants rcccivc comparison data for listed and OTC equit), trades on TCARS reports, which disclmc finm' perforInance and encourage i mpnwelllcn IS.
'Combined marketplace volume surpasses 26 billion shares traded.
' NSCC achieve, rccord low cost of 35 cents per trade. Proccssi ng volumc rl'achcs 272,000 transactions daily, a 40"0 incr,:a,e over 1982. Dollar volume increasc;, to $6.7 billion daily.
' NSCC is granted permanent registration by the SEC.
' David 1\1. Kelly is named NSCC president & CEO.
' 1\ lSRB mandates automated comp<lI'ison of municipal bond tr,ldes through a registered clearing ,lgencv.
-Funds Only Settlement Service implemented.
' NSCC record is ;,et on August 6 with processing of one million sid,:s submitted by participants on one (by
-Fil'st autom,lled comparison system for municipal bonds is introduced.
' NSCC establi;,hcs link \\'ith Clnadian Depository ftlr Securities Limited, fircilitating clearancc of trades executed in C.S. Sccuritic;, on behalf of Canadian firms . 30°,,, of trades rccci\cd by NSCC cxecuted on a locked-in basi;, b)' [kcember.
' Processing cosb reduced 40% sincc 1977
' NSCC's Automated Customer Account Transfer Service (ACATS) enables timel)' 'lnd eflic ient transtCr of customer accounts bet ween brokers.
'A subsidiary, International Securities Clearing Corpor,ltion (ISCc), is incorporatcd to support cross-border and (lther international trading activit)'.
' NSCC designs Fund/SERV, an au tom<1 ted proccssi ng system for mutual fund orders, to meet industry needs.
1988 1986
'An afliliate, Governmcnt Sccuritic;, Clearing Corporation (GSCC )' is formed to bring ,llItom,\led trade compari;,on ,lnd netting to ,cttlcmcnt of US govel'llml'nt sccurities.
·Fund/SERV SYStcm is introduced to support industry proces,ing of mutual fund transaction,. A\cragc lbily order volumc is dbout 4,000.
'ACATS proCCSSl'S 500,000 account transfers \\'orth $13 billion. Link is e,tablished to Options Clearing Corporation to allow the transtCr of options.
'October 19 markct break results in ncarl), triple daily ,lveragc of transaction;, ( 1.6 million side,). Tradl's arc proccs,ed by ~SCC without service disruption.
' NSCC's Reconfirmation and Pricing Service (RECAPS ) automate, handling of s(,curities not delivered 15 da\'s after settlement dat~'.
' ISCC establi,he, link lI'ith London Stock Exchangc, cblring link with Cedr! in Luxemhourg, ,1I1d cic,uing and custodv arrangemcnb in Japan and Singapore.
' NSCC's Networking system eicctronicalh' links mutual funds and broker, fl)I' tll'o-\\'ay cxchange and updating of client information. ,\t rear-end , 340,000 sub-accounts rcprcsent 13 fund, and 1-1 brokers on the svstem,
,66% of NYSE ,tock transactions no\\' comc to NSCC as locked-in.
'The Group of Thirty rdeases ninc recommendations for standardizing clearance and settlement worldwide.
' NSCC moves guarantee of matched trades fi'om T+·I to the end of T+l .
'NSCC begins netting l11unicipal bond transactions.
'Pacific Stock Exchange discontinue, clearing operations. 32 broker" representing 9()"" of volume, join NSCC. 1989 29 specialist firms join later this year.
1983 ' NSCC handles an averagc of more than 290,000 ~ transactions daily, lVorth $7.6 billion .
1985 1987
Our people Dedicated. Talented. Committed to excellence . Our people continue to
di~tinguish ,1Ild differentiate this organization. They have broad experience
in not only the indu,tn' segments we serve, but also in the technology
needed to deli\'er those '>en'ices most efhciently. Our people work dosely
with customers to create solutions that help minimize risk, foster continued
business growth - and beneht the entirl' fin.lIlcial sen'ices industry.
Nsee and Isee Board of Directors
Kenneth K. Marshall, CAt), In:-,tinl'l Corp()r~l1iol1.
David M. Kelly, Presidelll I'< (TO. ~SCC, sin(1.:' 19~3.
Prl'\']ously with S.llo!1lllll
Hrolhc-rs ,l~ r.l,lll<iging
ilirector. C\O. Ch.linn.lI1. l\:SCC\ rill,lIKl' 8;
Audit COl11mitlt'l' ,1Ild :\i.:mhcJ", L\('(uti,,\? ,lIld
intl'rn.ltioll,ll COIll11l11k't'''',
.\kmhl'J" or thL' \:l'\\ 'ork ~O(1('t~· of (. P\~ ,lilt.:!
\1llL'ri(,11l institute of ( p,\s.
\ iL'(' (~hJir!1lall ,lilt..! (Tt),
(;,CC; un. I~«(. Board ~kl11bcr. ~IB" Ckaring. ('or1'0r.ltlol1
.1Ild UTe. \ klllbc·r. Intern,llion.11 (. )pL'r.llinn,
.-\ .... "oei.Illon, ,\;y", Opt'LHions \ ... h-I",ol"\
Committee, \1 \ .....
~t.\.:lIritl(' ... ()pL'r.ltion ...
Di,'i"ioll ~Ind ~('l uri til' ... [r,.I(lcr<.; \ ....... o(j,ltion l)f ~Y.
Gary F. Goldring, (-h.l1rm,lIl, :'\SC( .. "'t"1l10r
'\I.\I1,It:ill~ DlrL'(lnr::>;
f\('(utin' (:UIll11l1ltt"t'
(.ll-(·h.lirm,lIl, ""pL'.lr, I L't'd ... ,l1ld Kdlu)!..g. <.. ·h.lirm.lll,
:-\SCC\ r\t'(uti\l'
Lommittct'. Tnhk'L' of tht'
~.lilll 1).lI'Il.lb.h 1 k.lllir
Robert H. Silver, I:\'(J 8\. Dirl'dor, Op"'J"ation ....
~l'n-iLl' &. "',sk'ms,
PJinl'\\'c'bbt'r. Bo.m"! '\iL'mhL'r, P,lilll'\\\ .. 'hhl'r In(.,
LOITt''''POlltil'llt SCT\·i((' ... Cllrp., .llld P~1ill("\\'('hhcr ~t'n·i((' ... Illl. ,\k"mbL'r. '\~t (':... Upcratitllh .lJ1d
,\11It1l.11 Fund COl11l11itk't.' .....
C,lHl'rlll)r .. Phil.1ddphi.l "'Io(k
f"\ch.lIlg(' . Corpor.Ht' Rt!Ll"uit
(.llJirm.lll, 0.'orth kr"'t'\
(:hdpt(,L Juvenile I )iclhL .. k' .... ]·uund.ltioll - "\\',111.- Il)
Cur(, Di.il)L'k' .... "
Peter B. Madoff, ""L'nior ,\ I.IIlagll1g
J)lrL'dor .. BL"rn.lrd l. ,\1.H.hllflm·L' .... tm('llt
~L'(lIritl!':"', :\y, .lIlt! \l.l<l)lf ~l"(L1rili(':-.
IntL'rn.ltillll.11 Ltd.,
i.ondon. j\\cmber,
N~U\ 1'.kmher,irip ')Ild Firlctll(l' &. Audit
<..:ommittL'(' .... L.\l'(uti\('
l.olllmitt('L' ,\it'mlwr, Cillcilln,lti ~tl)ck
I \(h.lngL'. hHI1lCrly \ it"L"
(:h.lirnl.lll. ~.I ... d.lq.
Jeffrey C. Bernstein, ""L"nIlH ,\ 1.1Il.l~il1g i )irL .. (tor.
lk,lr .. ""h.\lrn ... &. Cn. (.0·111,l1l.1g,l'''' dOll1t, ... ti(
<lnd lJ1k'rn.lIiull.11
(k"lr.lI1Ct" llpL'r.lllulh,
• lllt! i .... it 0. kmht'r llt' it:-.
0pl'r<lliolh. (.rl"dil .1l1d
Inll'rnal Audit COllll1lilkt' ....
Ch.linll.lll. ~~(('" <.. )pLT.l\ion~ (.o!llmittl't' .11ld j\icmht'r, ~kll1hl'r:-.hip ,lild Inkrn,ltion.d LOlllmittl"l'. j\iL'mhl'l'. SIS ... Operation ....
(_lHllllllttL·I'.
<.. .• 11'(' S'"k"m in '\L'\\ kr .... L .. Y.
Diane L. Schueneman, hr ... 1 \ P & Senior I )irL"(\lIr,
:. Icrrill I YIl(h \ ...... d
,\ Lln.lgl'llll'lll (ll'l)UP
()PLT.1I i( 111 .... ~ ll'mhl"r . :'\"C(· ..... 0pL'J".lIilHl ....
;\ IcmhLT:-.hip .Ind IntL'rrlatinll.Ii (.ol11lllilll'l ......
Committl't' ,\iL'mhlT, '...1.-\
Opt'r;llioll'" I )i\l ... inn .md ,\ iL'mhL'r, I nlern,l1 inn.1t
l )plT.ltIOlh \"''''(h.-i.lt inn.
Edward F. Watts, Jr., .\ l.lll,I~lIlg I )1J"l'lIor. (,oldm.lIl. "",,I(h ... & \tl.. ( hid of "'t.IIY nl
{,tuh,d <. )per;lliorh, He,ld of (,lnh.llluIUI'I' .... l)peJ',lIitm ...
.Ind <. _I) Iw.ld or thl' ( rl'dit I-ntit\, inli)J")11;lIron (,roll!"
(,()Jllrol 11111)1"O\l'111t'l1t .lllt!
I Jrnll' ...... illll,lt lk\l'tOPllll'llt
(,tlllllllitll'e:-.. i\lcmbL"r.. :\SC<..·\ .\lcmhcr ... hip and
inkrn,llinn.li {.tllllmittL'L''''.
B".lrd ~kl11hc'r. \11l' ( 'k.lrill~ ClIrpnr.lIi{)n.
Peter Quick, i'rc·,idc·nl. (jIlICK & Rcdl\'.
( l1.ml11.ll1. ",' s \ 1l'mblT ... hip (:oJ11lllittt.,l' .l!ld
~ iL'mhl'\"' "'\L'IlItI\,1' ,lrld ,\]UllI.d lund <..l11111llittL'I', ....
,\kmhc'r "I' ;-':1',1 .1Ilt! it... Sh.lrehokkr ....
Cnmllllll1il.lIiun ... <.. tl1l11llitkl"
"nici.rI "I \111'" .1Ild \ ill' Ch.lir1l1an lIf
SI.-\ .. "\l'\\'ltlrk j)j ... lrill.
1990 °Use of RECAPS mandated by SEe.
olnstitutional Delivcr), and CNS systems link lor Prime Broker activity. 50,000
1992 °NSCC revamps systems to support I1lOl'e from T +5 to T+3 for stock transaction payments.
trades handled in the first year, with value of $18 billion.
°Revisions to Fixed Income Transaction System (FITS) undertaken to streamline processi ng of bonds and Unit Investment Trusts.
°Fund/SERV has 150 participants, and is handling 1110re than 10,000 transaction, daily worth $421.4 million.
°In 15 years, average daily I'olum(' of transactions processed by NSCC nearly quadruples, to 513,000 transactions worth S39 billion.
°GSCC begins handling whenissued and forward -scttling trades in its netting system.
°NSCC and DTC begin development of interactive CNSlink.
°Fund/SERV redesigned to provide a growing mutual fund industr)' with expanded processing Ilexibility.
oNew risk management systems are put into effect; usc of excess collateral agreement reached with DTC and OCe.
°PC Platform provides access to N SCC services through personal computers.
°NSCC launches New York Window, a platform of services
that reduces high fixed costs of physical
processing and furthers industry
efforts to immobil ize ineligible securities.
oAverage daily order volume of Fund/SERV
system jumps 50% to 34,000
transactions, with a daily gross settlement
of $500 million.
°NSCC rolls out FITS Phase I - successfully incorporating III un i bonds.
oAverage daily volume of transactions proce,sed by NSCC reaches 699,000, with an average daily value of 560 billion, up 32'!;o from 1992.
o[SCC, in alliance with Citibank, launches Global Clearing Network to provide U.s. brokers trading overseas wi th si nglc comm un icat ions access for clearance and settlement.
°GSCC processes rccord 68,000 transactions
1993 on a peak day, worth $26 billion.
1991
1994 °NSCC develops Same
Day Funds Settlement (SDFS) s),stem to allow
participants to settle in Fed Funds daily.
°MBS Clearing Corporation acquired by its participants ti'om
thc Chicago Stock Exchange and operations
arc moved to NSCC oCiices in New York.
°NSCC introduces Collateral Management System (CMS ) to give
firms a clearer picture of their collateral deposits across all clearing agen
cies and depositories.
°NSCC moves from aT+5toa T+3
set tlemcn t cycle, reduci ng system ic
risk by 56%.
°With the sudden insolvency of Adler Coleman
Clearing Corporation, NSCC takes quick action to guarantee S 1.6 billion
in gross buy and sell contracts received before Adler's demise.
Works closely with the Securities Inve,tor,
Protection Corporation (SIPC) and minimizes
the imp,let of this insolvency.
°NSCC builds a communications link with DTC's Participant Terminal Svstem (PTS ). This allows NSCC to off'cr its products and services through PTS and facilitate real-time access to 1110nev settlement information fo;' participants and settling banks.
°ACATS shortens the standard settlement cycle lor transfer, from 10 days to seven.
°Chicago Stock Exchange exits the business of clearance, settlement and depository services. 32 specialist, 64 full -service and six municipal bond firms of lVlidwest Clearing Corp. converted to membcr~hip with NSCC
°GSCC extends its services to comparison and netting of repurchase agrecmcn ts (Repos).
°More than 223 fund f~llnilies and 172 broker/dealers use Fund/SE RV to process a daily average of 38,100 mutual fund transactions.
1995
1996 °NSCC and DTC lorm a jointly-owned affi liate, International Depository & Clearing LLC (IDe) to bring together respective international activities under one umbrella and provide greater coordination on clearance, settlemcnt and custody issues.
1998 °NSCC and JSCC, with the Emerging Market, Traders Association, launch the Emerging Markets Clearing Co rporation (EMCq in April, (ollowing registration approval by the SEe.
°NSCC introduces the
°NSCC helps lead part icipants through seamiess transition to Year 2000.
°NSCC and DTC forge partnership to strengthen clearance and settlement services for expanding domestic and global markets.
°The industry moves to Same Day Funds Settlement (SDFS ), bringing added efficiency and certainty
use of digital certificates through PCWeb Direct, its new Web-based application. PCWeb Direct allows lowvolume transaction submission to NSCC via the Internet. Will replace PC Platlorm, which is being phased out in advance of Year 2000.
2000 to the payment process. NSCC's monel' settlement system is completely redesigned to accommodate Same Day Funds.
°NSCC reaches milestone with July Y2K beta test which simulates f(llIr-day cycle of trading and clearance.
and beyond
°NSCC launches its web site: http://wwwonsccocomo
°NSCC init iates 18-monthlong Y2K format changes
in its applications.
°NSCC begins operation of Defined Contribution
Clearance & Settlemen t Service (DCC&S) in late
April. DCC&S provides the connectivity essential to
continued growth in 40 I (k), 403(b) and other defined
contribution transactions.
oPhiladelphia Stock Exchange (PH LX) closes the
Philadelphia Depository Trust and shifts the Stock Clearing Corp.-Philadelphia's clearing
and depository activit ie, to NSCC and DTC, respectivel)'.
°NSCC releases the filc formats for its redesigned ACATS, beginning the biggest change in the service since it was 6rst introduced 12 years ago.
°In November, NSCC launches its Annuity Processing Service (APS ), an automated, centralized system that electron ically links insurance carriers with the broker/dealers, banks and/or their affiliated insurance agencies that scll variable- and fLxed-rate annuities.
°NSCC achieves processing costs of 8 cents per trade.
1997
°NSCC launches new ACATS system,
expand ing use to include broker/dealers,
mutual funds and banks, handle more
products electronically and reduce
transfer times.
°NSCC introduces processing of annuity
applications, premiums and nnancial
reporting, and certain other insurance
processing services.
°In March, NSCC and 270 participant firms take part in first industry-wide Y2K test, sponsored by the SIA.
°DCC&S service gains substantial new participation.
° Virtual training area launched on NSCC Web site, providing I nternet access to a wide array of specific product information at a single location.
1999
Robert F. Lucey, Senior .\lan'lging
I lirectO\' I'< Chid "I' ()per.llioll~, PU11l.111l
1 11\"L'sl 1111..'11 I.". RI..''''p()llsibll' for ·rr.In ... !"!..'r
i\gCIl(\', Sr .. km."
Corpor .. tte ,\(COlllltlng,
(;l'lleral Scr\"iLI..'''' ;Jnd 1.1..'~.11. Ch,lirlll,lIl.
,sec's ~lulll.lll·lIJld (.nmmittI'L'.lI1d
)\icmhcr, FXCdlti\l'
<lnJ Oper.lIiOlh
(~olllillittl'l'''',
Mark L. Harris, 1\ I' I'< Lll( 1,
'-,1Il l(,ll1llll'll 11l\\.' .... tor
~l'l"\k\.'", 111(. ,\ kll1hlT,
0iSU'\'\llltLl,t1 hilld ,Illd OplT,ltion ...
lOllllllittt...'(',> ,111..1
\".!\-I..,or:- (:tHIIlLil. Ch,llrm"", I( 1\ Ilrokl'r
lk,lkr:-\<.h-j"or\
(:ollllllilh.:'L'. (h,lirm,lIl
011 \(l'HCIlL!..' of tht...'
:-..li ....... nuri iound,llion.
Ronald J. Kessler, Corpordk \'1' &.
I )irl..'dor 01 01'('1"<1(11111'.,
'\.\). hlw<lrd .... &. ~Oll"",
111(, PrL'sllklll, \( rl'
(oJ1lIlHH.lity (:k.1rintLorI' . .\kllllk'r, '\,CCo, t )pl'r.lti~Hl"" ,lilt! hn,lIl((,
&. \udit (,omnllttl.'I..' .....
(:hairllltlll, '-,1 \'.., ()pl'l'.ltion:-. (,OIIlIllIIll..'l'.
.\ kmher, ,\),1
<.. )pLT,ltion ... \d\i"'lll-\
(:OllllllittCL'.
Sandra S. Jaffee, Businl' ....... 1'\'l'(lIti\"t~ f(lf'
Citibank Worldwldl' St'curilil..'s Services,.\
ullit of ( itigroup, 11K.\' (;luh.tI (.urporatl' ;.1IH.I
IJl\'t: ... tJlll..'nt Banking Di\·ision . L'nder her
leadership, \\'\ \'SS has becolllc J premiL'r
prondl'r nf clearing. clI . .,tod\" <llld relatl,d
secllritic .... services to in.':.litlltioll~ll in\'estor~
.1Ild is.':.lIcr .....
J. Michael Connelly, !\lan;Jgill~ Director &
Di\'i,iol1 head of ;'>Jonh All1erieJI1 ()perJtiun~ Jnd (_(HTe"'pondcnt
Scn·jc6, RI Alex. Br{)\,'11.
r-.. klllhL'r, ;\:SCC's
°Pl'LltioIlS<lnd
\\cmhe"hip CommittL'cs, and Bo.lJ"d ~ kmber, Isec. ~ \ember,
Amc\ Advi:·,ory
COlllmittee and NYSE Opcr JtIOIl\ (,olllfllittee.
Norman R. Malo, Prl, .... idcnt &. «)(),
'\,ltion,t1 hn,\Ilci,11 SlT\'j(I'''' (.nJ"l'oratiol1,
I-iddit\"!mc"tll1l'nh. \kmlk'r, ,\,( c\
()ptTJtion", i\ httllcll
I"und, rin<1llu: &. \udit ,lIld intl'rll,ltlon,d
(:ollllllith..,I...' ....
Prl'\'iow,h ,\ 1,\Il'I~ing I )lrl'ctUJ" or {,111\1,11
<.. )pcr,ltiolh .. II II..'hl11,\l1
Brnthl..'r ... ,1111..1
I'rL',ident, ,\1(1,\\
~l'curilic ....
'\,u Lisa Colby-Jones, i\1<I1l'lging. Director ,1Ild iH.\ld of il1stitutlon .. l] ~l'cllritie ... Bll ... il1C~S \'·orldwidl..' ()p .... rJtiOlh, ~lorgi.11l ~tank\·
1)t.'.111 \'·inn. ~lel1lbl'r. ~!)CC\
,~klllhl'rship dlld Inh.'rn,ltioJl<11 (:omll1itil'C.,. [lll,lrd ~klllher of [He. ~lclllhI..T, ~.\".I.1 T.\ SI'Lliritic~ StI..'ering Coullcil .1Ild (;STPA's I \L'(utivl'
(olllmitkl', .lllt! se\cr.ll SIr\
l.ol1ll1litkl'<'.
Richard A. Edgar, r\'p, :-\L'W York Slo(k !.\...-h.lI1gl.." ill chargl' of i\ 1.Irket ()per.ltjon~, Rl\ll l· .... t.ltL·
.1Ild F~l(ilities. Sinc .... 1967, hl' h'ls held \·,lriou<.., lllaJ1.lging ;.llld m.lrkl..'ting l'u ... itiOll ... induding ')\'1>. i\1.lrkct ()plT<.ltiolh.\bn \\'.1" S\P, Rcgubtion, 0pl..'r .. nio,,.., &. Admini ... tr,ltioll tit the '\l'\\ York i'lIllIre~ l\lh,lnge.
William F. Jaenike, recl'nth· rl..'tlrl..'d (:h<1lrl11,111 & (TO, TIll..' !)1..'po~ltlH"\ Tnl .... 1 Comp.lm. Joincd I rj"('
ill 1,-)~ I. risIng from \'P, Parti(ip.lIl1 ~')I,.T\ 1(L'~, ,lIld prl..,.,idillg o\"t'r three dept)" lion 1lIt..T~I..TS .lIld thl..' initi,ll ink~r,ltlflll di.lhlgul..' bcl\\·l.'I..'1l )\SC( ,lnd UTe.
Thomas J. Perna, S<.'nim \.\ 1', The !l.lnk of '\l'\\ York. '·IIl'llh.."i,d (nll1p,ll1il..'~ Sedor. RI..'spon .. ihk' fur Rcl<1tion ... hip .\1'lIlclgI..'IllL'llt, t.orpor,lk B.lnking. Produd \ I ,\ll,lgl..'III 1..'11 t ()pl.'r.ltion..,
.lIld k(hnol(l~~. Ch.lirm.1l1, :,\L,C( ' .... IIHI..'rn,ltlOni.ll (.Ol1llllittl'l' <Ind
j\ kmi1L'J". i \l'cuti\·1..' ,Ind iill .. lllCC 8;
,\udit { Pllllnitlt..'e'>
Thomas F. Ryan, Jr., Prc ... idcllI & C( K\ AmcriL.ln StuLl, j·\ch.lIlgc, sincl..' 11..)1..)5 • • 1ftl..'!" 27 ~·ear..,
\\ith Kidder, Peahod\' \,hcrl..' hl' 1"ll~1..'
to Chairman & CLll. \In,lrd ~lclllber, ')IA( . Trustcc, Bll.'lIOIl (:olkgc and
Brigh~lm & \\'ol11cn ..... ~ Ilhpit<l l. I·orml..'f ,\Iemhcr of ..,n·cLll ~Y"'I (ommittc('s.
John T. Wall, President, Nasd,'LJ Intern,'tional, Ltd. Responsihle for .'ltrategi( dcvelopmcllt. Intern.ltion .. ll markl.'ting .lnd foreign exchange linkages with Nasdaq. lias spearheaded advancing Nasdaq's activities ,rnd worldwide role. Member, LASDAQ \loard.
GSCC Thomas G.Wipf, l\1an.rging Director, Fixed Income Division, Morgan Stanley Dean Witter. He"ds firm', financing desk for North Americ,1 and Europe, tvlernber, GSCC's Membership & Stand.lrds ,111d Busine" Development Committees. Executive Committee l\1ember, The Bond Market Association's Funding Division and '[fading Practices Committee.
OJ
Gsee
Edwin F. Payne, Ch,lirll1,111 & CEO, Liberty Brokcr,lg"
iml'sttllCll1
Corpor,ttioll. t\kmbcr,
C;SCC's i\kmb'Tship &
Standard..., <lilt! Bu!'.illl's.'i
!)l'\'\..'!OpIllClll
Clllllllliltc('s. B(),lrd
~kmber, "ms Ck,lring Corpor.ltion, CL)\"PX
and Bridgl' Information
System:.. P.\",\ (~hdirm.lll, The Bond ~Iarkl'l
,\ss()(i.lt ion ':'\ r..lnrtgagl' ,1111..1 (;onTlll11l'llt &. i\gL'!l(~' [)jyj:-.ions.
Board
David M. Kelly, Presidenl & CFO,
0JSCC, "iJ1CL' IlJIB. Vice ChJirnWl ,1I1d eLU,
GSCC; CLO, ISCl" Board ,,!ember, ~I!l~ Clearing Corporatiun and DTC. ~ kmb,'r.
Intern,Ilion,IIOpcr.ltion\ A>so(i,llion, NYSr
Operation.'! Alhisory COlllmittl'c, S!A's
~eruritit':, Opcrations Division ,1Ild Slxurit iL· ...
Tr .. 1ticrs Assocj,ltinn of t\Y.
of Directors
Joseph R. LaBato, Rdired ~ \JJl<lging
Dirl'ltnr, The Ch.hl..'
,\1,1I1h,lttan Bank, where he handled broker/dealer
:-;t'rvicL'~ .llld global 'Il'(uritics knJing.
I'onncr tlllit Illanager .Ind
.1 ... enior officer in corporate banking at
:'lanllt~1(tllrL'r~ H'Illl)\-l'r
l'ru'!t Company.
Stephen R. Tilton,
;'\nllMl-\l·ClItin.· ()irl'l.:lor and
t olhliltanLlJ.lrh.1Il
II ( . \l'poinll'd prc"h.ll..·nl ,1nd CEO of (;.Irh.m, lJ,lnin
(juyBlItkr ~Ind rill!'" &. D~)nllclly fmm
I ~~.llhrollgh 199X,
SL,tlior I \('Ctlll"("
H(),Ird ;-"lcmhcr, (rnd'X, .11ld Ho.lrd
:-.. kmbL'r, Slall'\\ iLlc ',lIlngs 1l,lnK. \:1.
Sal Ricca,
Peter J. Murray, ,~I,m<lging i>irC(l\lr,
ernli! ~lIi'l:-'(' hrs!
Boston Corpor.ltioll,
rC"lponsibk for t hL'
,-\mL'rIL"a" ()pl..'Lltion ....
}. iL"lllhl'r, C,~C( \
,\jClllbL'p,hip &
~L;JJld.ln.b ,lllti Bl1"IIlI''''~
lk'\'ci{)PIllL'llt
COI11JlliItL'l'S. \"1',
0PLT<ltiorl''', for "1-\'...,
~l'(llritil'" (Jpcr;ltiollS
Di\ision. :\1"'0 d lll'lh?r.t!
Sccurities RL'prL's('ntc\ti\'i~ .lI1d ,I FiIl~1Ih:i;11 ,1Ihl
Upcr,ltions Pnllup.l1.
David Lohuis, \ 1.waging DirL'Ltor,
I t..'hm,IIl Brothcr". I lead of trading. on
lhl..'(,L·ntr • .I1 hllH.ling
Ik"k inl.ehm'lI1\ I L\L'd II1",-ol1lL'
f)i\·i"illil. ~ lcmber,
LS( ('..., \ kmbl'r ... hip &. SL.11H.brd..,
(.lllnlllittL~t..' ,llld 'I'hc !lund .\!.lrkd
.\"..,oci.ltion\ Trading Pr,lcticl'" Curnll1itkL'
.Ind S~)t..'ci,ll \\'nrkint; t;I\Hlp.
Ralph M.
Mastrangelo, I \'1'. 111l' B,lnk of '.,." York. Rl·\P(H! .... ibk lor
Brnkcr-I k,lkr "l']"\I(L'",
induding gm't.'rnlllclli
.lIld I..orl'\,poll<.knl Lie,lring, ,lIld coll.ltL'r.d
m.lll.lgclllL'1l1 '1L'I"\·I(':-..
\klllhcr, (;~C( \
I \l'(lltiH' ;ll1d HlI:-.inL·":-' I kH'lopmL'llt
COlllmittc('.\. :-.cn .... ,d 2::;; \-l\lr" 111 \l'nior po..,ition ....
,11 t\!organ (,lI~lr.lllt\ In!'>t (l1!llP,Ill\"
Clive Cooke, (:i.(), IlllCrl<lpil,1l
('l)\'I..'J"J1IllCl1t SL'('uritil..'s
In(. in North Anll'ri"'-<I. A krnber, (,Secs Audit &. j:in.l lh.."c Committee"
t\ fOlllH.iLr of I:X(O
Edward Almeida, Scni()r \1.111'1l;inl;
I )irector, Bl'~ll', 5te.lrns & Co, IklPonsible for glob<.ll li\cd incomc
~)pL:ratinn'i .Ind (Ie.iring." ~kI1l1)l,.'r,
CSCC\ L.\L'CL1ti,'c ~l[ld Bu\,illl'<"_\ I )cn']opllh'nt
(:nmmi!tL'cs. P,lst
rrl~"id('nt & (,()(), ( ;~( '(.
"incl' 1996. Prl..~\·joll\l\
\\'as managing dirl'(\()r,
Deu[>(he 1l,1I1k ;-.iorlh r\I1lL'rica,o\l'J" ..... ('('lllg
ckarann' .1I1d ... cttiL-m(,ll! opcr;.ltiol1s of tilL'
in\'c ... lml'llt ,l!ld
(OJ11J11t'I'(ial hilnking group..,. Bl:-f()J't' Ih'lt \,'.\.<"
presidenl & COO
Mary E. Richards, \1,lll~lB!IlB Dirl..'Ltor.
",,1\0111011 Smith ltll"I1L'\.
Rl' .... pon..,ihlc for It'll
operatioll'! depart I1lL'llh, including
Daniel o. Minerva, \L\]).lgill~ Dill'dur &.
i"rc,l"urL'r. I d1l1l.l11 Brolher', (:hairm,1I1, (,~(C\ Ilo,lrd ,1I1d
I.\l'(uti,c (~ol1llllittL'I..>.
Kenneth A. Miller, ;\Lll1<.lging Director &. Trt'~htlrl'r, (;oldl1l<.lIl,
S;]ch .... &. (.0. J\ killiK']',
l;SCC\ L \CUII!\'\,.' ;111...1
Mario J. Pierro, \ 1.11l"BIllB L )irl..'dor,
I kUhLhc Bank \I..'curilic". ( n hC~ld" fJrlll ..... gl()h;1]1l10nl..'~
lll<lrh,t 'rL'j)o hu ... inc." .... \\'C I K, London's kad
illg gi!t inler-dc,l!cr hmkcr.lgc firm, .il1d (01"lnL'r CLO of Ex...:o
Ll:-'A, which merged \,'ith !nten.:.1pital.
(l1.lInn.111 of I'IIl' BOl1d ~li.l["h't A<,,"~)ciatil)n\
GOH.·]"JlmL'nt
Oper,lliol1' ,ll1d ~IB'" ()pt:r~lti~)]b
(~Ollllllitlt,l'''',
of \cquo[" (d"OUP,
a sub .... idi,ll"\· of
SeclIrit\· P;1(iI1l.
I )0111CS{ i...: (:k.lr.lJlCL'
and Stock LOdll
()pl..'!",lIion:-., 'l~l\,lbk
h\cd IIlClIIllL'
Oper.ltiOlb. and Intt'rn<.ltionai
( k,lrall(t.'. ~ Icmher,
(,)CL', .'\'lIdil '" l-in,lIKe and Bu"inl'"''
IkH~ll1Pllll'Jlt
(oll1mitkc.
]lrl'\ioll" ,\ kmhcr uf
Th,' lionel ~ 1.I1",'l
A ... "O...:j,ltil)ll\ Blldrd
or I )lr .... ctor" d!ld (.!uirll1,lll 01 ih
hlllding I )i\·i ... iOll"
;\udit & ~ill.ill(L'
COlll!lliltl'l'~"
("h,}irm,lll,
Intern.ltiollal Rq10 CummitteL' Jlld
.\It'mhcr, j·ullding
Ui"j..,ion [\cCUlih' (ul11ll1ittL'e, both ot
The Bond ~ I,u'kcl A_ .... "Oli,ltioll.
lh,lirmJIl, CSCC's Bu"iI1L':-'\ I k"l'iopl1ll'!l1
(OlllllliltcL' ,llld \i...'lllbl'r, .\udil 0:.
rinillll"l' ClHllllllttcC"
InnllL'rCluirmall of The Ilond ~ I"rk"l
;\:-.sociatinn\ hlllding
iJi,i-;ion.
GSCC's separate 1S-member Board of Directors represents participants in GSCC, a full-service clearing corporation providing automated
comparison, netting and settlement services for next-day and forward-settling transactions in Treasury Bills, Bonds, Notes, zero
coupon securities, non-mortgage-backed Agency securities and repurchase agreements. Twelve members of the Board of Directors are
participant Shareholder Directors elected to represent dealers, brokers, and clearing agent banks_ Additional members include two
NSCC Designated Directors and the President of GSCC_
Consolidated Balance Sheets
Decelll/wr 31,
Assets
Cash and cash equivalents
U.S. Treasury securities
Accounts receivable
Settlement accollnts receivable
Clearing fund
Fixed assets, less accumulated depreciation and amortization of $1 1,900,000
and $11,429,000 at December 31, 1998 and 1997, respectively
Intangible assets, less accumulated amortization of $8,658,000 and
$5,199,000 at December 31, 1998 and 1997, respectively
Other assets
Total assets
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable
Settlement accounts payable
Clearing fund:
Participants' cash deposits
Other participant deposits
Other liabilities
Total liabilities
Commitments and contingent liabilities (i'Jotc 7)
Shareholders' equity:
Common stock authorized, i:,sued and outstanding; 30,O()() shares of $.50 par value
Capital in excess of par
Retained earnings
Tbtal shareholders' equity
Totalli,lbilities and shareholders' equity
1998 1997
(in thousands)
$ 692,402 $ 507,375
88,352 69,509
10,041 7,821
579 423
555,062 507,965
5,790 6,917
8,639 12,098
19,262 18,282
$1,380,127 $1,130,390
$ 3,984 $ 3,732
157,009 121,529
590,748 424,850
555,062 507,965
46,324 47,314
1,353,127 J,105,390
15 15
885 885
26,100 24,100
27,000 25,000
$1,380,127 $1,l30,390
Consolidated Statements of Income and Retained Earnings
For the Year Em/ed iJccclllbcr 31, 1998 1997
(in thousands)
Revenues:
Revenue from services $208,253 $209,049
Discounts to participants (85,005) (89,207)
Net revenue from services 123,248 119,842
Interest income 12,542 11,696
Total revenues 135,790 131,538
Expenses:
Securities Industry Automation Corporation processing expenses 61,268 57,648
Employee compensation and related benefits 33,584 29,553
The Depository Trust Company fees 17,030 17,573
Occupancy and other general and administrative 20,783 21,244
Provision for estimated liquidation losses (Note 7) 5,520
Total expenses 132,665 131,538
I ncome before income taxes 3,125
Provision for income taxes (1,125)
Net income 2,000
Retained earnings, beginning of year 24,100 24,100
Retained earnings, end of year $ 26,100 $ 24,100
The UC(oJJl[lwzyillg flotes arc WI j!1tcgral pnrt of tllCSC stntcHlclltS.
Consolidated Statements of Cash Flows
For the ),'(/r Elided Uccelll/Jcr 31,
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets
Amortization of intangible assets
Accretion of discount on securities owned, net of premium amortized
Provision for estimated liquidation losses
Changes in operating assets and liabilities:
Increase in accollnts receivable
Increase in settlement accounts receivable
Increase in other assets
Increase in accounts pavable
Increase (decrease) in settlement accounts payable
Increase in clearing fund participants' cash deposits
(Decrease) increase in other liabilities
Net cash provided hy operating activities
Cash flows from investing activities:
Maturity of investments in U.S. Treasury securities
Purchases of investments in U.S. Treasury securities
Purchases of fixed assets
Transfer of flxed assets to The Depository Trust Company
Acquisition of intangible asset
Net cash used in investing activit ies
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalellts, end of year
Supplementary disclosure:
Income taxes paid
Interest paid
Tilt' (/(compallyillg fWtCS lire WI illtcgrd! part (If t/zese shlft'11lt'lIls,
1998
$ 2,000
2,457
3,459
(3,730)
(2,220)
(156)
(980)
252
35,480
165,898
(990)
201,470
70,500
(85,613)
(2,701)
1,371
(16,443)
185,027
507,375
$692,402
$ 1,582
$ 270
1997
(in thousands)
2,415
2,886
(3,761 )
5,520
(427)
( 119)
(6,786)
492 ;;: ;; ,
( 38,451) ~
'" ~ ~
110,039 . ~
10,314 II 82,122 ~
, "" ;;
60,500 ~
" (66,266) 0 ,
(2,425 )
(5,730)
(13,921)
68,201
439,174
$507,375
$ 1,769
$ 21
Notes to Consolidated Financial Statements
1 Organization and Operations:
National Securities Clearing Corporation (NSCC), a
clearing agency registered with the Securities and Exchange
Commission (SEC), provides various services to the flI1dn
cial community, consisting principaJly oC securities trade
comparison, recording, clearance and settlement. NSCC's
common stock is owned equally by the New York Stock
Exchange, Inc. (NYSE), the American Stock Exchange, Inc.
(Amex) and the National Association of Securities Dealers,
Inc. (NASD). During 1998, the NASD acquired Amex.
NSCC provides discounts on its billing to participants
based upon the amount of earnings to be retained in a given
year with due regard to current and anticipated needs, as
determined by its independent user Board of Directors.
2 Summary of Significant Accounting Policies:
Principles of consolidation: The consolidated
financial statements include the accounts of NSCC and
its wholly-owned subsidiary, International Securities
Clearing Corporation (lSCC). Intercompany accounts
and transactions are eliminated in consolidation.
NSCCs ownership in Government Securities Clearing
Corporation (GSCC) of approximately 24% is included in
other assets on the consolidated balance sheet at ,1 carrying
value of $2,400,000 at December 31, 1998. The equity
method is llsed to account t()r this investment, limited to
management's estimate of its realizable value. At December
31, 1998, NSCC also owns approximately a I (l°lt) interest in
MBS Clearing Corporation (MBSCC) and a 19')io interest
(on a flllly diluted basis) in Emerging Markets Clearing
Corporation (FMCC). These investments, which are carried
at their respective costs of $432,000 and $495,000, are also
included in other assets.
Cash equivalents: NSCC invests funds in overnight
reverse repurchase agreements, which are considered cash
equivalents. Such agreements provide for NSCC's delivery of
cash in exchange for securities having a market value which
is at least 102% of the amount of the agreement. An inde
pendent custodian designated by NSCC takes possession of
the securities. Overnight reverse repurchase agreements are
recorded at the contract amounts and totaled $669,373,(l(l0
and $467,519,000 at December 31, 1998 and 1997, respec
tively. At December 31,1998, the counterparties to these
agreements were eight major fll1ancial institutions.
Overnight investments in the commercial paper of two
major u.s. bank holding companies totaling $21,969,000
and $39,340,000 are also included in cash equivalents at
December 31, 1998 and J 997, respectively.
U.S. Treasury securities: U.S. Treasury securities are
recorded at amortized co,[' The market value of these securi
ties. which are due in less than one year, at December 31, 1991\
and 1997 are $88,435,000 and $69,534,000, respectively. At
December 31, 1998 and 1997, S88,352,OOO and $69,509,000,
respectively, of such securities were held in an account t~)[
the exclusive benefit of participants to facilitate participants'
compliance with customer protection rules of the SEc:.
Settlement accounts: Settlement accounts receivable
arises from time lags, primarily one-day, in the settlement
process with participants. Settlement accounts payable
primarily represents deposits received from participants to
t~1(ilitate participants' compliance with cllstomer protection
rules of the SEC.
Fixed assets: These assets consist primarily of computer
equipment and software which are being depreciated over a
three or tlve-year period on a straight-line basis. On July I,
1998, NSCC transferred its New York Window operations to
the Depository ~Ii'ust Company. Fixed assets with a net book
value totaling $1,371,000 were included in the transfer.
Intangible assets: In 1996, NSCC entered into an agree
ment with the Chicago Stock Exchange, Incorporated (CHX)
and Midwest Clearing Corporation (MCC) in which CHX
and !VIce signed covenants not to compete with NSCC and
NSCC paid $11,567,000 consisting of $5,003,000 in cash and
the assumption of certain net lease obligations valued at
$6,564,000. In 1997, NSCC entered into an agreement with
the Philadelphia Stock Exchange, Inc. (PHLX) and the Stock
Clearing Corporation of Philadelphia (SeCP) in which
PHLX and SCCP signed covenants not to compete with
NSCC and NSCC paid $5,754,000 consisting of $1,900,000
in cash and a note valued at $3,854,000 which is due in
installments between June 1 YYi:\ and June 2004 at 7%
interest. The amounts paid for these covenants are being
amortized over five years, their estimated benefit periods.
Income taxes: Deferred tax assets and liabilities afe
provided for the expected future tax consequences of
temporary differences between the carrying amount and
tax basis of assets and liabilities. Deferred tax assets relate
principally to depreciation and employee benefit costs.
Financial instruments: Management believes that the
carrying value of all financial instruments approximates
market value.
Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions
that afIeet the reported amounts of assets and liabilities
and disclosure of contingent asst'ts anclliabilities at the date
of the tlnancial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Notes to Consolidated Financial Statements
Reclassifications: Certain reclassifications of J 997
amounts have been made in the accompanying financial
statements to conform to the J 99S presentation.
3 Participants' Clearing Fund Deposits:
NSCC's rules require certain participants to maintain
minimum clearing fund deposits based on calculated
requirements. These requirements are recorded in NSCCs
balance sheet. The consolidated clearing fund balance
includes NSCC and ISCC clearing funds, which arc available
to secure participants' obligations and certain liabilities of NSCC and ISCC, respectively, should they occur. A summary
of the deposits held including deposits in excess of calculated
requirements at December 3 J, J 998 and 1997, tdlows:
1998 19Y7
Cash $590,748,000
Securities isslled or guaranteed lw
the U.S. Covcrnmcnt, at nldrkl't 490,979,000 3/J,732,OO()
Letters of credit issued by
Guthoriled b'lIlks 326,327,000 "O1,():11,O()O
During j 998, NSCC maintained a 540(),OOO,OOO com
mitted line of credit agreement with 3 major U.S. hanks to
provide for potential addition<llliquidity needs. This line
was not used in 1998.
4 Transactions with Related Parties:
SIAC: Under the terms of an agreement, the Securities
Industry Automation Corporation (SIAC:), an mtity owned by
NYSE and Amex, provides computer LlCilities, personnel and
services in support of NSCC's operations. SIAC charges NSCC
for these services based on its direct and overhead costs arising
from providing such services. The agreement has no expira
tion date and continues in effect unless prior written notice
of cancellation is given by either party. Amounts payable to
SIAC at December 31, ]99R and ]997, were $[ ,400,O(}() ,mel
160,000, respectively. If this agreement is cancelled, ~SCC
is contingently liable for the cost of certain SIAC of1lce and
equipment least's through December 31, 2()O3, aggregating
approximately $13,183,000.
DTC: NYSE, Amex and NASI) own minority interests
in The Depository -]i-ust Company (DTC), whose services
are used by NSCC. I He fees in 1998 and 1997 included
$ J 0,573,000 and S 1 O,55S,OOO, respectively, relating to
fix NSCC participants which NSCC sponsors at DTC. Such
amounts arc rebilled to the related participants and are
included in revenues tiU111 clearing services. Amounts payable
to DTC at December 31, 199X and 1997 were S I ,452,000
and $S2S,000, respectively.
NYSE, Amex and NASD: NSCC collects certain regula
tory fees on behalf of NYSE, Amex and NASI). At December
:'\ 1, 1998 and J 997, no amounts were due the NYSE, Amex or
t\/\sn
EMCC: ISCC has entered into an agreement with EMCC
to provide certain system development and operating services
to FMCC. Charges under this agreement, which are based
on a determination of ISCC's cost of providing these services,
totaled $J,470,000 in 199X and $2,450,O()() in 1997. The
agreement expires in 2()02. At December :'\ J, 1995 and 1997,
receivilbles from EMCC amounted to S 165,000 and
S 1,'151,000, respectively.
GSCC: NSCC: has entered into an agreement with CSCC
to provide various computer and other support services and
offlce facilities. Charges under this agreement arc based on a
determination of NSCC's cost of providing these services. The
agreement continues in eflect unless cancelled by either party
upon prior written notice. Charges under this agreement
totaled $4,76S,000 in ]99S and $4,470,O()() in 1997. NSCC's
expenses arc presented net of these charges. At December 31,
j 998 and 1997, receivables from GSCC amounted to $206,0()()
and $105,000, respectively.
IDC: NSCC paid International Depository and Clearing
LU: (IDC), a joint venture of NSCC and DTe, for certain
advisory ,crvices primarily focusing on researching, develop
ing and recommending the most effective strategies ft)r
developing cross-border services. Such amounts aggregated
:!;2,64 1,000 in 1998 and S4,OOS,OOO in 1997. Further, NSCC
entered into an agreement with IDC to provide variuus sup
port services. Charges under this agreement, which were based
on a determination of NSCCs cost of providing these services,
totaled $144,000 in 1998 and 5267,000 in 19'17. NSCC's
expenses are presented net of these charges. At December 31,
J 997, the receivable from IDC amounted to $64,000. IDC
ccased operations on June 50, 19lJ8.
MBSCC: NSCC has entered into all agreement with
IVlBSCC to provide various support services and office t~lCili
ties. Charges under this agreement, which are based on a
determination of NS( :Cs cost of providing these services,
totaled $R62,OO() in 1'198 dnd $653,000 in J 997. NSCCs
expenses are presented net of these charges. The agreement
expires in j 999; however, it is intended that it will continue
in eHect unless notice of cancellation is given by either party.
At December -' \, 1998 and 1997, receivables 6'om MBSCC
amounted to :£738,0(]0 and S583,OOO, respectively.
5 Income Taxes:
NSCC and ISCC file consolidated Federal, combined New
York State and combined New York City income tax returns.
The difterence between NSCCs 36(yb eftective tax rate for the
year ended I kccmber j J, 1995 and the 34°/h Federal statutory
Notes to Consolidated Financial Statements
tax rate is primarily attributable to state and local taxes. The
provisions fix income taxes f()r the years ended December 31,
1998 and 1997 consist of the tc)\Iowing:
1998
Current income taxe, $ 2,754,000
Deferred income taxes (1,629,000)
'l,)tal income taxes $ 1,125,000 S
6 Pension and Other Postretirement
Benefits:
1997
j,32-1,OOO
(3,_)2~,()()(J)
NSCC has a trusteed noncontributory defined beneht
pension plan (the qualified plan) covering all eligible employ
ees of NSCC and certain affiliated companies. Benefits under
this plan are based on employees' years of service and com
pensation during the years immediately preceding retirement.
NSCC's funding policy is to make contributions under the
pbn that meet or exceed the minimum funding standards
under the Employee Retirement Income Security Act of 1974
and the Internal Revenue Code of 1986, as amended. NSCC
also has a noncontributory supplemental executive retirement
plan (SERP) which provides for certain benefIts to identified
executives of NSCC upon retirement. Although the SERP is
currently unfunded, $5,710,000 in marketable securities have
been segregated by NSCC in order to pay future bend!t
obligations of the SERP. The securities are recorded at market
value at December 31, 1998 and are included in other assets
in the balance sheet. further, NSCC has a noncontributory
benefit restoration plan (BRP) which restores to identified
executives certain retirement income benefits which have been
limited by changes in income tax regulations. The BRP is not
funded. In addition, NSCCs lite insurance program includes
paymen t of death benefits to beneficiaries of eligible retired
employees of NSCC and certain affiliated companies. Finally,
NSCCs health insurance program provides benefits to eligible
retired employees of NSCC and certain affiliated companies.
The funded status and related components of the
plans follow:
Pension Benefits Other Benefits
Benefit obligation at end of year:
12ualilied plan
Uther plans
l;air value of plan assets at end of year
l'unded ,tatus
Net accrued benefit cost recognized in the
statement of fll1ancial position
\VL'ighled-<n'L'r;.lgL~ aSSll1l1ptions as of DeCC!l1ber :~ 1
IJiscuunt rate
l:xpccted long-term rate of return on plan asseb
Rate of C0l111k'nsation inLTcase
1998
$15,187,822
9,224,900
24,412,722
14,642,424
($9,770,298)
($9,760,811)
7.25%
8.00
6.00
]997
SI2,53·U'!O
5,205,304
17,73lJ,i)lJ4
12,755,950
(S4,'lH3,744)
(57,368,725 )
1.50t yo
8.()O
b.OO
1998 1997
$-- $-
1,103,232 1,()69,R37
1,103,232 l,069,K37
($1,103,232) (SI,069,H_,7)
($774,631) ($579,]35)
7.25% 7.50o!~)
For measurement purposes, a 1 ()(}b annual rate of increase in the per capita cost of the covered health care bend!ts was
assumed for 1998. The rate was assumed to decrease gradually to (/Yrl tll[ 2002 and remain at the level thereafter. Employer costs
for the medical are capped at twice their portion of the 1996 premium.
Net benefit cost
Additiunal (gain) or los, recogni/cd due to:
( :urtailrnent
Settlcment
ll)tal benefit cost
EmplllyTl' contribution
Bcnefits paid
1998
$2,600,635
(210,571)
876,858
$3,266,922
$ 699,141
355,726
Pension Benefits Other Benefits
1997 1998 1997
$2,267,691 $188,240 $200,467
7,256
:)2,267,69 I $195,496 S200,467
$ 233,/-+/ $ s 103,()S8
Notes to Consolidated Financial Statements
7 Commitments and Contingent Liabilities:
The Continuous Net Settlement (CNS) system inter
poses NSCC: between participants in securities clearance and
settlement. CNS transactions are guaranteed as of midnight
on the day they are reported to the membership as compared/
recorded. The hlilure of participants to deliver securities to
NSCC on settlement date, and the corresponding hilure of
NSCC to redeliver the securities, results in open positions.
Open positions are marked-to-market daily. Such marks
are debited or credited to the involved participants through
the settlement process. At the close of business on
December 31, 1998, open positions due NSC:C approximated
$1,339,276,000 ($l,320,832,000 at December 31, 1997), and
open positions due by NSCC to participants approximated
$992,245,000 ($1,014,332,000 at December 31, 1997) for
unsettled positions and $347,031,000 ($306,500,000 at
December 31, 1997) for securities borrowed through NSC:Cs
Stock Borrow Program.
During the first quarter of 1995, a SIPC trustee was
appointed to liquidate the business of Adler Coleman
Clearing Corporation (ACCC), a former NSCC participant.
NSCC and the SIPC trustee entered into an agreement in
connection with the settlement of certain positions held by
ACCC at NSCC. NSCC would be liable to the trustee if
certain conditions occur for amounts which management
estimates could be up to $17,000,000. At present, manage
ment is unable to determine with certainty NSCC's ultimate
obligation. At December 31, 1998, the accrual for estimated
liquidation losses included in other liabilities is $14,074,000
of which approximately $1,900,000 is estimated interest.
At present, under a netting contract and limited cross
guaranty agreement with DTC, DTC transferred to NSCC
approximately $860,000 of excess collateral of Adler
Coleman Clearing Corporation. Under the terms of that
agreement, NSCC remains liable to DTC through February
1999 f()r return of such monies if UTC subsequently
determines the collateral not to have heen excess.
Net rental expense amounted to $2,689,000 and
$2,312,000, in 1998 and 1997, respectively. At December 31,
1998, future minimum rental payments under all non
cancelable operating leases follows:
Year
IlJlJ9
lOOO
100l
2002
200.)
20(]4 through 2012
Total minimum annual rental payments
Amount
S 2,.1 lfJ.O()()
2,b04,(]()()
2,5SS,O()()
2'sb5,()()O
2,5K'J,()()()
27,1 KO,()()()
S3lJ,K42,()()O
8 Off-Balance-Sheet Risk and
Concentrations of Credit Risk:
In the normal course of business, NSCC guarantees
certain obligations of its participants under specified
circumstances (see Note 7). If a participant fails to fulfill
its obligations, NSCC could be exposed to risk in amounts
in excess of that recorded in NSCCs settlement accounts
receivable and payable.
NSCC: mitigates its exposure to risk by requiring partici
pants to meet NSCC established financial standards for
memhership, monitoring compliance with other financial
standards established by NSCC and by requiring participants
to provide clearing fund deposits in the j()rm of cash, mar
ketable securities or acceptable letters of credit (see Note 3 l. If a participant fails to fulfill its settlement obligations
with NSCC and NSCC ceases to act on behalf of the
participant, NSC:C would liquidate that participant's guaran
teed security receive and deliver obligations and apply the
dd:mlting participant's clearing fund deposit received to
satisfy any net outstanding obligation and/or loss.
NSCC has entered into a netting contract and limited
cross-guaranty agreement with DTC under which DTC has
agreed to make payment to NSCC for any remaining unsat
isfied obligations of the dd:mlting participant to the extent
that DTC has exccss resources belonging to the defaulting
participant. NSCC has also entered into limited cross
guaranty agreements separately with ISCC, GSCC, MBSCC
and The Options Clearing Corporation (OCC) which pro
vide for payments under similar circumstances. NSCC and
OCC have also entered into an options settlement agreement
providing t()J' the movement of underlying securities in
satisfaction of options exercised and assigned at OCc. Such
agreement provides certain limited guarantees by OCC to
NSCC to the extent NSCC experiences a default prior to the
first settlement day possible for the securities; NSCC provides
certain guarantees to OCC as well.
In the event that a deficiency still exists after the applica
tion of the DTC payment and/or payments from other
clearing agencies, bd()re NSCC may assess the membership,
NSCC is required to apply against the deficiency at least
25%, of its retained earnings or such greater amount to be
determined by the Board of Directors. NSCC may assess the
balance needed Oil a pro-rata basis to the remaining partici
pants based UpOIl their required clearing fund deposits.
As discussed in Note I, NSCC provides various services
to members of the financial community who participate in
securities trade comparison, clearance and settlement. As
such, NSCC has a significant group concentration of credit
risk since its participants may be impacted by economic
conditions affecting the securities industry. As described
above, such risk is mitigated in a number of ways.
Report of Independent
Accountants
February 12, 1999
I() the Board of Directors and Shareholders of
National Securities ( Corp()ration
In uur opinion, the <lCcompanying consolidated balance
sheds and the related consolidated statements of income
and retained earnings and of cash flows present in all
material respects, tl1t' financial position of National Securities
Clearing Corporation and its subsidiary at December 31, 1991'
and 19,)7, and the results of their operdtions and their cash
Ilows for the years then ended in conformity with generally
accepted accounting principles. These financial statements
arc the responsibility of the Company's management; our
responsibility is to express an opinion on these llnancial
statements based 011 our illldits. \Ve conducted our audit:,
of these statements ill C\cconbnce with generally accepted
auditing standards which require that we plan and perf(Jrl11
the audit to obtain reasonable assurance' ahout whether the
financial statements arc free of material misstatement. An
audit includes on a test basis, evidence support-
the amounts and disclusure:, in the financial statements,
the principles used and signiflullt
estimates made by management, and evaluating the overall
financial statement pre,entation. \Ve believe that our ,lUdits
provide a rt'asonahlc basis for the opinion expres:;ed above.
PricewaterhouseCoopers Ltl'
~e\\' York, ~y
Management's Report
on Responsibility for
Internal Control Over
Financial Reporting
February 12, 19<)9
'Il) the Board of Directors and Shareholders of
l'\ational Securities Clearing Corporation
~atillnal Securities Corporation (NSCC)
nldintains a system of internal control over linancial reporting
which is designed to providc reasonable assurance regarding
the prepar<llion of reli,lblc published financial ,talements.
The syslem contains self· monitoring mechanisms, and
adiol1S are taken to coned ddiciencie., as thev arc identified.
Even an ctTectivc internal control system, no matter how well
designcd, has inherent Iimitatium - including the possibility
of the circumVl'ntiul1 or O\'crridillg of controls - and thtTe
fore can pwyide only reasonable assurance with n.:spect to
financial sLlteIllent preparation. Further, becaw,e of changes
111 conditions, internal control sY'stem effcctiveness may vary
over time.
NSCC\ managcment assessnj its internal control ovcr
tinancial reporting as of December 31, 1998, in relation to
criteria for ctkctivc internal control described in "Internal
Control- Framework" issued lw the Committee
of Sponsoring Organizations of the Commission.
Based on this assessment, NSC:C believes that, as of
Decemlxr .) I, 1991'{, its system of internal control owr
financial reporting met those criteria.
~~c:~ Prc:;ident and (:hid Executive Otticer
Eichard R. l\ bcek
:vla\\agi\\g Director, Trca'>urcr
and Chid linancial Ufficcr
Nati •• al S .... riti •• CI.ari.1I C.rporati •• Corporate Office 55 Water Street New York, New York 10041-0082 (212) 412-8400 http://www.nscc.com
Chicago 440 South LaSalle Street Chicago, Illinois 60605-1070 (312) 360-1402
San Francisco 425 California Street San Francisco, California 94104 (415) 397-4123
Toronto c!o The Canadian Depository For Securities Limited 85 Richmond Street West Toronto, Ontario, Canada M5H 2C9 (416) 365-8489
l.t.rRatl •• al S .... ritl •• CI.arl ... C.rp.rati •• Corporate Office 55 Water Street New York, New York 10041-0082 (212) 855-2700 http://www.nscc.com/ISCC
•• v.r ..... t S .... ritl •• CI.ar.", C.rporatl •• Corporate Office 55 Water Street New York, New York 10041-0082 (212) 412-8400 http://www.gscc.com
MBS CI.arl.1I C.rporati •• Corporate Office 55 Water Street New York, New York 10041-0082 (212) 412-8400 http://www.mbscc.com
... rlll,,,, Mark.ts Clearl.1I C.rp.rati •• Corporate Office 55 Water Street New York, New York 10041-0082 (212) 855-2700 http://www.e-m-c-c.com
F .. t .. ri.t. For those seeking information about the futurists featured in our Annual Report, please refer to the following Internet addresses:
Rosalind Picard -http://picard.www.media.mit.edu/people/picard/
Nicholas Negroponte -http://www.media.mit.edu/-nicholas/
Richard Smalley -http:// cnst.rice.edulreshome.html
K. Eric Drexler -http://www.foresight.orglFIIDrexler.html
Editorial and Production: Stuart Z. Goldstein and Karen A. Gregory
Design: Taylor & Ives, Inc., NYC
Major Photography: William Taufic, NYC
Board of Directors Photography: Dan Nelkin, NYC
Report of Independent
Accountants on
Internal Control Over
Financial Reporting
February 12, 1999
To the Board of Directors and Shareholders of
National Securities Clearing Corporation
We have examined management's assertion that National
Securities Clearing Corporation (NSCC) maintained effective
internal control over fmancial reporting as of December 31,
1999 which is included in the accompanying Management's
Report on Responsibility for Internal Control Over Filldncial
Reporting.
Our examination was made in accordance with standards
established by the American Institute of Certified Public
Accountants and, accordingly, included obtaining an under
standing of the internal control over rlnancial reporting,
testing, ,md evaluating the design and operating effectivencss
of the internal contro!' and such other proccdurcs as we
considered necessary in the circumstances. \Ve belit've that
our examination provides a reasonable basis fl)!" our opinion.
Because of inherent limitations in any internal control,
errors or irregularities may occur and not he detected. Also,
projections of any evaluation of the internal control over
flnancial reporting to future periods are subject to the risk
that the internal control may become inadequate because of
changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
In our opinion, management's assertion that NSCC
maintained effective internal control over financial reporting
as of December 31, 1999 is fairly stated, in all material
respccts, based upon criteria established in "Internal
Control-Integrated framework" issued by the Committec
of Sponsoring Organizations of the Treadway Commission.
Pricew<lterhollseC:oopers LLP
New York, NY
m
NSCC, GSCC, MBSCC, ISCC, EMCC Officers
NSCC Officers Thomas K. McCarthy George Kelly Steven M. Jukofsky Dennis J. Paganucci
Gary F. Goldring Managing Director, Vice President, Marketing Managing Director, Managing Director,
Chairman of the Board Product Development Margaret Koontz
Marketing Marketing and Sales
David M. Kelly James J. Ronayne Vice President, Robert P. Palatnick Steven L. Greenberg
President and CEO Managing Director, The Resource COlnpany Managing Director, Vice President,
Peter J. Axilrod Operations
Gerhard G. Krobisch Technology Marketing and Sales
Managing Director, Walter F. Siebecker Vice President, Operations Neal Arbon George Parasole
Surveillance, Membership Managing Director, Janis Meola
Managing Director, Vice President, Member
and Risk Management Marketing, Insurance Services Vice President, Membership
Technology Liaison Services/Operations
Steve M. Labriola John S. Vrettos Edlyn Meringolo
David P. Buckmaster Richard R. Macek
Managing Director, Managing Director, Vice President,
Managing Director, Planning CFO and Treasurer
Marketillg and Corporate Strategic Planning Product Developmellt Thomas Quaranta Robert S. Bennett
CommunicatiollS Avi Zloof Managing Director, Assistant Treasurer
Richard R. Macek Managing Director, Systems Michael M. Molloy Marketing Vice President, Marketing David F. Hoyt
Managing Director, Kate Connelly Assistant Secretary CFO and Treasurer VPS Nadia Morris Vice President, Planning
Ralph Monda Jeff Abramczyk Vice President, Marketing
ISCC Steven D. Kling Managing Director, Vice Presidellt, Audit James Murphy Vice President, Technology David M. Kelly New Business Initiatives Gary Apruzzese
Vice President, Finance Chairman of the Board
Salvatore Matera Richard W. Myers Vice President, Systems Edward O'Shaughnessy Vice President, Technology
and CEO 0 Managing Director and Henry J. Belusa
Vice President, Richard W. Myers
~ Chief Administrative Officer Product Development Tracy L. Penwell 0 Vice President, Product President :- Development John J. Reilly
Vice President, Risk ~ Max Palmer Management Stuart M. Kleinman u u" Managing Director, Systems Vice Presidellt, Systems " Samuel Ben-Haim Managing Director " Vice President, Systems Marc Reiser
Richard B. Sabel and COO c Karen L. Saperstein Vice Presidmt, Planning U
Managing Director, General Vice President, 51 Robert S. Bennett Karen L. Saperstein
Counsel and Secretary Vice President, Controller Insurance Services Bart Schiavo General Counsel Vice President, - Dwight A. Arthur Julie Beyers
Eileen Robbins Quality Assurance and Secretary '~ Managing Director, Systems Vice President, ~ Vice President, Legal Richard R. Macek C/O
Risk Management Robert L. Trapani " Ann Bergin CFO and Treasurer " Richard Cristiano Vice President, Marketing ~
Managing Director, Vice President, Barbara Smith
Sean Delap ~ Richard M. Visco Marketing, Mutual Funds Insurance Services Vice President,
Vice President Insurance Services Vice President, Operations
Neil S. Carfagna James DeRubertis Diane E. Waller
Macrina DiGregorio Managing Director, Vice President, Marketing Joseph c. Trentacoste Vice President Human Resources Vice President, Vice President, Deputy
Thomas Dick Treasury Operations General Counsel and Robert S. Bennett Dennis Earle Vice President, Systems Assistant Secretary Assistant Treasurer Managing Director, Theresa Wright
The Resource Company Edmund J. Fanning Vice President, Surveillance Richard R. Macek Vice President, Marketing Treasurer EMCC
John D. Fitzgerald GSCC Robert S. Bennett
Joseph C. Willing Managing Director, Frances Fenamore
Marketing Vice President, Systems Daniel O. Minerva Assistant Treasurer Chairman of the Board
Stuart Z. Goldstein Albert J. Ganter Chairman of the Board Keith C. Kanaga
Managing Director, Vice President, David M. Kelly MBSCC Managing Director
Corporate Communications Human Resources Vice Chairman and CEO Frank DeCongelio Richard R. Macek
Robert Green Sal Ricca Chairman of the Board Treasurer
Keith C. Kanaga Managing Director Vice President, Systems President and COO Ronald A. Stewart Eileen Robbins
David F. Hoyt Thomas F. Costa President and CEO Vice President,
Stuart M. Kleinman Risk Management Managing Director Vice President and Managing Director, Lynn Douglas
Ellen F. Levine Assistant Secretary Marketing, PLanning, Managing Director and COO Karen L. Saperstein
Operations and Technology General Counsel Managing Director, Glenn C. Jorgensen Anthony H. Davidson
Surveillance and Vice President, Joseph J. Grima Managing Director, General and Secretary
Risk Management Human Resources Managing Director, Counsel and Secretary James Murphy
Michael J. Kelleher Operations
Virginia Hanson CFO
Kevin F. Maloney Managing Director, Vice President, Operations Jeffrey F. Ingber Managing Director,
Marketing Managing Director, General Information Technology Counsel and Secretary
- " \
\