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Difficulty: MediumDepositories, Clearing Corporations, and Settlement Entities

An investor deposits physical corporate stock certificates with a broker-dealer to prepare them for trading. To facilitate automated book-entry settlement across participant firms, the broker-dealer deposits the certificates into a central custody framework. Which entity holds physical custody of these immobilized securities and updates ownership records electronically?

  1. Depository Trust Company (DTC)Answer
  2. B
    National Securities Clearing Corporation (NSCC)
  3. C
    Options Clearing Corporation (OCC)
  4. D
    Securities Investor Protection Corporation (SIPC)

Answer

Depository Trust Company (DTC)
The Depository Trust Company (DTC) is the central securities depository in the U.S. financial system. It retains physical custody of immobilized securities certificates and maintains electronic book-entry records to transfer ownership between participant broker-dealers efficiently without paper handling.

Step-by-Step Solution

1
Identify the primary operational requirement described in the stem.
The scenario requires central custody, physical immobilization of certificates, and electronic book-entry transfer of ownership.
Securities depositories allow securities to be held in central custody so that secondary market trades can settle electronically without moving paper certificates.
2
Compare the core responsibilities of depository and clearing entities under the DTCC umbrella.
The Depository Trust Company (DTC) serves as the primary depository entity, whereas the National Securities Clearing Corporation (NSCC) handles trade clearance and multilateral netting.
DTC maintains custody and records ownership changes via book-entry transfer.

Key Concept

Depository Trust Company (DTC) Book-Entry Transfer and Custody Functions
Estimated Time:1m 0s
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Topics

Depositories, Clearing Corporations, and Settlement Entities

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