Why Is The DTCC Taking So Long To Act? WHEN MOON???
TL;DR - Figuring out their common stock reallocation is complicated aka WHO WILL CONTROL THE DTCC?
The technical stuff about the common stock reallocation is the bulk of it. At the end, I give my tin foil hat theory.
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INTRO
This comes from 4 notices found here.
Even though these notices are addressed to the separate arms of the DTCC (DTC, FICC-GOV, FICC-MBS, NSCC), they all contain the same information. To boil it down, these notices pertain to the COMMON STOCK REALLOCATION that we're in the midst of.
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WHO CAN BUY SHARES OF THE DTCC?
I didn't know this until I read these notices, but the DTCC has Common Stock. Unlike the companies listed that we can invest in, the shares of the DTCC can only be bought and sold by MANDATORY PURCHASER PARTICIPANTS (MPP) and VOLUNTEER PURCHASER PARTICIPANTS (VPP).
MPP: Participants/Members of the DTCC. They are MANDATORY PURCHASERS because they are REQUIRED to own COMMON SHARES.
VPP: Entities that use most of the DTCC services. They are VOLUNTARY PURCHASERS because they are not required to purchase DTCC COMMON SHARES.
If it wasn't clear, Citadel is a member of the DTCC. Not only that, they use all 4 of the DTCC's services. I believe that they are one of the biggest users of the DTCC's services, which will become important later on.
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WHAT CAN YOU DO IF YOU OWN SHARES OF THE DTCC?
The main benefit of owning shares of the DTCC is to determine the DTCC Board of Directors... which pretty much determines what the DTCC will do.
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Currently, there are 265 participants that own Common Shares. There is an expectation, however, that the number of MPPs will increase to approximately 295. As for how many shares there currently are?
50,907.78311.
The 2021 price per share? $37,243.93
In 2018, according to this google search, there were 270 participants with the expectation that the MPPs would increase to 290. The number of shares were the same (50,907.78311). The price per share, however, was vastly different. $24,367.45.
That is a $13,876.48 increase.
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WHAT IS THE COMMON STOCK REALLOCATION?
Every 3 years the DTCC takes a look at the MPPs' & VPPs' usage of the DTCC services. They then determine the proportion of shares that each MPP MUST OWN. If the MPP owns more shares than they are allotted, they must sell. If they own less, they must buy.
The VPPs don't have to purchase any shares. Whatever shares they don't purchase, however, MUST BE PURCHASED BY THE MPPs on a pro-rata basis. Basically, it's a calculation of proportions.
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WHEN DOES ALL OF THIS HAPPEN?
As I mentioned before, this happens every 3 years. The last time there was a COMMON STOCK REALLOCATION, it was around this time. End of March 2018 to April with a settlement date of May 1st.
This year, the COMMON STOCK REALLOCATION process begins the first week of April with a settlement date of May 4th.
In terms of the actual process, it goes like this:
1st Week of April - VPPs are contacted
3rd Week of April - VPPs purchases accounted for & MPPs contacted (given proportions to BUY/SELL)
May 4TH - All purchases & sales settled
This will determine who will vote for the new DTCC Board.
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TIN FOIL HAT TIME!!!
Ok, so this is where I delve into conjecture. According to this PDF, the annual shareholder meeting will take place on June 2, 2021. It's here that election will take place.
How will voting actually take place? The answer is found in the BOARD NOMINATIONS AND ELECTIONS PROCESS found on this page. When you open up the PDF, you'll find this:
While the document says that the cumulative basis voting system is beneficial for those shareholders who hold a small amount of shares, it sort of breaks down when there is an imbalance of shares & many Board seats up for grabs.
Given that there's 18 seats up for grab and 50,907.78311 shares, that's a total of 916,340.09598 (916,340 rounding) total votes. A part of me is wondering how many of those votes are own by Citadel and those who are working with Citadel?
Also, the MPPs have already given the DTCC Board suggestions for new Board members.
And this is where my tin foil hat is coming in.
NOT FINANCIAL ADVICE, JUST MY RAMBLINGS
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With all of the new DTCC & OCC regulations coming up, it's clear that there is a very real and present danger that many MPPs can/will become default. If/when they do, they can lost their status as DTCC Members. This means that their shares will have to go to those other MPPs that are still in the game.
THIS IS EXTREMELY IMPORTANT BECAUSE THIS WILL DETERMINE WHO HAS THE LOUDEST VOICE ON THE DTCC BOARD... basically, who controls it all!!!
And wouldn't you know it... it's the 3rd week of April that the MPPs will be notified of their proportion of the allocation.
This is why I believe the DTCC hasn't acted. They enacted DTC-2021-003 to look at how F-ed the Shorties are. Then came all of the Recovery & Wind-down regulations. Now the stuff with the OCC is approved.
The DTCC is moving all the pieces in preparation for their BOARD ELECTION based on a new landscape with certain MPPS no longer in position to influence the election results.
And wouldn't you know it? What date ends the 3rd week of April?
Maybe that's why the 3rd week of April is important? It's week that will determine the MPPs' voting power for the new Board of the DTCC.
Posted Apr 8, 2021, 1:46 AM UTC · edited