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Wednesday, August 19, 2020 2:56:45 PM
After the purchase of a security occurs, the second portion of the trade transaction occurs. This portion is referred to as clearing. While brokers maintain individual books recording the entire amount of buy and sell orders transacted by their clients, DTC handles clearing of these transactions. Clearing trades involves the matching of the buy and sell orders in a security. Once the transactions are executed, details are sent to DTC, where they are recorded and matched for accuracy. After all the trades are matched for buys and sells, DTC notifies all member firms of their associated obligations, and arranges the transfer of appropriate funds and securities. Thus, individual brokers are not dealing with one another after every trade. Instead DTC serves as an intermediary that facilitates the transfer of stocks and cash. It is important to note that DTC guarantees delivery and if the buyer or seller of the security being cleared through DTC does not deliver the purchase price or security sold, DTC fulfills the obligations of the party that did not deliver.
Typically, the DTC clearing process takes three days to complete. When a security is not DTC eligible clearing occurs only upon physical delivery of the stock certificate representing the security from the seller to the buyer. Clearing without DTC eligibility through physical delivery is not a rapid process – it may take weeks to complete. Without DTC eligibility it is impossible for an issuer to establish liquidity in its securities.
Source : https://www.securitieslawyer101.com/blog/what-is-dtc-going-public-securities-lawyer/
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