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

- " \

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