I periodically have issues with bank CDs, offered through a brokerage, paying CD interest payments on time. When that occurs, I contact my brokerage, Schwab, to determine what is causing the delays. Eventually, they agree to start a formal inquiry/investigation, which almost always gather information from the DTC regarding settlement details.
DTC: "DTCC's subsidiary, The Depository Trust Company (DTC), established in 1973, was created to reduce costs and provide clearing and settlement efficiencies by immobilizing securities and making "book-entry" changes to ownership of the securities. DTC brings efficiency to the securities industry by retaining custody of more than 1.4 million active securities issues valued at US$87.1 trillion, including securities issued in the US and more than 131 countries and territories.
DTC provides securities movements for NSCC's net settlements, and settlement for institutional trades (which typically involve money and securities transfers between custodian banks and broker/dealers), as well as money market instruments."
All of my CDs are "DTC eligible", but I am not exactly sure how the DTC works regarding an established brokerage CD. I assume the actual bank submits the CD interest payments, established on the distribution schedule in the CD, and then that leads to a settlement in my Schwab Brokerage account. But I don't know if that can be disrupted by the Bank not submitting the CD interest payments on a timely basis, if there can be some breakdowns by Schwab in actually distributing what the Bank has submitted to the DTC, if there can actually be some technical breakdowns by the DTC. Schwab almost always tells me they will gather information from the DTC, but I never hear what they discovered. My Schwab Representative says that banks have up to 30 days beyond the distribution date for the CD to actually submit the interest (really? I have never seen that in my CD documents).
I had one episode about a year ago, in which I actually contacted the bank, and they stated that they had submitted interest payments for my particular brokerage CD on schedule and that it was a "Schwab problem". However I did not have the DTC information to verify that, and Schwab would not provide me the DTC details.
At any rate, if anyone has more expertise and knowledge about the DTC and how it works in conjunction with brokerages for interest payment distributions, I would love to be educated!~
Comments
This post of mine from another thread may help. I cite a few different sources. Of particular interest is this little item, essentially confirming your assumption above: https://capitalmarkets.fidelity.com/brokered-certificate-of-deposit-underwriting
The Fidelity site goes on to say that "Retail CDs require one aggregate weekly settlement and one fund's transfer at maturity."
On one of the other current running CD/FI threads, I stated:
(4) If not received by the overdue date (Edit add: which is 10 days after the monthly/semiannual interest payment due date), Fido initiates a "service request" at the request of the account holder and contacts the bank to inquire about the late payment and determine if/when it will be received by Fido.
I have never spoken to them about DTC payments/requirements. My guess though is they wouldn't do anything in relation to DTC weekly payment requirements not being met, as they only noted they will act upon a customer request as noted in the above-excepted post of mine.
Again, please see my prior suggestions.
The Fido FI guys can and will provide FACTS to (at least) their customers (and maybe non-customers and prospective customers-HINT-as well), about all things CDs.
The agreement and the duties/obligations are yours and the banks. The high level bank manager I spoke to was helpful, appreciative and acted to resolve the issue promptly.
Also, for clarification...
NOTE that, as I previously posted, Fido FI guys have told me that a CD interest payment is late (paraphrasing) "if not received by them by within 10 days after the scheduled interest payment date."
That may very well just be Fido's policy - I never took the conversation past that statement. And, I never posted on MFO that was an SEC Rule or anything other than a Fido FI guy's statement to me. PLEASE don't assume that is an SEC Rule, or worse, infer that I or anybody else said it was. Thanks!
Overall, the failure to receive a scheduled CD interest payment is a stressful situation for investors who fully expect those payments to ALWAYS be like clock work and ON TIME. But they happen, and they happen for the reasons I've noted. They generally get resolved within days or weeks of the occurrence.