The 51st-floor corner office of Stuart Z. Goldstein offers a panoramic view of the New York City financial district, with the World Trade Center site smack in the middle. Goldstein was in London on September 11, 2001, but his colleagues gathered in his office to watch as many of their customers died. On the bookshelf by the door, Goldstein now keeps a binder with a blazing red cover. "Emergency Response Plan Reference Material," the cover says.
Only a few weeks ago, the Depository Trust & Clearing Corp., of which Goldstein is communications director, held an evacuation drill, with staff emptying the building and then reassembling at designated sites around the city. Employees, Goldstein says, need to know they can handle the walk down 51 flights of stairs.
America has changed since September 11. You don't always see the change, but it is there, nowhere more pervasively and importantly than at DTCC. DTCC? Chances are you've never heard of it. With luck, you will never need to.
If the economy were a house, DTCC would be the plumbing. It clears and settles the millions of stocks, government and private bonds, mortgage-backed securities, mutual fund shares, and other securities that are traded in the American financial markets. The markets, remember, trade only promises to buy and sell. After the trade, money and securities need to change hands. Only if the books close every night can buyers and sellers know their positions and resume trading the next morning.
As recently as the 1960s, Manhattan witnessed a daily Dickensian spectacle of messengers scurrying through the financial district with pouches of stock certificates and checks. Only when mountains of paperwork were processed could each day's books close. Each exchange, moreover, ran its own settlement system. In those days, Goldstein notes, the cumbersome settlement system strained to accommodate 15 million shares a day, and the stock exchange had to close on Wednesdays just to process its transactions.
In the 1970s, the financial sector set out to centralize and automate settlement. Today, a single private clearinghouse settles U.S. securities trades, with as many as 4.5 _billion_ shares changing hands on a peak day. That clearinghouse is DTCC.
Centralization is efficient but carries risks of its own. "The settlement system could be the Achilles' heel of the financial system," says former Treasury Secretary Lawrence H. Summers (now president of Harvard University). "Its disruption could be a short-term event, or it could lead to panic and crisis from which recovery is difficult." If the settlement system were crippled, effects could range from inconvenient delays to a crash of confidence in the financial system or even, in theory, a chain reaction of insolvencies as each business, unable to collect what it was owed, failed to pay the next. Something to think about: DTCC settled $923 trillion in securities transactions last year. In other words, it turned over the entire gross domestic product every three days.
If a major bank, a brokerage, or even an exchange were to go down, others could step in. "If we went out," says Jill M. Considine, the chairman and CEO of DTCC, "there would be no other, and the books and records of who owns what would be gone." As of September 10, 2001, the settlement system operated according to the adage of Pudd'nhead Wilson: "Put all your eggs in the one basket and—WATCH THAT BASKET."
On the morning of September 11, Considine was in a meeting, planning that day's employee-appreciation picnic. The meeting broke up when everyone heard an unusual noise. By the time the second plane hit, many, including Considine, were watching, horrified, from the windows. As the towers collapsed, the company shut off the air conditioning, checked its emergency generators, and called the Federal Reserve. "I looked out and saw Lower Manhattan was just chaos," Considine says. "Everyone here was bleeding because we all knew someone."
She went from floor to floor, flashlight in one hand and walkie-talkie in the other, to reassure and rally employees. At about 11 a.m., word came that the Fed was staying open to process transactions. "As soon as we knew the Fed was ready to settle," she said, "we settled. It's embedded in our DNA. The salmon has to go upstream to spawn, and we settle."
Not all the miracle workers of 9/11 were at the Trade Center site that day. Considine spent two nights on her office couch. George Peretti, an engineer who speaks rapid-fire Brooklynese and is in charge of business-continuity planning, spent two nights on the floor and in office chairs. (The company has since bought air mattresses.) "We pulled out a lot of tricks to make things happen," Peretti says. With Wall Street devastated and many key banks and brokerages scrambling to evacuate their offices and improvise backup arrangements, DTCC still managed to close its books by 7:30 p.m. on September 11—less than three hours late.
That week, DTCC cleared $1.8 trillion. The financial system never felt a bump. Employees speak of that week with the awe and pride of combat veterans.
So all's well that ends well? Not quite. DTCC scraped through on a combination of planning, improvisation, and good luck. But Considine, at one point expecting to evacuate, found herself preparing to carry her Rolodex and 30 pounds of books and critical information down 50 flights of stairs. "That was not the right thing to be doing," she says.
Disaster plans were geared to a flood or a fire in the building. "It had never occurred to us that all of Lower Manhattan could be taken out," Considine says. The company had a backup site, but it was in the New York metropolitan area, too close for comfort. With Manhattan transportation links shut down, many employees could not reach the emergency site anyway. Worse, all but a few employees were at headquarters. Had that building been destroyed, the carnage would have brought settlement to a stop.
Since then, a lot has changed. One indication is what you will not see in the Manhattan command center: a crowd of people. The long room occupies much of a floor and is cluttered with workstations and monitors, but only a few heads poke above the cubicle walls.
"Before 9/11," says Paretti, "this room was full, because we had all the bodies here." Where are they now? He points to a large-screen TV. It shows video feeds from three command centers. One is where we're standing. The others are—well, somewhere. DTCC now runs several remote command centers, all of them in secret locations, some more than 1,000 miles away, and each fully staffed and capable of running the whole settlement system. Any center can independently take control if others cease to respond.
On 9/11, transaction data that poured into the Manhattan office were backed up, but the backup site was nearby. Thanks to a new technology that was invented for the purpose, data are now backed up to faraway locations at intervals of 15 minutes or less. If the whole New York region were annihilated, only a few minutes' worth of trades would be lost, a nuisance rather than a calamity.
Personnel, too, are backed up and disaggregated. Rotations ensure that essential officers are never all at headquarters simultaneously. "Desktop drills" regularly pretend that New York has disappeared and check on the whereabouts of backup teams. Staff members carry multiple communications links, all running on different networks. Communications with financial institutions, a trouble spot on 9/11 when some key telephone exchanges went down, now take place over a redundant system that is designed to reroute communications around even a large infrastructure failure.
"It's been an entire culture change," Considine says. Throughout the company, systems that for decades relied on central control are being reorganized for independent movement and judgment. Hubs are giving way to networks. It is not just terrorists who are adopting cell structures.
"Let me tell you, it's expensive," Considine says. "Instead of running one, you're running two. Instead of running two, you're running three." DTCC's disaster-proofing costs so far have run to something like $150 million. Donald F. Donahue, the company's chief operating officer, was recently appointed by the Treasury Department to coordinate the financial sector's infrastructure-protection efforts. "The security of the sector compared to two and a half years ago is orders of magnitude better," he says. But there is still much work to do, for instance in closing communications and software vulnerabilities. "Nobody's relaxed about this," he says.
Meanwhile, in the time it took you to read this article, millions of financial transactions clicked through computers in New York and then were copied to computers far away. Don't ask where.