DTC Eligibility Frequently Asked Questions
Frequently Asked Questions re DTC Eligibility & Services
We routinely get questions concerning DTC Eligibility and other issues concerning DTC. As a result, we have decided to provide some common questions and answers. Welcome to our DTC Eligibility Frequently Asked Questions.
What does it mean for a security to be DTC Eligible ? When an Issuer’s securities are DTC Eligible they can be deposited into an investor’s brokerage account “streetname” through any broker/dealer.
What is Streetname ? Streetname is a common term used to describe the holding of securities in electronic form in a brokerage account.
How is DTC Eligibility obtained ? A sponsoring broker/dealer will submit a package of information to DTC. This package of information goes to DTC’s underwriting department where it is subject to review. Following this a review an approval or rejection determination is made.
Can any broker/dealer be a sponsoring broker/dealer for DTC Eligibility ? Only a broker/dealer that is a direct DTC Participant can be sponsoring broker/dear. After the sponsoring broker/dealer submits a package to DTC, and approval as been granted, then the securities are then DTC Eligible, and deposits can be made at any brokerage firm that accepts securities of that type.
Does an Issuer need a transfer agent in order to have its securities become DTC Eligible ? Yes. DTC requires that an Issuer has a transfer agent that represents its interests with DTC. This helps ensure a smooth and professional process.
Does an Issuer need to have an offering completed before it can request DTC Eligibility ? No. It is a common misconception that an Issuer needs to complete its offering, or have a ticker symbol assigned, before a request for DTC Eligibility can be made. An Issuer can request DTC Eligibility while it is in the process of conducting its offering.
What Happens When DTC “chills” a stock ? A “chill” is a restriction placed on an Issuer’s securities by DTC. This may include limiting the ability to make deposits, or a restriction on other clearing or trade settlement services. A chill may remain in place to an event passes, or the Issuer or its transfer agent clear up a problem.
What is “non-transferable” status ? Non-transferable status is when DTC restricts or halts the ability of an Issuer’s shares to be deposited or withdrawn from DTC. Essentially they cannot be moved in and out of street-name.
Is “non-transferable” status the same as a “chill” ? No, they are two (2) separate types of action from DTC.
Can a Company’s securities still trade if they are not DTC Eligible ? Yes. They will trade through a physical settlement process. There are a limited number of firms that are willing to trade non-DTC Eligible securities. This will dramatically restrict the liquidity of a company’s securities.
If you are having issues with DTC, please feel free to contact our office to see how we can be of assistance.