DTC Eligibility Explained By The Going Public Attorneys
Posted by Brenda Hamilton, Securities and Going Public Lawyer
Q. What is The Depository Trust Company (“DTC”)?
A. DTC is the only stock depository in the United States.
Q. How do public companies obtain a DTC eligibility?
A. Issuers must satisfy specific criteria to receive an initial DTC eligibility, and to remain DTC eligible. Even after those securities become eligible, DTC may limit or terminate its services.
Q. Why is the DTC so important to public companies?
When the DTC provides services as the depository for an issuer’s securities, its securities can trade electronically. Without DTC eligibility, it is almost impossible for an issuer to establish an active market in its stock.
Q. Can the DTC limit or terminate its services?
A. Yes. The DTC limits its services by placing a Chill (“DTC Chill”) on a security and terminates its services by placing a lock (“Global Lock”) on the security.
Q. Will the DTC Ever Remove a Chill or Global Lock?
A. Yes, chills have been removed from multiple public companies. In some circumstances, the DTC obtains additional information from the issuer and an opinion from its Securities Attorney regarding the activity in question.
Q. Is there a conspiracy between the DTC and the SEC to eliminate all small cap public companies by DTC placing Global Locks and Chills on their securities?
A. When a DTC eligibility is limited or terminated, Issuers and their Securities Attorneys often scream foul play asserting various conspiracy theories, each more ludicrous than the last. We have all read about issuers who self-righteously proclaim that their loss of eligibility was due to conniving short sellers, nefarious clearing firms and the purported “agenda” of the SEC to eliminate small broker dealers and microcap issuers.
The reality is that microcap issuers lose the DTC’s services for three legitimate reasons – failures to cover, illegal issuances of free trading securities and fraudulent investor relations activity.
Q. If I obtain a legal opinion will I get a DTC eligibility back for my company?
A. Not necessarily. The DTC does not blindly accept legal opinions and will not accept a legal opinion if the opinion is baseless.
Q. What Is DTCC’s Office of Corporate and Regulatory Compliance and what do they do?
A. DTCC’s Office of Corporate and Regulatory Compliance monitors unusually large deposits of penny stocks that are deposited into a DTC when there is a suspicion or indication that the issuer or persons associated with the issuer have violated the securities laws.
Q. How will a DTC Chill or Global Lock impact trading of my company’s stock?
A. Like a Chill, a Global Lock may last a few days or for an extended period of time, depending on the reason for the action. If the fundamental issue cannot be corrected, then the security will be removed from its depository, and transactions in the security subject to the Global Lock will no longer be eligible for clearing at any registered clearing agency. When this happens, clearance and settlement of open market trades are significantly delayed because trades can only occur upon physical delivery of stock certificates between the buyer and seller’s brokerage firms. In such circumstances it could take weeks for trades to clear and settle.
Q. Will the DTC tell me why my stock is chilled?
A. The DTC does not always disclose the reason for a Chill or Global Lock, nor does it suggest how long it will be in effect.
For further information about this securities law blog post, please contact the going public attorneys at Hamilton & Associates Law Group, P.A., 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Going Public Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855