WHAT IS DTC ELIGIBILITY?
DTC Eligibility means that a public company’s securities are able to be deposited through DTC. DTC is the largest securities depository in the world and holds over thirty-five trillion dollars worth of securities on deposit. DTC accepts deposits of securities from its participants only, who are usually clearing firms. Most brokers clear stock in-house or hire a clearing firm to do so on their behalf. All movements of securities are made to the participant’s account electronically with book-entry adjustments.
Please Email Us with Your Name, Company Name, Phone, Ticker Symbol and Email address to see if we can help you obtain DTC eligibility or to solve other DTC related issues. We can then provide you with a estimated cost to obtain DTC Eligibility.
If an issuer is not DTC eligible, then its shares cannot be transferred between brokerage accounts electronically, which basically means its shares cannot be traded easily. Major Exchanges such as NYSE and NASDAQ require DTC eligibility. Other Platforms such as the OTC Bulletin Board and the Pink Sheet markets do not. Only a DTC participant can request that DTC make a security eligible. Most large U.S. broker-dealers and banks are DTC participants. Once an issuer has been approved for trading by FINRA, they must apply to DTC for their initial eligibility to trade. If DTC approves the application they will hold all of the issuer’s free-trading street name shares on deposit. As with a Form 15C-211 submission to FINRA , an issuer cannot make a direct application to DTC for eligibility. The issuer must have a relationship with a broker-dealer or other financial institution that is a participant and will sponsor the eligibility process. This firm is also known as the “market-maker”. They will carry the initial position in inventory on behalf of their firm. A current List of DTC Participants (http://www.dtcc.com/downloads/membership/directories/dtc/alpha.pdf) is available on DTC’s web site. The Issuer must also have a transfer agent such as Securities Transfer Corporation that has completed and has on file with DTC a DTC Operational Arrangements Agent Letter, and must also be a participating in DTC’s FAST (Fast Automated Securities Transfer) program.
It is a well-known fact in the securities industry that DTC retains the right to deny a company the ability to use their depository without providing a reason for the denial. Therefore, the eligibility review process should include a clean presentation of facts and documents that meet DTC’s standards. Eligibility requirements include that the securities must be; issued in a transaction registered with the U.S. Securities and Exchange Commission (“SEC”) pursuant to the Securities Act of 1933, as amended (the “Securities Act”); or issued in a transaction exempt from registration pursuant to a ’33 Act exemption, that at the time of the request for DTC eligibility no longer involves transfer or ownership restrictions; or eligible for resale pursuant to Rule 144A or Regulation S under the ’33 Act (and must otherwise meet DTC’s eligibility criteria).
Possible Document Requirements for Issuers
Whether at the point of initial offering or when the terms of an already eligible security are amended in a corporate action, DTC’s underwriting department may require the issuer to execute and deliver related documentation including, but not limited to, the following:
- an offering document
- a completed eligibility questionnaire signed by a Participant
For Book-Entry-Only (“BEO”) securities, in addition to the two documents above, an Issuer must provide a DTC Letter of Representation among the Issuer, its Transfer Agent and DTC. The Letter of Representation may be a blanket letter, which is Issuer specific and covers all securities by that Issuer, or an Issuer letter of Representation which is used for one time only issuances.
- Book-Entry-Only (“BEO”) securities are securities for which no physical certificates are made available and all securities are maintained by DTC in a “Cede & Co” account. Transactions are made through the FAST program. Most OTC Issuer securities are not BEO.
- DTC may request a rider, which is usually only required for REG S or non-U.S. issuers.
Potential Reasons For Rejection
The following points are potential issues that can hinder DTC approval:
(DTC has accepted issuers with these issues below however, DTC eligibility is granted on a case by case basis.)
- The issuer should be an SEC reporting company with no history of late filings.
- The issuer should have a minimal history of name changes and/or reverse splits in the last five years prior to the eligibility application.
- The issuer should have no persons associated directly or indirectly (stock promoters, lawyers, accountants) with the company that have ever been under investigation by the SEC.
- DTC will notify the participant if a legal opinion of counsel will be required. The legal opinion should be written by a licensed securities attorney, in good standing with their bar and engaged in an independent private practice. Opinions of in-house counsel will not be relied upon by DTC.
- DTC requires that the securities lawyer writing the opinion NOT be a shareholder of the issuer.
- DTC reserves the right to approve counsel whose opinion DTC is being asked to rely.
- The issuer should have no record of being involved in a spam campaign, pump and dump scheme or any history of fraudulent activity throughout its corporate history.
- Affiliates of the issuer should have no record of unregistered re-sales at any brokerage firm.
Contact us to learn more on becoming a DWAC eligible issuer.
The information contained herein is general in nature, is not legal advice, and should not be treated as such. You must not rely on the information here as an alternative to legal advice from your attorney or other professional legal services provider.