Category: Depository Trust Company (DTC)

Depository Trust Company (DTC)- On October 8, 2013, I published a blog and white paper providing background and information on the Depository Trust Company (“DTC”) eligibility, chills and locks and the DTC’s then plans to propose new rules to specify procedures available to issuers when the DTC imposes or intends to impose chills or locks. On December 5, 2013, the DTC filed these proposed rules with the SEC and on December 18, 2013, the proposed rules were published and public comment invited thereon. Following the receipt of comments on February 10, 2014, and again on March 10, 2014, the DTC amended its proposed rule changes. This blog discusses those rule changes and the current status of the proposed rules..

Mar212012

DTC Chills, Due Process and Rule 22

Back in October and November of 2011 I wrote a series of blogs regarding DTC eligibility for OTC (over the counter) Issuers.  OTC Issuers include all companies whose securities trade on the over the counter market, including the OTCBB, OTCQB and Pink Sheets.  Many OTC Issuers have faced a “DTC chill” without understanding what it is; let alone how to correct the problem.  In technical terms, a DTC chill is the suspension of book-entry clearing and settlement services with respect to an Issuer’s securities.  In layman’s terms it means your stock can’t clear or trade electronically.  Since all trading in today’s world is electronic, it really means your stock doesn’t trade.

The SEC’s Stance

As noted in the SEC opinion:

“…DTC provides clearance, settlement, custodial, underwriting, registration, dividend, and proxy services for a substantial portion of all equities, corporate and municipal debt, exchange traded funds, and money market instruments available for trading in the United States.  In 2010, DTC

Nov032011

DTC Eligibility and the OTC Issuer (Part 3)

This is the third in a series of articles I am writing regarding DTC (Depository Trust Company) eligibility for OTC (Over the Counter) Issuers. OTC Issuers include all companies whose securities trade on the over the counter market, including the OTCBB, OTCQB and Pink Sheets.  All technical information in this article comes from the DTC website.

DTC Eligibility

As detailed in my first two articles in this series, in order to become and remain DTC eligible, and Issuer must have a transfer agent that has completed and has on file with DTC a DTC Operational Arrangements Agent Letter.  In addition, all Issuers must meet the requirements set forth in the DTC Operational Arrangements (OA).  This article begins to discuss the OA necessary for an Issue to become and remain eligible for DTC service.  Moreover, the OA rules relate to and regard all Issuers.  This article will only discuss those rules and requirements for OTC Issuers.

The DTC OA states:

“Generally,

Oct102011

DTC Eligibility and the OTC Issuer (Part 2)

This is the second in a series of articles regarding DTC (Depository Trust Company) eligibility for OTC (Over the Counter) Issuers.  OTC Issuers include all companies whose securities trade on the over the counter market, including the OTCBB, OTCQB and Pink Sheets. All technical information in this blog comes from the DTC website.

DTC Requirements for Eligibility

As discussed in my first article on this topic, Issuers, a sponsoring DTC Participant Member must make application to become DTC eligible.  The DTC Operational Arrangements criteria (available on the DTC website) set forth in-depth requirements for eligibility, which will be discussed in a separate articles in this series on DTC eligibility.  In addition to the Operational Arrangements, in order to be DTC eligible, an Issuer’s securities must:

(i)            be issued in a transaction registered with the SEC under the Securities Act of 1933, as amended (“Securities Act”);

(ii)        be issued in a transaction exempt from registration under the Securities Act and

Oct052011

DTC Eligibility and the OTC Issuer

This is the first in a series of articles I am writing regarding DTC (Depository Trust Company) eligibility for OTC (Over the Counter) Issuers.  OTC Issuers include all companies whose securities trade on the Over the Counter market, including the OTCBB, OTCQB and PinkSheets.

DTC eligibility has become a major concern for OTC Issuers in the past year.  Obtaining and maintaining eligibility is of utmost importance for the smooth trading of an Issuer’s float in the secondary market.  Moreover, DTC eligibility is a prerequisite for OTC Issuers’ shareholders to deposit securities with their brokers and have such securities be placed in street name.  Most Issuers and many legal practitioners do not know or understand the eligibility requirements or procedures.

The DTC Application Process

First and foremost, like a Form 211 submittal to FINRA, an Issuer cannot make direct application to DTC for eligibility.  An application must be submitted and sponsored by a DTC Participant.  A current list of DTC Participants

Oct032009

Market Makers Rely on Due Diligence in Reverse Mergers

Following approval of the 15c2-11 application by FINRA, and the consistent quotation of a company’s securities, market makers may “piggy back” on the approved and completed 15c2-11. In short, a market maker may quote the share price of the Bulletin Board Shell while relying on the due diligence of other market makers and the company’s current SEC filings.

Although highly technical, the due diligence process can be completed quickly and thoroughly by an experienced securities attorney; the key is knowing where to look and what to look for. For example:

  • All articles and amendments are ordered from the company’s state of domicile and reviewed for procedural correctness and historical understanding.
  • DTC (the Depository Trust Company) is contacted to confirm the company is in a transferable status.
  • In addition to financial statement review, using several proprietary online search services, the firm conducts comprehensive debt and litigation searches to identify any miscellaneous debts as well as pending or past litigation.
  • A tax
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