An Update On Dealing With The DTC Following The SEC’s Ruling On International Power Group, Ltd.
Background
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 pinksheets. 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 certain DTC services with respect to an Issuer’s securities. Those services can be book-entry clearing and settlement services, deposit services or withdrawal services. A chill can pertain to one or all of these services. In the case of a chill on all services, the term of art is a “global lock.”
I have previously blogged on how to become DTC-eligible. From the DTC perspective, a chill does not change the eligibility status of an Issuer’s securities, just what services the DTC will offer for those securities. So while
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,
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
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
