Any Hope For This To Get DTC? The Depository
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Posted On: 03/29/2015 7:55:37 PM
Any Hope For This To Get DTC?
The Depository Trust and Clearing Corporation (“DTCC”), through its subsidiaries, provides clearing, settlement and information services for securities. DTCC’s subsidiary, the Depository Trust Company (“DTC”) was created to improve efficiencies and reduce risk in the clearance and settlement of securities transactions. Not all securities are eligible to be settled through DTC. DTC Eligibility has become an often unexpected burden for companies in going public transactions.
Issuers must satisfy the criteria set by DTCC to be settled through DTC. All companies must satisfy this criteria in order to be DTC eligible, including both Securities and Exchange Commission (“SEC”) reporting and non-reporting issuers. This Securities Lawyer 101 Series discusses the most common questions we receive about DTC eligibility in going public .
Q. What is The Depository Trust Company (“DTC”)?
A. DTC is the only stock depository in the United States.
Q. Why is DTC so important to public companies?
A. When DTC provides services as the depository for a company’s shares, the shares can trade electronically. Without DTC eligibility, it is almost impossible for an issuer to establish an active market in its shares.
Q. How do public companies obtain DTC eligibility?
A. Issuers must satisfy specific criteria to receive initial DTC eligibility, and to remain DTC eligible. Even after those securities become eligible, DTC may limit or terminate its services.
Q. How does DTC limit its services?
A. DTC limits its service by placing a chill (“DTC Chill”) on a security and terminates its services by placing a lock (“Global Lock”) on the security.
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 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 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 DTC eligibility back for my company?
A. Not if the opinion is legally flawed. Many officers and directors of microcap companies are facing the harsh reality that reliance upon a legal opinion will not enable them to get a Chill or Global lock removed. DTC reserves the right to refuse to rely upon the opinion of any issuer’s securities attorney. In the last few years, the SEC has brought multiple enforcement actions against attorneys in connection with tradability opinions rendered for microcap issuers. Often these actions are preceded by a loss of eligibility.
For further information about the Depository Trust Company, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real South, Suite 202 North, Boca Raton, FL, (561) 416-8956, or by email at info@securitieslawyer101.com. This securities law Q & A is provided as a general or informational service to clients and friends of Hamilton & Associates Law Group, P.A. and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that 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
www.SecuritiesLawyer101.com
The Depository Trust and Clearing Corporation (“DTCC”), through its subsidiaries, provides clearing, settlement and information services for securities. DTCC’s subsidiary, the Depository Trust Company (“DTC”) was created to improve efficiencies and reduce risk in the clearance and settlement of securities transactions. Not all securities are eligible to be settled through DTC. DTC Eligibility has become an often unexpected burden for companies in going public transactions.
Issuers must satisfy the criteria set by DTCC to be settled through DTC. All companies must satisfy this criteria in order to be DTC eligible, including both Securities and Exchange Commission (“SEC”) reporting and non-reporting issuers. This Securities Lawyer 101 Series discusses the most common questions we receive about DTC eligibility in going public .
Q. What is The Depository Trust Company (“DTC”)?
A. DTC is the only stock depository in the United States.
Q. Why is DTC so important to public companies?
A. When DTC provides services as the depository for a company’s shares, the shares can trade electronically. Without DTC eligibility, it is almost impossible for an issuer to establish an active market in its shares.
Q. How do public companies obtain DTC eligibility?
A. Issuers must satisfy specific criteria to receive initial DTC eligibility, and to remain DTC eligible. Even after those securities become eligible, DTC may limit or terminate its services.
Q. How does DTC limit its services?
A. DTC limits its service by placing a chill (“DTC Chill”) on a security and terminates its services by placing a lock (“Global Lock”) on the security.
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 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 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 DTC eligibility back for my company?
A. Not if the opinion is legally flawed. Many officers and directors of microcap companies are facing the harsh reality that reliance upon a legal opinion will not enable them to get a Chill or Global lock removed. DTC reserves the right to refuse to rely upon the opinion of any issuer’s securities attorney. In the last few years, the SEC has brought multiple enforcement actions against attorneys in connection with tradability opinions rendered for microcap issuers. Often these actions are preceded by a loss of eligibility.
For further information about the Depository Trust Company, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real South, Suite 202 North, Boca Raton, FL, (561) 416-8956, or by email at info@securitieslawyer101.com. This securities law Q & A is provided as a general or informational service to clients and friends of Hamilton & Associates Law Group, P.A. and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that 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
www.SecuritiesLawyer101.com
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