DTC ELIGIBILITY

Securities in the United States are cleared through the Depository Trust Corporation (DTC) a government owned but separately operated facility.  The DTC provides clearing, settlement and information services for equity securities, corporate and municipal bonds, government and mortgage backed securities, money market instruments and over-the-counter derivatives for over 3.5 million securities issuers from the United States and 110 other countries and territories.

In recent months, the DTC has exponentially increased the requirements associated with the trading of illiquid securities. Their rationale is based, in part, in the inherent volatility in the price of these securities in addition to the fact they are often very low in price. They are also concerned when a trade in an illiquid security is relatively large when compared to the security’s historical trading volume. To date, Penson Financial Services, Inc. (PFSI) has allowed trading in illiquid and very low priced securities within certain prescribed guidelines in an effort to accommodate our correspondents.  

Also, the regulatory community has recently become more focused on the deposits of physical certificates, particularly those that trade on the Pink Sheets or OTC Bulletin Board. The securities industry has experienced a significant spike in fraudulent transactions related to reduced valuations or non-existent or fraudulent transfer agent services for sub-penny securities. In addition, the potential for the use of these types of securities for money laundering or investor fraud are also of serious concern. As a result, the regulators have increased their scrutiny of transactions in these types of securities. 

The combination of the deposit of a physical certificate and a subsequent trade in that security, which the depository has deemed to be illiquid, can result in exceptionally large requirements from the depository. As a result, clearing agencies such as Penson Financial Services, one of the largest clearing agencies, have increased their requirements for sponsoring DTC qualification.  Penson has even sent out a notice to its customers that it will no longer accept physical certificates on deposit for stocks that trade for less than 10 cents per share. 

The challenges have increased to obtain DTC eligibility for a small cap company's stocks, but the task is still not impossible.  We work with qualified consultants and clearing firms to achieve your DTC qualification.   Call now for a free evaluation of your security.