The Depository Trust and Clearing Corporation (DTC) recently proposed Rule SR-DTC-2015-012 regarding CUSIP eligibility that went into effect on January 1st, 2016. The proposed rule allows DTC to charge issuers a $1,000 fee when required to make a new CUSIP DTC eligible after completion of a corporate action. A CUSIP is similar to a serial number and is assigned to each security, to help facilitate trades.
New Fee Information
The new $1,000 fee will be invoiced to the issuer of any DTC-eligible security after the transfer agent notifies DTC that a new CUSIP is required as a result of a corporate action. This fee was proposed in order to counter the costs that the DTC accumulates when making securities eligible for DTC services. The new fee was implemented to allow DTC to continue creating new CUSIPs for securities in connection with corporate actions, as well as allowing DTC to continue to settle securities transactions in a timely manner.
Securities Eligible for DTC Services
In order to be a DTC eligible security, the security must be registered with the SEC and be freely tradeable. These securities include but are not limited to equities, warrants, rights, government securities, and depository receipts.
Securities become eligible for DTC services, either through:
- Initial Offering/New Issue Eligibility program: Their respective securities are made eligible after first submitting a request, which is considered the starting point for both book-entry and depository transfer services. DTC then places securities through an eligibility determination.
- Older Issue Eligibility Request Process: This allows participants to submit an eligibility request for outstanding securities, by submitting an Older Issue Eligibility Questionnaire, as well as a physical certificate with the CUSIP number. This is used for securities that were not previously eligible for DTC services.
- Corporate Actions Processing: These services are for any securities requiring a new CUSIP number as a result of a corporate action event, as outlined above.
However, only securities requiring a new CUSIP number as a result of any corporate action require the new Corporate Actions Eligibility Fee.
Benefits of having DTC Eligible Securities
In order to have securities made eligible for DTC services, issuers must first appoint a transfer agent who will work directly with the DTC on their behalf. Some of the advantages of DTC eligibility are that it:
- Helps reduce costs for issuers through electronic processing;
- Boosts efficiency, as well as providing a safe way to exchange “street” securities; and
- Provides central custody of “street” securities, so that ownership of securities is more easily transferred.
As a professional and registered SEC transfer agent Colonial can handle all of your transfer agent needs.
View the official DTC Rule SR-DTC-2015-012.
View Colonial’s SEC comment letter submitted on the topic.