DTC, or Depository Trust Company, founded in 1973, is the largest depository globally with over thirty-five trillion dollars worth of securities on deposit. It operates a securities settlement system and provides services, including depository and book-entry services. Other services also include dividend and interest payments, tender and rights offers, and corporate reorganizations events like a name change, reverse splits, mergers, bankruptcy, etc.
DTC Eligible securities are freely tradable securities of a public company that become eligible to be deposited into the DTC. Any company planning to go public or host a liquidity event for their investors must procure DTC eligibility, without which shares cannot trade easily. Once securities are DTC eligible, brokers can process and clear transactions, allowing issuers to save on clearing and broker fees, enhance their liquidity, and improve their market visibility.
DTC Eligibility facilitates:
Stock certificate deposits into individual brokerages,
Reduction in broker processing fees,
Elimination of printing excessive physical stock certificates by using electronic processing between brokers and DTC,
Reduction in costs that are associated with courier shipments,
Increased funding opportunities from lenders, investment bankers, as well as investors, and
Easy transfer of ownership of securities between brokers.
Lead managers, underwriters, placement agents, market players, and clearing firms directly or indirectly partnered with DTC can use their services. Since a company cannot directly apply for DTC Eligibility, they will need a transfer agent to apply on their behalf. The agent helps simplify the complicated and confusing process of obtaining DTC Eligibility, ensuring your securities are registered promptly.
Under the Eligibility program, DTC Participants can submit new and secondary security offerings eligibility requests. Since issuers do not need to complete the offering or have a ticker symbol before requesting DTC Eligibility, they can apply during the offering process, saving time. OTC Bulletin Board and the Pink Sheet markets do not require DTC eligibility; only significant exchanges such as NYSE and NASDAQ do. The DTC participant must submit corporate or municipal debt or retail certificate of deposit on behalf of the Issuer. Additional requirements include securities offering data and offering documentation under the Securities Act of 1933 or issued in an offering exempted from registration or is resold according to Rule 144A, or Regulation S. Examples include a prospectus, official statement, the offering memorandum.
DTC has the right to deny its services without providing a reason. Therefore it is crucial to present only facts according to the standards laid out by DTC. DTC owns the authority to restrict an issuer’s securities, referred to as “chill,” until the Issuer or its transfer agent clarifies the underlying problem. DTC permits eligibility requests for an older offering, and Colonial Stock Transfer can help you with this and much more.