Not all securities are eligible to be settled through DTC and 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 SEC reporting and non-reporting issuers.   Complying with this criteria is often an unexpected legal and compliance cost for many issuers who are unaware of DTC’s requirements. Issuers who do not or cannot comply often find their securities the subject of Global Locks and DTC Chills.

In order for an issuer’s securities to trade electronically, the issuer must also submit an application to DTC for its initial eligibility to trade. If eligibility is granted, DTC will agree to hold an inventory of free-trading street name shares on deposit. The shares that are free-trading and held by DTC become the “public float.” DTC is the only depository that provides an inventory for clearing and settlement of the securities of publicly traded companies in the United States.

DTC retains the right to deny any issuer the ability to use their depository for any reason at their discretion without notice or explanation to the issuer. For this reason, before an issuer applies for eligibility, it must provide information to DTC concerning the original issue date of its free trading shares, the holders and transferees as well as the specific consideration provided for any free trading shares.

Issues that will quicken the DTC process are:

i. being an SEC reporting issuer and not missing or being late with any reports;

ii. having very few name changes or reverse splits;

iii. not having people associated with the issuer including stock promoters, lawyers or accountants that have been under investigation by the SEC;

iv. not becoming public as the result of a reverse merger with a public shell company;

v. having no record of being involved in a spam campaign, pump and dump scheme, or other fraudulent activities that would raise Anti Money Laundering or Office of Foreign Assets Control issues; and

vi. having no record of unregistered securities sales especially by affiliates.