What is DTC Eligibility?

DTC Eligibility means that a public company’s securities are able to be deposited through DTC. DTC is the largest securities depository in the world and holds over thirty-five trillion dollars worth of securities on deposit. DTC accepts deposits of securities from its participants only, who are usually clearing firms. Most brokers clear stock in-house or hire a clearing firm to do so on their behalf. All movements of securities are made to the participant’s account electronically with book-entry adjustments.

How DTC Eligibility Works

If an issuer is not DTC eligible, then its shares cannot be transferred between brokerage accounts electronically, which basically means its shares cannot be traded easily.   Major Exchanges such as NYSE and NASDAQ require DTC eligibility.  Other Platforms such as the OTC Bulletin Board and the Pink Sheet markets do not.  Only a DTC participant can request that DTC make a security eligible.  Most large U.S. broker-dealers and banks are DTC participants.  Once an issuer has been approved for trading by FINRA, they must apply to DTC for their initial eligibility to trade.  If DTC approves the application they will hold all of the issuer’s free-trading street name shares on deposit.   As with a Form 15C-211 submission to FINRA , an issuer cannot make a direct application to DTC for eligibility.  The issuer must have a relationship with a broker-dealer or other financial institution that is a participant and will sponsor the eligibility process. This firm is also known as the “market-maker”.  They will carry the initial position in inventory on behalf of their firm.

DTC Transfer Agent Criteria

A current List of DTC Participants is available on DTC’s web site. The Issuer must also have a transfer agent such as Securities Transfer Corporation  that has completed and has on file with DTC a DTC Operational Arrangements Agent Letter, and must also be a  participating in DTC’s FAST (Fast Automated Securities Transfer) program.

DTC Eligibility

Please contact us to see if we can help you obtain DTC eligibility or to solve other DTC related issues. We can then provide you with a estimated cost to obtain DTC Eligibility.

DTC Eligibility Review

It is a well-known fact in the securities industry that DTC retains the right to deny a company the ability to use their depository without providing a reason for the denial.  Therefore, the eligibility review process should include a clean presentation of facts and documents that meet DTC’s standards. Eligibility requirements include that the securities must be; issued in a transaction registered with the U.S. Securities and Exchange Commission (“SEC”) pursuant to the Securities Act of 1933, as amended (the “Securities Act”); or issued in a transaction exempt from registration pursuant to a ’33 Act exemption, that at the time of the request for DTC eligibility no longer involves transfer or ownership restrictions; or eligible for resale pursuant to Rule 144A or Regulation S under the ’33 Act (and must otherwise meet DTC’s eligibility criteria).

Possible Document Requirements for Issuers

Whether at the point of initial offering or when the terms of an already eligible security are amended in a corporate action, DTC’s underwriting department may require the issuer to execute and deliver related documentation including, but not limited to, the following:

  • an offering document
  • a completed eligibility questionnaire signed by a Participant
    For Book-Entry-Only (“BEO”) securities, in addition to the two documents above, an Issuer must provide a DTC Letter of Representation among the Issuer, its Transfer Agent and DTC. The Letter of Representation  may be a blanket letter, which is Issuer specific and covers all securities by that Issuer, or an Issuer letter of Representation which is used for one time only issuances.
  • Book-Entry-Only (“BEO”) securities are securities for which no physical certificates are made available and all securities are maintained by DTC in a “Cede & Co” account. Transactions are made through the FAST program. Most OTC Issuer securities are not BEO.
  • DTC may request a rider, which is usually only required for REG S or non-U.S. issuers.

Potential Reasons for Rejection

The following points are potential issues that can hinder DTC approval:
(DTC has accepted issuers with these issues below however, DTC eligibility is granted on a case by case basis.)

  •  The issuer should be an SEC reporting company with no history of late filings.
  •  The issuer should have a minimal history of name changes and/or reverse splits in the last five years prior to the eligibility application.
  •  The issuer should have no persons associated directly or indirectly (stock promoters, lawyers, accountants) with the company that have ever been under investigation by the SEC.
  • DTC will notify the participant if a legal opinion of counsel will be required.  The legal opinion should be written by a licensed securities attorney, in good standing with their bar and engaged in an independent private practice.  Opinions of in-house counsel will not be relied upon by DTC.
  • DTC requires that the securities lawyer writing the opinion NOT be a shareholder of the issuer.
  • DTC reserves the right to approve counsel whose opinion DTC is being asked to rely.
  • The issuer should have no record of being involved in a spam campaign, pump and dump scheme or any history of fraudulent activity throughout its corporate history.
  • Affiliates of the issuer should have no record of unregistered re-sales at any brokerage firm.
Understanding Our Transfer Agent Services

DTC Eligibility FAQs

  • There are 4 levels of eligibility with DTC: Level 1 – CUSTODY Only DTC will only accept physical certificates for deposit. While the securities will clear through DTC, the securities will remain registered in either the beneficial holders name or in the name of the broker presenting them to DTC – they will not be transferred into the name of Cede & CO. Level 2 – DTC Eligible Only physical certificates can be deposited with DTC. DTC has the ability to serve as the custodian and may hold securities in its nominee name, “CEDE & Co.” Level 3 – FAST Eligible The FAST (Fast Automated Securities Transfer) program allows DTC to hold securities in book entry format. This level of eligibility provides security holders the ability to deposit and withdraw shares electronically to a brokerage account. FAST eligibility automatically includes access to the DWAC (Deposit Withdrawal at Custodian) system. This is the primary method of electronically depositing or withdrawing securities from a brokerage account. The fees for this service are automatically billed to the security holders brokerage account. Level 4 – DRS Eligible DRS eligibility provides security holders an alternative to the DWAC system. It allows security holders to hold their securities in in book entry form directly with the issuer. DRS transactions do not require a physical medallion signature guarantee as the medallion guarantee is built into the system. Once a broker initiates a DRS transaction the transaction includes the signature medallion protections for the transaction. This can make DRS transactions significantly easier for security holders. This level of eligibility is part of the listing requirements for senior exchanges.

  • Please see our DTC Eligibility Page.

  • The Depository Trust Company is a subsidiary of the Depository Trust and Clearing Corporation Company (DTCC) and is the primary securities depository for the United States and is the world’s largest securities depository. DTC acts as a limited purpose trust company and provides safekeeping through electronic and physical certificated record-keeping of securities balances. They also act as a clearinghouse to settle trades. They accept more than 3.6 million individual securities for deposit and holds in excess of 35 trillion dollars’ worth of securities. As a clearing agency registered with the SEC, DTC provides security custody and book-entry transfer services for securities transactions in the U.S. market involving equities, corporate and municipal debt, money market instruments, American depositary receipts, and exchange-traded funds. In accordance with its rules, DTC accepts deposits of securities from its participants (i.e., broker- dealers and banks), credits those securities to the depositing participants’ accounts, and effects book-entry movements of those securities. DTC holds securities through its nominee Cede & Co.

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Legal Disclaimer

The information contained herein is general in nature, is not legal advice, and should not be treated as such. You must not rely on the information here as an alternative to legal advice from your attorney or other professional legal services provider.