DTC eligibility is a concern of both OTC Issuers and their Shareholders since it determines whether or not an Issuer’s securities can be electronically traded through “book-entry” rather than through the movement of actual paper stock certificates.
If an Issuer’s securities are not DTC eligible, it is difficult to find a market for its shares. Securities lawyers who practice OTC securities law are often asked questions about DTC eligibility and perhaps the most often is “What is the DTC?”
DTC is the World’s Largest Securities Depository
DTC is also a member of the Federal Reserve System, and a “clearing corporation” under the New York Uniform Commercial Code, and a “clearing agency” registered under the Securities Exchange Act of 1934.
DTC Works With Broker-Dealer Participants Not Directly With Issuers
DTC does not work directly with OTC public companies, but rather works through its participating broker-dealers, who sponsor the OTC Issuer’s for DTC eligibility. These broker-dealers are known as DTC Participants. Among this list of DTC Participants includes every major broker-dealer, and some smaller or lesser known broker-dealers which specialize in OTC Bulletin Board and OTC Markets securities, both in the US and abroad.
DTC Eliminates the Need to Deliver Physical Certificates
Indirect Participants Also Have Access to DTC
In addition to access by DTC Direct Participants, access to the DTC system is also available to others such as smaller U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”).
The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.