Tip of the Week: Is Your Shell DTC Eligible?

Tip of the Week: Is Your Shell DTC Eligible?

The Depository Trust Company (DTC) effectively controls which public companies' stock can be traded electronically as opposed to exchanging actual stock certificates when sales take place. A company must apply to DTC to obtain this ability. Higher exchanges such as Nasdaq and NYSE AMEX require DTC eligibility, lower platforms such as the OTC Bulletin Board and those run by OTC Markets do not.

In recent years a number of small cap players have suggested that DTC was intentionally denying eligibility to over the counter stocks for no apparent reason. The SEC has looked into this somewhat and DTC denies the allegation, claiming companies simply did not complete paperwork or something. I have personally witnessed anecdotal evidence of DTC requesting things that are next to impossible to produce in order to obtain or retain electronic trading eligibility.

I will save the commentary on this for another day. But in the meantime, be aware that smart shell players have now added an item to their list of questions to ask when looking at a shell that trades: is it DTC eligible?

For additional insights on reverse mergers, SPACs, other alternatives to traditional initial public offerings, the small and microcap markets and the economy, visit the Reverse Merger and SPAC Blog  by David N. Feldman, Esq., Partner of Richardson & Patel LLP.

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Comments

Anonymous
Anonymous
  • 09-05-2012

hanks to provide this useful information DTC eligibility