In a significant policy shift, the Depository Trust Company has issued a white paper outlining procedures that issuers can to take to avoid or remedy security deposit chills and global locks. The blueprint, “DTC Service Restrictions on Certain Book-Entry Securities – Procedures for Affected Issuers,” arrived 18 months after the Securities and Exchange Commission directed DTC to establish rules giving affected issuers due process. The order resulted from an administrative appeal to the commission by International Power Group (IPWG) after it was subject to a deposit chill in 2009.
The DTC institutes deposit chills – a refusal to accept further securities for book entry from an issuer that can include some further service restrictions – when it suspects that a prior deposit comprised securities that aren’t freely transferable. It imposes a global lock – a shutdown of all services – when “definitive evidence” exists that securities are restricted, such as a regulatory action against an issuer alleging an illegal transfer of the shares. In the white paper, DTC provides a broad overview of its new policies, from how it intends to notify issuers of actions and the process companies would follow to clear them, to the introduction of an automatic cessation of a global lock after six months or a year, depending on whether an issuer reports to the SEC and other circumstances.
