California Republic Bancorp (fka CRPB)

[56Chevy]

Thank you ICEQUITY...not sure of the full impact on the banks' securities...it may mean buying & selling has to go through brokers such as Zecco/etc. If you have more info please advise.

General DTC Information for the board

What is DTC?

DTC is a subsidiary of The Depository Trust & Clearing Company. According to its website, DTC was created in 1973 to “reduce costs and provide clearing and settlement efficiencies by immobilizing securities and making “book-entry” changes to ownership of the securities. DTC provides securities movements for NSCC’s net settlements, and settlement for institutional trades (which typically involve money and securities transfers between custodian banks and broker/dealers), as well as money market instruments.” Everyone got that? O.k., in layman’s terms this means DTC provides the electronic basis through which stock sales bought and sold through brokers are transferred from the seller’s brokerage account to the buyer’s account. For example, when you place an order through your broker to buy shares of XYZ, Inc. that order goes through your broker to a clearing firm and then on to DTC to be processed. DTC receives the order and then operates back through the clearing firm and the seller’s broker to move the shares from the seller’s account to the buyer’s account. It is in this manner that shares are bought and sold electronically since, obviously, paper certificates are not transferred between owners that own shares in “electronic format” in their brokerage accounts. Therefore, if an issuer is not “DTC-eligible” then its shares cannot be electronically transferred between brokerage accounts, which, based on the realities of the marketplace (especially the OTC Bulletin Board), means shares of the company will not be traded (technically the shares can be traded manually between accounts, but this takes days and is not a realistic option for companies relying on broker dealers for stock transactions – like all the companies on the OTC Bulletin Board). What this boils down to is that while DTC-eligibility is not a requirement to trade on the OTC Bulletin Board, it is a necessity to process trades on the OTC Bulletin Board if the company’s stock is going to trade with any volume.

What happened?

As stated above, historically, approval by DTC was a matter of course after a company cleared SEC comments on its registration statement and cleared FINRA comments on its 15c2-11. Once this occurred one of the company’s shareholders would deposit shares with their broker and the broker, at times with the company’s transfer agent, would apply for DTC-eligibility through a clearing firm affiliated with DTC. Once the request was granted the company’s shareholders could then buy and sell stock electronically through brokers. But this seemingly automatic approval by DTC is not occurring any longer for many small issuers, and many are having trouble even finding a broker and/or clearing firm even willing to submit the DTC-eligibility application. Why? What happened? The cause is easy to pinpoint, it’s the reaction by DTC, brokers and clearing firms is much more difficult to grasp and has left many companies wondering exactly what they need to do to get DTC-eligibility.In January 2009, FINRA issued Regulatory Notice 09-05. In a nutshell this release was a reminder to FINRA’s member firms (broker-dealers) of their responsibility to ensure that federal securities laws and FINRA rules are complied with when they are participating in the sales of unregistered securities. According to the Release it was issued in response to some of its member firms missing “red flags” that signaled the possibility of illegal, unregistered distributions of certain companies’ stock. The gist of the Release was that FINRA’s member firms needed to make the necessary investigations of issuers and their stock issuances to ensure there were no illegal, unregistered distributions. Because smaller companies, without long operating histories, were more likely to trigger the “red flags” mentioned in the Release the Release has had its biggest impact on smaller public companies. FINRA’s member firms, broker-dealers, and the other entities involved in clearing stock transactions for the member firms, primarily clearing firms and DTC, have taken the Release to be a “shot across the bow” regarding their potential liability for any involvement they have with issuers or shareholders that are found to have conducted illegal, unregistered resales of the issuer’s securities.

Recent Developments

A couple recent developments are worth mentioning. First, there has been some mention of a “DTC-eligibility fee” being charged in the range of $3,500 to $6,000, which, if true, is remarkably high considering the services performed. I think everyone is o.k. with a “risk premium” for the services for new small public companies in light of the FINRA Release, but that fee range is absurd. Second, and more importantly, according to the latest rumors, any name change, stock split or other activity that requires an issuer obtain a new CUSIP number will cause the company to need to re-apply for DTC-eligibility, which, based on what has occurred recently with new public companies, could be a time-consuming, expensive process with no known conclusion. Additionally, there is allegedly a legal opinion that may be required for these companies to obtain and submit to DTC with their re-application. This could also prove to be an expensive proposition. Stay tuned to our website for the latest updates as things are changing quickly, and be careful of hurdles appearing after the finish line, they can really trip you up.


http://www.thelebrechtgroup.com/tlg-publications/dtc-the-final-final-hurdle/

http://www.dtcc.com/legal/rules_proc/dtc_rules.pdf