CYduct Diagnostics Inc (CYDX)

[Aqua]

Investor Bulletin:
DTC Chills and Freezes Cheers!
The SEC’s Office of Investor Education and Advocacy
is issuing this Investor Bulletin to help educate
investors about the effects of chills and freezes on
an investor’s ability to hold and trade securities. A
“chill” is a limitation of certain services available for a
security on deposit at The Depository Trust Company
(“DTC”). A “freeze,” formally referred to as a “global
lock,” is a complete restriction on all DTC services for
a particular security on deposit at DTC.

What is DTC and what does it do?
DTC was created by the securities industry to
improve efficiencies and reduce risk in the clearance
and settlement of securities transactions. Today,
DTC is the largest securities depository in the world.
Including securities issued in the U.S. and 121 other
countries, DTC has on deposit 3.6 million securities
worth about $35 trillion.
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.

Most large U.S. broker-dealers and banks are DTC
participants, meaning that they deposit and hold
securities at DTC. DTC appears in an issuer’s stock
records as the sole registered owner of securities
deposited at DTC. DTC holds the deposited
securities in “fungible bulk,” meaning that there are
no specifically identifiable shares directly owned by
DTC participants. Rather, each participant owns a
pro rata interest in the aggregate number of shares of a
particular issuer held at DTC. Correspondingly, each
customer of a DTC participant, such as an individual
investor, owns a pro rata interest in the shares in which
the DTC participant has an interest.
Because the securities held by DTC are for the benefit
of its participants and their customers (i.e., investors
holding their securities at a broker-dealer), frequently
the issuer and its transfer agent must interact with
DTC in order to facilitate the distribution of dividend
payments to investors, to facilitate corporate actions
(i.e., mergers, splits, etc.), to effect the transfer of
securities, and to accurately record the number of
shares actually owned by DTC at all times.

What are “chills” and “freezes” and
why does DTC impose them?
Occasionally a problem may arise with a company or
its securities on deposit at DTC. In some of those
cases DTC may impose a “chill” or a “freeze” on all
the company’s securities. A “chill” is a restriction
placed by DTC on one or more of DTC’s services,
such as limiting a DTC participant’s ability to make
a deposit or withdrawal of the security at DTC. A
chill may remain imposed on a security for just a few
days or for an extended period of time depending
upon the reasons for the chill and whether the issuer
or transfer agent corrects the problem. A “freeze”
is a discontinuation of all services at DTC. Freezes
may last a few days or an extended period of time,
depending on the reason for the freeze. If the reasons
for the freeze cannot be rectified, then the security
will generally be removed from DTC, and securities
transactions in that security will no longer be eligible
to be cleared at any registered clearing agency.
DTC imposes chills and freezes on securities for
various reasons. For example, DTC may impose a
chill on a security because the issuer no longer has a
transfer agent to facilitate the transfer of the security
or the transfer agent is not complying with DTC
rules in its interactions with DTC in transferring the
security. Often this type of situation is resolved within
a short period of time.

Chills and freezes can be imposed on securities
for more complicated reasons, such as when DTC
determines that there may be a legal, regulatory, or
operational problem with the issuance of the security,
or the trading or clearing of transactions involving
the security. For example, DTC may chill or freeze a
security when DTC becomes aware or is informed by
the issuer, its transfer agent, federal or state regulators,
or federal or state law enforcement officials that an
issuance of some or all of the issuer’s securities or
transfer in those securities is in violation of state or
federal law. If DTC suspects that all or a portion of its
holdings of a security may not be freely transferable
as is required for DTC services, it may decide to chill
one or more of its services or place a freeze on all
services for the security. When there is a corporate
reorganization, DTC will temporarily chill the security
for book-entry activities.
When DTC chills or freezes a security, it will issue
a “Participant Notice” to its participants. These
notices are publicly available on DTC’s website at
http://www.dtcc.com/legal/imp_notices. When
securities are frozen, DTC also provides optional
automated notifications to its participants. These
processes provide participants the ability to update
their systems to automatically block future trading of
affected securities, in addition to alerting participant
compliance departments. DTC has information
regarding these processes on its website.

What can investors do?
Prior to investing in a security, investors can ask their broker-dealer if there are or ever have been any DTC restrictions placed on any security they are considering buying or selling. This information may affect your decision to purchase or sell the security. The broker-dealer or the broker-dealer’s compliance department should be able to address the inquiry by checking with its back office or by calling its account manager at DTC. Given that DTC does not always disclose the reason for a chill or freeze, a broker-dealer may not be able to provide its customer with information as to why the freeze was imposed or if or when it will be lifted. Investors should also thoroughly research the company and its transfer agent prior to investing in the security.
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