SEC Orders DTC to Provide Notice and Hearing for Suspensions

On March 15, the SEC ruled In the Matter of the Application of International Power Group, Ltd. for review of action taken by Depository Trust Company (“DTC”). International Power Group, Ltd. (“IPWG”) appealed a decision of DTC to suspend indefinitely book-entry clearing and settlement services to its Participants.

Essentially, the SEC determined that despite DTC’s argument otherwise, IPWG is a “person” and thus is entitled to fair procedures inducing notice and a hearing. They also allow the opportunity to appeal the decision with the SEC.

This is good news for issuers, especially, smaller reporting companies facing a DTC “chill”. As the SEC opinion states, the only other option available was to pursue a “withdrawal of its securities from Eligible Security status”  and subsequently re-apply for status as an Eligible Security.  This process can be timely and costly.  The SEC acknowledged the negative implications, both temporary and long-term, a “chill” can have on a company and that this “withdrawal” process may not be available to all issuers. It can be particularly burdensome to smaller issuers.

The SEC states that DTC can still impose suspensions in advance of a hearing when “circumstances exist that justify imposing a suspension” but they need to balance the need in this “emergency action” with the right to fair process.

The full opinion can be found here.

Author: Jennifer Trowbridge, Stoecklein Law Group

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