SEC Approves DTC Proposal to Discontinue Option for the Distribution of Fractional Shares | Practical Law

SEC Approves DTC Proposal to Discontinue Option for the Distribution of Fractional Shares | Practical Law

The SEC approved a proposal by the Depository Trust Company (DTC) to discontinue an option that allows issuers to distribute fractional shares of securities in the DTC's system, when the DTC is handling fractional dispositions of shares resulting from corporate actions, for new issues.

SEC Approves DTC Proposal to Discontinue Option for the Distribution of Fractional Shares

by Practical Law Corporate & Securities
Published on 21 Jul 2015 • USA (National/Federal)
The SEC approved a proposal by the Depository Trust Company (DTC) to discontinue an option that allows issuers to distribute fractional shares of securities in the DTC's system, when the DTC is handling fractional dispositions of shares resulting from corporate actions, for new issues.
On July 20, 2015, the SEC issued an order approving a proposed rule change by the Depository Trust Company (DTC) to discontinue an option that allows issuers to distribute fractional shares of securities in the DTC's system, when the DTC is handling fractional dispositions of shares resulting from corporate actions, for new issues.
Currently, when a securities issue is made eligible at the DTC, the DTC offers three options to the issuer for handling the disposition of fractional shares in DTC's system resulting from a corporate action for the issue. The issuer may:
  • Round up to the next full share or drop fractions.
  • Pay "cash-in-lieu" of fractional shares.
  • Issue the fractional shares into an identifying number (Fractional Identifier) generated by the DTC.
The rule change will discontinue the third option, no longer allowing issuers to distribute fractional shares for new issues into the DTC's system. The DTC will continue to offer the first and second options to issuers.
In addition, the DTC will:
  • Maintain the Fractional Identifiers previously designated for existing fractional shares within DTC.
  • Continue to perform corporate actions processing with respect to those Fractional Identifiers.
The DTC plans to announce the effective date of the rule change in a DTC Important Notice.
Update: The rule change took effect on October 1, 2015.