The Uniform Commercial Code (UCC) makes the Transfer Agent liable for improper securities registration. When securities are sold or transferred, the Transfer Agent or issuer relies upon the warranties made by a Medallion Guarantor. A Medallion Guarantee Stamp on a security is a warranty that the signature is genuine, the signer is an appropriate person to endorse, and the signer had the legal capacity to sign. Signature guarantee bonds limit the liability of Transfer Agents if a signature turns out to be forged.
SEC Rule 17ad-15 requires that Transfer Agents adopt an equitable methodology for acceptance of signature guarantees. To comply with the SEC Rule, Transfer Agents approved three Medallion Signature Guarantee Programs, STAMP, SEMP and MSP.
Financial Institutions (broker-dealer firms, RIA firms, banks and credit unions) who want to guarantee signatures when securities are sold or transferred must enroll in one of the Medallion Signature Guarantee Programs. To enroll in a signature guarantee program, the financial institution must provide the appropriate surety bond and the corresponding indemnity agreement.
STAMP — Securities Transfer Agents Medallion Program and Indemnity Agreement For Financial Institution Enrollees
SEMP — Stock Exchanges Medallion Program and Indemnity Agreement For Financial Institution Enrollees
MSP — Medallion Signature Program (NYSE) and Indemnity Agreement NYSE MSP -- lowest limit is $1,000,000
To enroll in the signature guarantee programs, the financial institutions must complete other paperwork which can be obtained from the Medallion Signature Program administrator — Kemark Financial Services, Inc. (1) Program Application & Subscription Agreement; (2) Equipment Order Form; (3) Supplement to Program Application & Subscription Agreement. Kemark manages the enrollment process and monitors the records to make sure that each guarantor maintains a current surety bond with the appropriate limit and the appropriate equipment. KFS Technologies, LLC administers MSP.
When securities are sold, the certificates or securities powers must be signed. The seller will need to get his/her signature “guaranteed” before a transfer agent will accept the transaction. The signature guarantee process protects the seller by making it harder for someone to forge another’s signature on securities certificates or related documents.
Transfer Agents maintain records of the individuals and entities that own stocks and bonds. Transfer Agents issue and cancel certificates to reflect changes in ownership. Transfer Agents keep records of who owns a company’s stock and bonds and how those stocks and bonds are held — whether by the owner in certificate form, by the company in book entry form, or by the investor’s brokerage firm in street name. They also keep records of how many shares or bonds each investor owns.
More information is available on The Securities Transfer Associations website: www.stai.org.
Signature Guarantee Surety Bonds
A STAMP, SEMP, or MSP Surety Bond is a financial guarantee to the Obligee that if there is a loss due to a “signature guarantee” by the Principal (RIA firm) that the surety will pay a claim made by the obligee for the amount of the loss up to the bond limit. The principal signs an indemnity agreement stating that the principal will reimburse the surety for all claims and associated costs.
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Signature Guarantee Medallion Surety Bond Program Highlights:
Signature Guarantee Medallion equipment is for guaranteeing of signatures on the transfer of securities. The Signature Validation Program offers an alternative to the use of Notaries Public for validation of signatures on non-securities commercial business transactions. The Signature Validation Program requires a surety bond to enroll.
Does my firm need a Signature Guarantee Medallion Bond?
Financial Institutions (broker-dealer firms, RIA firms, banks and credit unions) who want to guarantee signatures when securities are sold or transferred must enroll in one of the Medallion Signature Guarantee Programs. Today many services are available online and electronically. However, many still have paper stock certificates. So when one of your clients needs to sell or transfer a security, if your firm has the ability to provide a medallion guarantee, you can save your client time and the money it would cost to have another firm or a bank provide this service.
How much coverage does my firm need?
The liability limit of your STAMP or SEMP Bond should be equal to the largest security transaction for which your firm will provide a signature guarantee.
What is the difference between a STAMP, SEMP and MSP Surety Bonds?
If your firm is a member of a particular stock exchange, your Signature Guarantee Medallion would identify the name of that stock exchange, and you would be required to carry a SEMP Surety Bond. However, if your firm is not a member of a stock exchange, you can apply for the STAMP program and would need to secure a STAMP Surety Bond. Only members of the New York Stock Exchange can enroll in the Medallion Signature Program (MSP).
Do I need to purchase both my Medallion Bond and hardware from the Program Administrator?
No. The STAMP and SEMP Signature Guarantee Programs are administered by Kemark Financial Services, Inc. Kemark manages the enrollment process and monitors the records to make sure that each guarantor maintains a current surety bond with the appropriate limit and the appropriate equipment. KFS Technologies, LLC (Kemark Financial Services, inc.) administers MSP (NYSE). Kemark also is involved with providing training on the use of the medallion equipment, best practices and procedures.
What are the benefits of purchasing this Signature Guarantee Medallion Bond from AMBA?
AMBA works with three surety companies. Each surety has differing requirements and premium rates. AMBA will work with you to find the surety that is most appropriate for your company.
What other insurance products are available for RIA firms?
AMBA offers a variety of insurance products including Cyber Security Liability Insurance, Fidelity Bonds, Errors and Omissions Liability Insurance, Directors and Officers Liability Insurance, Employment Practices Liability Insurance, Property & Casualty Insurance, Mail Insurance, 1st and 3rd Party ERISA Bonds and many more products. Please feel free to browse our site in its entirety for more information, or you may contact us directly at 1-800-978-6273.
How can I learn more about the insurance products offered by AMBA and how they can best serve my firm?