STAMP2004ANNUAL REPORTv4 - Securities Transfer Association

Transcription

STAMP2004ANNUAL REPORTv4 - Securities Transfer Association
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM, INC
THE MEDALLION GUARANTEE SOLUTION
YEAR IN REVIEW- 2004
CONTENTS
Definition and Highlights
1
Message from the President
2
Historical Perspective
3
Signature Guarantee Programs
4
Current Environment and Role of the Administrator
5
Major Program Initiatives
6-7
The Guarantor Education Initiative
7-11
Internet Access
12
Medallion Lending Initiative
13
Paperless Legals
14-15
Globalization
16
Industry Relations and Communications
17-18
Research and Development
19
Transfer Agent Equipment Enhancements
20-21
V-STAMP
22-24
Board of Directors
25
Contact Information
25
STAMP, INC. DEFINITION/CREATION
In 1995, Securities Transfer Agents Medallion Program, Inc. (“STAMP, Inc”), a not-for-profit
corporation, was created by the Securities Transfer Association (“STA”) to operate the STAMP
Guarantee Program for the benefit of all securities industry participants. A Board of Directors
manages the activities and affairs of STAMP, Inc. The Board of Directors has, in turn, formally
appointed Kemark Financial Services (“KFS”) to act as Program Administrator for STAMP.
The success of the Medallion Signature Guarantee Programs is an example of the varied
members of the financial community working together to solve a long-standing problem. The
securities processing industry now relies heavily on these Programs to guard against fraudulent
endorsements and unauthorized transactions. In addition, the Programs have streamlined
securities processing dramatically and have reduced operating costs for Guarantors and Transfer
Agents alike. True to their mutual charge, STAMP, Inc. and KFS have brought innovation to the
process to ensure that the Programs best serve the Securities Industry.
Highlights Since Inception
•
Over 7,200 Guarantor Participants, Spanning a Broad Range of
Financial Institutions that Include Broker/Dealers, Commercial
Banks, Savings Banks and Credit Unions
•
Membership Includes 145 Canadian Firms
•
Significantly Reduced Investor Fraud
•
More than 140,000 Medallion STAMPS in Use
•
42 Educational Support Workshops Conducted in 34 States to Over
3,148 Attendees, Representing 2,386 Guarantor Participants
•
Actively Supporting the Efforts of All Participants by Introducing
New Initiatives that Streamline Processing and Reduce Costs
•
Monitors and Enhances the Security of the Medallion Equipment to
Remain the State-of-the Art Provider of Choice
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A LET TER FRO M THE PRESIDENT
This inaugural Overview is intended to document the activities and projects of STAMP, Inc.
for the 2004 calendar year. As this is our first such report, we felt it essential to provide
background information on the STAMP and SEMP Programs in order to provide meaningful
and comprehensive information. I ask the reader to use this document as a reference and
select those sections and subjects that are of current interest and review other subjects as
the need arises.
Our Mission Statement is brief, but to the point:
Provide a service to the Securities Industry and the investing public by creating and
maintaining safe and practical methods of expediting securities transactions that require a
Medallion Signature Guarantee.
In order to achieve our goal, STAMP Inc. has created a management, administrative, and
technical team that develops and implements new products and processes. These initiatives begin with the STAMP Inc. Board of Directors. The role of our Directors is more active
than is customary. In addition to oversight of all program activities, each Director bears
primary responsibility for a defined function and accepts various projects as they arise.
Training, dissemination of information, and industry relations have dominated the Board’s
Agenda.
The Administrator for the STAMP and SEMP Medallion Programs is Kemark Financial Services, Inc. Kemark employs state of the art technology and database management techniques to provide necessary information to the Industry and also maintains effective personal contact with Guarantors and Transfer Agents on a complete range of subjects. This is
accomplished by a seasoned group of professionals.
Hampton Technologies, LLC provides the equipment necessary for the Programs to function. STAMP Inc. has challenged both KFS and Hampton Technologies to develop the most
secure equipment, inks, and processes. We are proud of our past achievements and, with
on-going R&D, we will ensure that we continue to provide the most efficient operational solutions available to the Securities Industry in the Medallion Signature Guarantee verification process.
Our work over the next few years will continue unabated. In all likelihood, our efforts will
intensify as we strive to keep the Programs as innovative as they can be. We feel we are
well positioned for these challenges and look forward to providing the best possible service
far into the future.
Andrew M. Massa
President
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HISTORICAL PERSPECTIVE
Issuers of securities and their Transfer Agents in the United States have relied on the signature guarantee since the 1800's. The present status and meaning of the signature guarantee
were codified in the Uniform Commercial Code ("UCC") during the 1960's and Article 8 of the
UCC, covering Investment Securities, has been enacted in all fifty states and the District of
Columbia.
The Official Text of the UCC makes the general statement that an Issuer, or its Transfer
Agent, who registers the transfer of a security upon an unauthorized endorsement is subject
to liability for improper registration. Further, the UCC states that when a security in registered form is presented to an Issuer with a request to transfer it, the Issuer is under a duty to
register the transfer as requested if, among other things, (a) the security is endorsed by the
appropriate person or persons; and (b) reasonable assurance is given that those endorsements are genuine and effective.
Since an Issuer who registers the transfer of a security upon an unauthorized endorsement is
subject to liability for improper registration, and since it is impractical to independently verify
the authenticity of all signatures of persons signing transfer instructions, reliance must be
placed on a responsible third party who will vouch for those endorsements. This is accomplished by means of a signature guarantee granted by a party who knows or has some commercial relationship with the signer (endorser). Section 8-306 of the UCC states that any entity guaranteeing a signature of an endorser of a security warrants that at the time of signing
(a) the signature was genuine; and (b) the signer was an appropriate person to indorse; and
(c) the signer had legal capacity to sign.
The effectiveness of a signature guarantee, however, is only as good as the financial integrity
of the Guarantor. As verification of the financial status of every Guarantor would have been
extremely burdensome, virtually all Transfer Agents developed guidelines as to what signature
guarantees they would accept. Usually, these accepted signature guarantees were from
members of stock exchanges which established elaborate procedures for the distribution of
signature cards for their members, and from certain financial institutions, typically commercial
banks and trust companies, which were assumed to be financially responsible and which were
known to have legal authority to guarantee signatures.
Based on experience over the years, this system operated effectively. Claims against Issuers,
Transfer Agents, and Guarantors were negligible. However, literally tens of thousands of signature cards distributed by stock exchanges, and signature books from other financial institutions, had to be maintained. Transfer Agents found that maintaining these signature cards
and signature books, and comparing signature guarantees against them, was time-consuming
and costly.
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SIGNATURE GUARANTEE PROGRAMS
During the 1970s, The Securities Transfer Association, Inc. ("STA"), which represents those
Transfer Agents that do approximately 90% of the U.S. stock transfers, began developing
variations of a plan that would (1) permit Transfer Agents and Guarantors to do away with the
tens of thousands of signature cards and signature books; and (2) expand the class of eligible
Guarantors.
Earlier plans, under such names as SignaSure and Guarantee Assurance Plan (“GAP”) had been
proposed by the STA utilizing a “group insurance” approach. Some groups within the financial
industry supported some or all of these plans. However, other groups, such as those whose
members' guarantees were already accepted by Transfer Agents, refused to participate, chiefly
because they were accustomed to the existing system and did not want to incur what they perceived to be an additional expense.
Further impetus to the STA's efforts came from other financial institutions and from the U.S.
Securities & Exchange Commission (“SEC”). For years, certain financial industry groups, primarily savings and loan associations and credit unions, whose guarantees had not been
deemed acceptable by the vast majority of Transfer Agents, mounted an intensive effort to
have guarantees of their members accepted. Often, they were forced to send a customer to a
competing financial institution to obtain a signature guarantee. They claimed that, since the
excluded institutions had the authority to guarantee signatures, and were as financially responsible as many other financial institutions whose guarantees were generally accepted, refusal to
honor their guarantees was discriminatory. The SEC agreed that the existing practice was, in
fact, discriminatory and acting under its authority, the SEC published Rule 17Ad-15 ("the Rule")
with an effective date of February 24, 1992. The Rule required that, by its effective date, every
Transfer Agent have in place written standards satisfying the Rule, including its essential provision requiring the equitable treatment of eligible Guarantor institutions.
The STA engaged Kemark Financial Services, Inc. (“KFS”) to act as consultant to formulate an
insurance based solution that would respond to the Industry’s concerns. KFS scrapped the
group insurance approach that had failed to gain the necessary support in favor of one that
used individual Surety Bonds that each Guarantor would supply. In addition, an excess layer of
insurance was proposed in the unlikely event that a Guarantor’s Surety Bond limit was exhausted. After review, the STA approved the KFS concept as it effectively addressed the Industry’s concerns, since (1) Surety Bond underwriters would, in effect, financially qualify Guarantors for Program membership; and, (2) Issuers and their Transfer Agents would receive the
protection of a Surety Bond and, if necessary, the benefits of an excess liability insurance policy. The Securities Transfer Agents Medallion Program ("STAMP"), the STA’s final “signature
guarantee program” proposal, resolved the major concerns of the industry and was acceptable
to the financial industry associations.
SEC Rule 17Ad-15 states that a signature guarantee program is one, the terms and conditions
of which, a Transfer Agent reasonably determines to facilitate the equitable treatment of eligible guarantor institutions, and to promote the prompt, accurate and safe transfer of securities
by providing the Transfer Agent with adequate protection against risk of financial loss if persons
have no recourse against the Guarantor, and adequate protection against the issuance of unauthorized guarantees. Transfer Agents and others who rely on a guarantee from a member of a
signature guarantee program are protected against loss from wrongful endorsements if the
Guarantor is unwilling to meet, or is incapable of meeting, its financial obligation under its
Program's Indemnity Agreement.
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CURRENT ENVIRONMENT
The Securities Transfer Agents Medallion Program (“STAMP”) is open to all eligible financial institutions in the U.S. and Canada. STAMP’s membership of approximately 7,200 spans the
broad range of financial institutions including, securities broker/dealers, commercial banks, savings banks, and credit unions. STAMP membership also includes 145 Canadian firms.
Eligible financial institutions wishing to become Guarantors must comply with certain documentary and evidentiary requirements. Among these, the Guarantor candidate must furnish a complete set of Program Documents including a fully executed Surety Bond from an U.S. Treasury
listed Surety Company, which serves as evidence of financial responsibility.
Guarantors affix a signature guarantee imprint by the means of a “Medallion” hand stamp. The
Medallion’s imprint contains an area for either a manual or a facsimile signature. Whichever is
used, Transfer Agents have no obligation to authenticate or to otherwise verify the authorizing
signature, although a signature is required to complete the imprint.
The Stock Exchanges Medallion Program (“SEMP”) is open to members of the American, Chicago and other Regional Stock Exchanges in the United States, and currently has 66 broker/
dealer members.
ROLE of the PROGRAM ADMINISTRATOR
The Medallion Signature Guarantee process is now an integral part of the Securities Industry in
the U.S. and the Program Administrator is an integral component of the overall management
process. Kemark Financial Services, Inc. serves as Program Administrator for The Signature
Transfer Agents Medallion Program, Inc.
The Program Administrator is the operational and logistical resource for all Medallion Signature
Guarantee Program participants, Transfer Agents, and other securities processing firms. The
Administrator receives reviews and approves applications from eligible institutions seeking to
become Guarantors, and is charged with ensuring that all pre-set criteria are met before admission to the Program is granted. Once a Guarantor institution has been approved, The Program
Administrator enters all pertinent data into its proprietary database management system.
Original Program Documentation is scanned into its proprietary Image Management System
and then retained in safe storage indefinitely. The Program Administrator tracks all Medallion
imprint equipment issued to the Guarantor and monitors Guarantor performance under Medallion Program Regulations. Violations of Program Regulations are reason for Program membership termination and, therefore, the Program Administrator must ensure that Guarantors adhere to Program guidelines in all respects.
As Program Administrator, KFS interacts with the Medallion imprint equipment manufacturer
and perform oversight functions with respect to manufacturer compliance with manufacturing
security processes as dictated by the STAMP, Inc. Further, KFS and KFS Tech have devised a
secure Website for use only by Transfer Agents to authenticate Medallion imprints. KFS and
KFS Tech are the only sources of explanatory information, for both content and technological
application, for users of this site.
5
MAJOR PROGRAM INITATIVES
The STAMP 2000 New Technology Medallion Replacement Program
Although the Medallion Programs operated smoothly throughout the 1990’s, the STAMP 2000 Medallion Replacement Program was developed and implemented in response to growing concerns
about increased incidences of counterfeiting and missing equipment reports. STAMP, Inc., KFS,
and Hampton Technologies, the Medallion manufacturer, worked with the SEC and major industry
groups to develop more secure Medallion equipment. This “New Technology” Medallion incorporates overt and covert security features designed to deter counterfeiting.
•
Proprietary security ink includes visible and invisible chemical compounds that are only detectable using a STAMP 2000 Transfer Agent Document Reader.
•
Bar Code technology is also used to facilitate automated processing, thereby reducing the
likelihood that a missing Medallion will be used to further improper activities.
•
The STAMP 2000 equipment was designed specifically as a tool to aid in the detection of counterfeit and missing imprints, (it is not intended to be used as a sole decision making criterion). Transfer.
•
After December 31, 2003, Old technology Medallion ceased to be “imprints” within the meaning of the respective Medallion Program Indemnity Agreement and Surety Bond.
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THE GURANTOR EDUCATION INITIATIVE
“I learned more than I expected—I didn’t know how much I didn’t know!”
“I was surprised that you could do 5 hours on STAMP—but it was great”
“It was well worth my time”
“This is the 2nd time I attended—I always learned something”
These comments just represent a small sampling of the feedback that was received from a
Workshop survey,(1) and indicative of the overwhelming positive responses that have been
received.
The Guarantor Education Initiative is a comprehensive training program developed for Guarantors that has successfully minimized investor fraud. The training program includes, but is
not limited to, Workshops held throughout the U.S., a Guarantor Guidebook, audiovisual materials, a customized website, (kemarkfinancial.com), and a newsletter. Over the past five
years, the results of these efforts have been increasingly positive with incidents of fraud decreasing dramatically. The risk management and legal departments of Guarantor institutions
have been made aware of the potential liabilities of guaranteeing signatures and have improved practices and controls. It is now very difficult for an investor to obtain a signature
guarantee unless an account relationship exists with the Guarantor. Many firms have established practices that help identify the investor and link them to the securities that they wish
to transfer or redeem.
To date, over 3,148 attendees from 2,386 Guarantor firms in 34 states have attended this
day-long Guarantor Workshop. Topics presented include a history of the development of,
and the purpose for, today’s Medallion Guarantee Programs, an overview of the STAMP Program Documents, Administrative Procedures, Program Regulations, and Best Equipment
Control Practices.
Workshop participants are given a Workshop Manual containing guidelines for proper Medallion usage and a Guarantor Guidebook, published by STAMP, Inc., This Guidebook contains
references to the specific sections of the Uniform Commercial Code (“UCC”) governing signature guarantees.
An instructional Video, written and produced by STAMP, Inc. is also provided to participants,
This Video contains a series of vignettes depicting customer interaction scenarios and proper
procedures to employ when granting a Medallion Guarantee.
STAMP Soundbytes is a complimentary newsletter published by STAMP, Inc. five times per
year and it provides timely topics of interest to Transfer Agents and Guarantors. One of the
most recent editions of Soundbytes addressed the difficult decisions Guarantors encounter
when faced with a customer’s request to Medallion Guarantee only one signature in situations involving multiple owners of a security. STAMP, Inc., working with Kemark Financial
Services, Inc. devised a “Securities Specific Power of Attorney” for this purpose.
(1) Salt Lake City 8/20/04
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MEDALLION GUARANTOR WORKSHOPS
10
MEDALLION GUARANTOR
WORKSHOPS
1998
Chicago, IL 6/8/98 - 57 attendees, 46 firms
Dallas, TX 9/23/98 - 63 attendees, 43 firms
Boston, MA 11/5/98 - 35 attendees, Fleet Bank
Boston, MA 11/6/98 - 58 attendees, 40 firms
1999
New York, NY 3/3/99 - 88 attendees, 67 firms
Portland, OR 9/17/99 - 75 attendees, 37 firms
Columbus, OH 4/14/99 - 42 attendees, 37 firms
Charlotte, NC 11/1/99 - 32 attendees, 26 firms
New York, NY 12/9/99 - 61 attendees, 40 firms
2000
New Orleans, LA 2/24/00 - 49 attendees, 46 firms
Dallas, TX 4/7/00 - 71 attendees, 59 firms
Denver, CO 6/1/00 - 69 attendees, 36 firms
Minneapolis, MN 6/23/00 - 81 attendees, 56 firms
Philadelphia, PA 9/7/00 – 100 attendees, 74 firms
Indianapolis, IN 10/4/00 – 15 attendees, Eli Lilly FCU
Carlsbad, CA 10/26/00 - 80 attendees, 64 firms
San Antonio, TX 11/9/00 – 32 attendees, USAA FSB
Jacksonville, FL 11/14/00 - 46 attendees, 36 firms
Jersey City, NJ 12/6/00 - 62 attendees, 46 firms
2001
Boulder City, NV 2/22/01 - 44 attendees, 34 firms
Tampa, FL 5/31/01 - 63 attendees, firms
Lansing, MI 4/26/01 - 97 attendees, 72 firms
Milwaukee, WI 6/19/01 - 64 attendees, 60 firms
San Francisco, CA 12/6/01 - 77 attendees, 55 firms
2002
Charleston, SC 2/28/02 - 40 attendees, 34 firms
Des Moines, IA 6/20/02 - 47 attendees, 40 firms
Nashville, TN 3/26/02 - 47 attendees, 42 firms
Seattle, WA 9/5/02 -82 attendees, 49 firms
Atlanta, GA 4/25/02 - 56 attendees, 47 firms
Pittsburgh, PA 10/10/02 - 48 attendees, 39 firms
St. Louis, MO 5/29/02 - 76 attendees, 56 firms
Richmond, VA 11/14/02 - 60 attendees, 49 firms
Jersey City, NJ 12/12/02 -78 attendees, 59 firms
2003
Hartford, CT 2/27/03 - 57 attendees, 30 firms
Chicago, IL 6/26/03 - 78 attendees, 70 firms
Louisville, KY 3/25/03 - 44 attendees, 40 firms
Kansas City, KS 8/25/03 - 63 attendees, 57 firms
Houston, TX 4/11/03 - 94 attendees, 74 firms
Los Angeles, CA 9/11/03 - 79 attendees, 63 firms
Indianapolis, IN 5/20/03 - 57 attendees, 50 firms
Birmingham, AL 10/7/03 - 66 attendees, 47 firms
Baltimore, MD 12/11/03 - 104 attendees, 77 firms
Miami, FL 3/23/04 - 42 attendees, 37 firms
Denver, CO 5/3/04 - 81 attendees, 54 firms
Salt Lake City, UT 8/20/04 – 46 attendees, 38 firms
Boston, MA 11/17/04 - 103 attendees, 83 firms
2004
San Antonio, TX 4/23/04 -64 attendees, 54 firms
Buffalo, NY 6/8/04 - 56 attendees, 46 firms
Cincinnati, OH 9/14/04 – 52 attendees, 48 firms
Weehawken, NJ 12/09/04 – 63 attendees, 47 firms
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INTERNET ACCESS
The Internet has evolved into a critical communication tool and KFS, acting in its role as Program Administrator, has developed two web sites to service the industry.
MedallionPrograms.com
The industry’s conversion to New Technology Medallion equipment has further increased security and efficiency. Transfer Agents now have one secure Medallion standard and one source for Medallion related
information located at www.medallionprograms.com. MedallionPrograms.com contains a broad spectrum
of information with respect to New Technology Medallions, as well as certain specific information with respect to Old Technology Medallions that have been reported missing.
The “New Technology webCheck” section of medallionprograms.com provides the status of all New Technology Medallions manufactured for each of the three Medallion Signature Guarantee Programs. The
user simply scans the Medallion’s bar code, which represents its Medallion Program Number and Location
ID. The system locates the scanned input in the database and verifies the Medallion's current status:
•
An “Active” status indicates that the New Technology Medallion is currently being used by the
Guarantor.
•
An “Inactive” status indicates that the New Technology Medallion is currently not in use. The user
should refer to the Web Site Guarantor profile for more information.
•
A “Destroyed” status indicates that the New Technology Medallion has been destroyed voluntarily.
•
A “Missing” status indicates that the New Technology Medallion has been reported missing, lost, or
stolen.
A detailed or summary session report may be printed at any time during the scan session.
Since the Program Administrator considers MedallionPrograms.com to be a mission critical application,
KFS has located this site in a secure web-hosting facility. The hosting provider has the necessary redundancy and monitoring services to ensure maximum availability and reliability. The facility offers virtually
unlimited bandwidth, redundant power, emergency power, and redundant feeds from 5 major Internet
backbone providers, so we are more than ready to meet the demands of the future.
KemarkFinancial.com
Kemark Financial Services, Inc. has recently launched its redesigned web site located at
www.kemarkfinancial.com. This enhanced version allows prospective Guarantors to obtain enrollment
information and materials, as well as, providing existed Guarantors the ability to download the forms and
documents necessary to order additional Medallion imprint equipment and register for training workshops.
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MEDALLION LENDING INITIATIVE
Corporate stock Issuers and their Transfer Agents rely on the Medallion Guarantee Programs
as a critical means of protection against fraudulent endorsements and unauthorized transactions. Accordingly, STAMP, Inc has been working with the Securities and Exchange Commission (“SEC”) and various industry groups to ensure the integrity of the entire Medallion Signature Guarantee process.
We learned that certain Guarantors have attempted to enhance their operations through the
practice of lending Medallions to non-employees. Firms involved alleged that the practice of
lending signature guarantees pre-dates the Medallion Programs. These third party users of
Medallion equipment include financial advisors and various types of broker/dealer representatives. STAMP Program Regulations prohibit lending Medallion equipment. Furthermore,
Rule 17 Ad-15, the SEC Ruling referencing the Medallion Programs specifically defines eligible
Guarantors as “banks, broker dealers…credit unions, national securities exchanges, registered securities associations, clearing agencies, and savings associations.”
A serious and significant disparity exists between certain industry practices and STAMP Regulations. To reconcile SEC Rule 17 Ad-15 and STAMP Program Regulations with the operational needs of the financial services community, a STAMP Supplemental Subscription Agreement must be completed by all STAMP guarantors that use independent contractors in their
corporate operation. These STAMP Guarantors must have a minimum STAMP Surety Bond of
$1 million and obtain a Rider extending their STAMP Surety Bond coverage to independent
contractors. These provisions will enable STAMP Guarantors and affiliated Independent Representatives to operate within the confines of STAMP Program Regulations.
We have requested that all 7,200 STAMP and SEMP guarantors respond to a “Medallion Lending Survey”. Those Guarantors employing Medallion Lending practices in their operations are
then required to comply with all supplemental Program provisions or cease this practice.
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PAPERLESS LEGALS—
CONCEPT
The Project goal is the elimination of Transfer Agent examination, approval and retention of
documents that accompany requests for non-routine transactions, commonly known as “legals”.
A change to the existing process will benefit investors and the Securities Industry, as a whole.
Guarantors will be relieved of the tasks of duplicating and mailing supporting documents to
separate Transfer Agents for the same customer. They will also be relieved of the necessity of
dealing with processing differences caused by variances in individual Transfer Agent requirements and they will experience a reduction in rejects and “reject fees”. Transfer Agents will
benefit from significant processing efficiencies in their operations, legal/paralegal, and document retention areas. Lastly, investors will no longer be faced with lengthy, sometimes confusing and frustrating, securities transactions.
The basis for changing the current, centuries old process, is the protection afforded Issuers and
Transfer Agents within Section 8-306 of Uniform Commercial Code which spells out the warranties of the Guarantor:
…..at the time of signing,
(a) the signature was genuine; and
(b) the signer was an appropriate person to indorse; and
(c) the signer had legal capacity to sign.
Counsel for STAMP, Inc. and various Commercial Transfer Agents have determined that the
UCC language is protective and sufficient to warrant the proposed change. Furthermore, the
New York Stock Exchange, Rule 210 contains almost identical language covering the warranties
of members who act as Guarantors. Representatives of the NYSE have been kept up to date
with the progress of the Project.
Counsel for STAMP, Inc. has reviewed the language contained in the current Medallion Program
Documents and determined that no changes are necessary to accommodate the Project. Furthermore, STAMP, Inc. is aware of a landmark case involving inappropriate documents contained in a “legal transaction”. The Transfer Agent clearly erred in its examination and acceptance of supporting documents and a wrongful transaction resulted. Regardless, a claim against
the Guarantor was made. After review and discussion with its Surety Company, the Guarantor
acknowledged its responsibility and paid the claim, in full. This case did not involve a legal
judgment and does not constitute precedence. However, it is a clear indication of the effectiveness of Section 8-306 of the Code and Medallion Guarantee Program Documents.
It is useful to review the two most frequently asked questions about the Project:
1. What specific transactions are included? Any exclusions?
The amount and nature of all the types of “legal transactions” are too numerous to list in this
14
report. To put things in perspective, a review of the current STA Rule Book would be helpful
since 90% of its contents cover these transactions. A good rule of thumb to identify a “legal”:
•
When the registered owner(s)of a security, as indicated on the Transfer Agents records, is (are) unable or unavailable to sign instructions, exactly as registered.
Counsel has advised that transactions involving the sale or transfer of “restricted securities” are
not covered. This normally occurs with shares of Corporate Equity Securities. Also, the collection and review of Inheritance Tax Waivers is a Transfer Agent responsibility and will not be included.
2. Why have Issuers and Transfer Agents taken the burden of reviewing and accepting
“legals” when they have protections?
STAMP Inc. has asked the same question and the most plausible answers are rooted in history.
A lack of confidence in Guarantor knowledge and ability to review legal documents and the consequent establishment of prudent policies that sought to avoid problems rather than pursue
claims against Guarantors. Obviously, these fears bore more credence prior to the establishment of the current Medallion Guarantee Programs in 1992. The existence of Surety Bonds
standing behind the Guarantors has changed the landscape and these concerns should not exist.
Furthermore, meetings with Securities Industry Association Members have been instructional
and revealed that their internal procedures are much the same as Transfer Agents relevant to
the acquisition and approval of supporting documents. Also, since 1998, STAMP Inc. has conducted an aggressive educational program. Forty-two Guarantor Workshops, attended by approximately 3,148 professionals from over 2,386 Guarantor firms have been held in 34 States.
A Guarantor Handbook, an educational news-fax, SOUNDBYTES, and most recently, a training
video have been made available to member firms. The results have been positive and Guarantor credibility is at an all time high. One tell tale sign is the inability of investors to obtain a Medallion Guarantee unless they have a relationship with the Guarantor firm. The days of a Notary-Public attitude regarding signature guarantees are over!!
STAMP Inc. has been working with Insurance Industry Consultants to create a Contingent Insurance Policy for the Paperless-Legals Process. We are in the final stages of drafting the policy
prior to submitting to our Counsel for review and approval. The intent is to cover all dues paying, Transfer Agent Members of the Securities Transfer Association. The existing Excess Liability
Policy will continue to be in effect and the new Policy will provide significant enhancements. It is
premature to discuss these features and a description will be available once the policy is ready
for implementation. It is our intent to start coverage simultaneously with implementation of the
Project.
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GLOBALIZATION
The Multinational Investor’s Problem Holding U.S. Securities
One unanticipated and unintended result of the emphasis on
training and Guarantor liabilities and responsibilities, at least in
part, is the dwindling availability of signature guarantees outside the U.S. Beginning about five years ago, many U.S. banks
with branches outside the U.S. stopped offering this service.
Multinational banks and broker/dealers that operate in the U.
S. – and that are members of a Medallion Program – have discontinued signature guarantee services, as well. After the 9/11
attacks, virtually all signature guarantee services outside the U.S. and Canada ceased. In addition, U.S. Embassies have also stopped “certifying” signatures because of the volume of requests. Obviously, this is a significant problem for investors who own U.S. securities and reside
outside the U.S. and Canada, irrespective of the investor’s citizenship. As a result, individual
investors have begun to voice their concerns to Issuers, Transfer Agents, and the various industry and regulatory groups. Although some alternatives are available, no one is completely
satisfied or at ease with these stopgap solutions.
Proposed Solutions
One solution under development, and arguably the most challenging to implement, proposes to
use the U.S. Medallion Signature Guarantee Program as a template that would enable multinational financial institutions to guarantee signatures. Such a Global Medallion Signature Guarantee Program’s initial thrust would be to facilitate the processing of U.S. registered securities, including U.S. traded securities of non-U.S. companies (i.e. American Depository Receipts
“ADRs”), where the investor resides outside the United States. The positive and immediate impact of globalization will benefit multinational investors holding U.S. securities. This, in itself, is
significant, and certainly reasonable and sufficient cause for the development of a globalized
Medallion Signature Guarantee Program. Longer term, this process may complement – or in
some cases, replace – existing methods of certifying or guaranteeing (such as through the use
of notaries, letters of credit, and apostilles) the transfer or sale of financial assets throughout
the world. A recognized uniform signature guarantee process would facilitate securities transactions in a continually expanding global economy.
Another solution under consideration would utilize an insurance mechanism to cover an Issuer
or Transfer Agent against loss on a per transaction basis. This option will be effective but it’s
implementation will be lengthy since it must be done on an agent-by-agent basis.
We anticipate a start-up during 2005 by a major transfer agent.
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INDUSTRY RELATIONS & COMMUNICATIONS
The success of the Medallion Signature Guarantee Programs is an example of the varied
members of the financial community working together to solve a long-standing problem.
Accordingly, STAMP, Inc. incumbently maintains close liaison with organizations representing the securities industry.
SIPC Interaction
STAMP, Inc. met with the Securities Investor Protection Corporation (SIPC) to explain the
role of the Medallion Signature Programs in the Securities Transfer Process. STAMP, Inc.,
together with Surety Company representatives, provided SIPC with a suggested Claims
Process to employ should they encounter a fraudulent incident involving a Medallion Guarantor. In turn, SIPC, through these meetings, was able to elaborate on the internal methodologies they employ to recoup Investor losses. Obviously, this type of interface benefits
both Investors and Transfer Agents alike in that it fosters cooperation between two components of the Securities Industry whose ultimate goals are to insure integrity in the Securities Transfer Process.
American Bankers Association
The STAMP, Inc. Board of Directors has been successful in establishing a dialog with the
American Bankers Association (ABA). As there are more than 4000 banking participants in
the STAMP Program, this is a significant outreach activity.
The ABA Trust Letter, is the most respected source for legislative and regulatory news. For
over 30 years the trust community has relied on the ABA Trust Letter to deliver the most
accurate, timely coverage of laws and regulations affecting all areas of trusts. The January
2004 edition published an in-depth article describing the Medallion Signature Guarantee
process. In addition to providing an update for their membership on the signature guarantee process, this article emphasized the training initiatives and opportunities available for
STAMP Guarantors, including private Workshops for larger institutions.
STAMP, Inc. continues to explore all possible avenues in an effort to bring the latest Program information to the Guarantor community.
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Investment Company Institute
The Investment Company Institute (“ICI”) represents the mutual fund Transfer Agent community. STAMP, Inc has worked with the ICI on several projects of common concern, most particularly, in recent years, on the implementation of STAMP 2000.
To facilitate this transition, STAMP, Inc., at the request of the ICI, has provided STAMP Program
clarification and guidance in a Question and Answer Summary Document. This Questionnaire
not only includes STAMP Program update information, but also an in-depth description of the
operation of STAMP 2000 equipment from the TA perspective. It addresses the medallionprograms.com TA website and contains exhibits of STAMP 2000 Transfer Agent Equipment.
STAMP, Inc. regards communication with all facets of the Securities Industry as an integral part
of successful Program operation, and, to this end, is committed to pursue all outlets to disseminate information.
The U.S. Securities and Exchange Commission
Representatives of STAMP, Inc and KFS meet regularly with SEC personnel to update them on
the status of Program initiatives.
The STA and CTAA
Representatives of STAMP, Inc. (Securities Transfer Agents Medallion Program, Inc.) and KFS
(Kemark Financial Services, Inc.) are frequent presenters and participants at STA (Securities
Transfer Association) and CTAA (Corporate Transfer Agents Association) meetings and conferences.
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RESEARCH & DEVELOPMENT
New Technology Medallions – Security Ink RFPs
In accordance with our commitment to provide the industry with the best products for the task at
hand, we proactively seek out products that can improve the current process and seek out new
technologies that might be implemented in the future. To this end, we requested Proposals from
companies that our research indicated manufacture security ink or its component compounds. The
results of this initiative are summarized below:
Objectives:
•
•
•
Identify alternative security ink vendors
Seek out new technologies
Qualitatively evaluate current system
Methodology:
1.
2.
3.
4.
Key word web-based research. American Bank Note contacted as consultant.
Identified approximately 50 company sites for detailed review.
Based on the above, selected 7 firms that appeared to hold the most promise.
Detailed RFPs sent to:
•
•
•
•
•
•
•
Atlantic Printing Ink Company
Beaver Luminescers
Gans Ink – Security Inks Division
International Ink Company
Isotag, Inc.
Maxmax, Inc. (LDP, LLC)
Sun Chemical, Inc.
Results:
•
•
•
5 out of 7 RFPs yielded “no interest” responses
Spoke at length with Robert Allsopp of Gans Security Inks
Spoke briefly with Dan Llewllyn of Maxmax (LDP, LLC)
Conclusions:
¾ The Medallion Program utilizes the most technologically advanced security imprinting system
that is available in the securities industry today. This proprietary system incorporates the
most cutting-edge engineering together with the latest state-of-the art technology to provide Program Participants with the most effective means to detect fraudulent transactions
and the most effective protection against fraud.
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TRANSFER AGENT EQUIPMENT ENHANCEMENTS
The STAMP2000 authentication equipment was designed as a tool to aid in the detection of
counterfeit and missing imprints and should not be used as the sole decision making criterion.
It is imperative that Transfer Agents perform a careful examination of the Medallion imprint’s
overt properties. To this end, Hampton Technologies has developed a Format Inspection Tool
that will help Transfer Agents evaluate a Medallion imprint’s size and format.
T A Im p rint Auth entication A id s
F o rm a t In s pe ct io n A id
¾ D ev elop ed in re sp on se to TA r eq ue st s
fo r a too l to a ss ist v is u al ins pe ctio n.
¾ A va ilab le J u ne 15 , 2 0 04 .
TA Imprint Authentication Aids
Verified Stamp
Stamp Imprinted on Document
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Hampton Technologies is also experimenting with a small portable printer that will interface
with the newest generation Document Ink Reader to automatically record the fact that a particular STAMP2000 New Technology Medallion imprint has been authenticated by the Reader.
TA Imprint Authentication Aids
Document Ink Reader Printer
Pass Signal
Received
Verified Approval
Printed on
Document
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V-STAMP ~ THE “VIRTUAL” MEDALLION ALTERNATIVE for a DIGITAL WORLD
The Securities Processing Industry has been moving toward certificate elimination since the
Wall Street “paper crunch” of the 1960s and 1970s. The initial effort was the Central Certificate
Service (“CCS”) which became the Depository Trust Company (“DTC”). The depository/clearing
house concept for stock (equity) transfer proved extremely effective by:
•
•
•
Eliminating certification for “street name” transactions
Automating customer name transactions via the FAST System
Introducing the Profile System
The Mutual Fund Industry has largely avoided the issuance of certificates and has developed
automated links between dealer and Transfer Agent via the National Securities Clearing Corporation (now “DTCC”) systems of Networking & Fund Serve. Equity Transfer Agents are now attempting to replicate this process with the Networking for Equities (“NFE”) Project.
Although these efforts have reduced certificate issuance, Transfer Agents still maintain millions
of customer name records. In recent years, Dividend Reinvestment Plans, Employee Stock Purchase Plans and Direct Stock Purchase Plans have placed equity Transfer Agents in a primary
customer service position. As with many Mutual Funds, investors do not need a financial intermediary to initiate transactions in these instances. To a great extent, this places the submission of investor instructions outside of the existing scope of automated workflow processing.
Even in this current “book entry” environment, Transfer Agents must handle paper instructions
that most often include investor endorsements and Medallion Signature Guarantees.
V-STAMP
The V-STAMP concept intends to fill this “automation gap” while offering the current Medallion
Signature Guarantee protection in a completely digital environment. Clearly, a process that
permits the signature guarantee of electronic forms and documents by the use of a digital or
“virtual” Medallion is the next logical evolution of this critical industry function. For maximum
effectiveness, the V-STAMP process should:
•
•
•
•
•
•
Be available to all approved Guarantors and Transfer Agents
Be a Web-based application
Use Universal File Types
Use Industry Standard Encryption and Security Protocols
Be User Friendly
Be Cost Effective
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The Investor/Guarantor Role
1. An investor requiring a Medallion Signature Guarantee on a Letter of Instruction (“LOI”)
visits an approved V-STAMP Guarantor.
2. The Investor endorses the LOI in the presence of the Guarantor.
3. Once the Guarantor has completed its Due Diligence, the LOI is ready to undergo the VSTAMP process.
4. The Guarantor scans the LOI as a PDF (Portable Document Format).
5. The Guarantor logs on to the V-STAMP Website using User ID, Password, and Token generated PIN Code.
6. The Guarantor uploads the PDF to the V-STAMP Website and applies the V-STAMP that is
unique to this transaction.
7. The Guarantor downloads the V-STAMPed PDF, which is ready for transmittal to the
Transfer Agent.
8. The Guarantor transmits the PDF by e-mail attachment to the Transfer Agent.
The Transfer Agent Role
1. The Transfer Agent logs on to the V-STAMP Website using User ID, Password, and Token
generated PIN Code.
2. The Transfer Agent uploads the PDF to the V-STAMP Website and authenticates the VSTAMPed PDF.
3. If the V-STAMPed PDF authenticates properly, the Transfer Agent acts on the LOI.
4. If the V-STAMPed PDF does not authenticate properly, the Transfer Agent rejects the
transaction.
V-STAMP’s Features
Several of V-STAMP’s features warrant elaboration:
The PDF is the file type of choice since:
•
•
•
•
•
•
Most computer users are familiar with its features.
Most computers are equipped with the PDF Reader.
If not, the Reader can be
downloaded and installed at no cost.
Many File Types can be easily converted to the PDF format.
Documents can be scanned as PDFs.
PDFs are inherently edit/tamper resistant.
PDFs can be easily archived by content based imaging applications.
Since the person that successfully logs on to the V-STAMP Website, has an opportunity to engage in improper activities, the User Authentication process must go beyond traditional Password protection. The use of Hardware Tokens or Biometric Devices will add a necessary secondary layer of authentication:
•
•
Hardware Tokens provide “two-factor” authentication by requiring users to present
something they know (password) and something they have (token generated PIN code)
Biometric Devices use measurable physical characteristics to verify identity
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To ensure compatibility while providing maximum security, the V-STAMP application will use Industry Standard Encryption Technology:
•
The V-STAMP itself is a certified encrypted hash-code algorithm that is embedded into
the PDF rendering each file tamper-proof and every transaction unique and traceable to
the Guarantor
•
A V-STAMP can only be affixed (by the Guarantor) and authenticated (by the Transfer
Agent) on a Secure Site (operated by the Program Administrator) via SSL Encryption
Benefits
Benefits accrue to all parties involved in the V-STAMP process:
•
The investor will have their instructions submitted to the Transfer Agent while seated at
the Guarantor’s desk. Market Risk is all but eliminated
•
The Guarantor can improve customer service and may realize a new revenue stream by
providing this service for a fee. Guarantors also reduce their risk of fraud since the investor will be unable to fraudulently manipulate the LOI after the V-STAMP is affixed
•
The Transfer Agent will benefit from reduced risk by eliminating opportunities for fraud
and by working with a qualified V-STAMP Guarantor using sophisticated security measures. Productivity gains are also likely as technology replaces processes based on movement of paper documents
Our project team is currently soliciting input from industry professionals to assist with R&D, including establishing key strategic milestones.
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BOARD OF DIRECTORS
CORPORATE INFORMATION
Andrew M. Massa
President
E-Mail:
STAMP2000@kemark.com
James D. Dillon
Vice President—Audit
Telephone:
845.620.9300
Ralph P. Genova
Treasurer
Mailing Address:
STAMP, Inc.
Kemark Financial Services
One Blue Hill Plaza
11th Floor
Pearl River, NY 10965-8686
Michael J. Locascio
Vice President—Marketing
Robert J. Vondrasek
Vice President—Industry Relations
Ellen L. Whalen
Secretary
Program Administrator:
Kemark Financial Services, Inc.
One Blue Hill Plaza
11th Floor
Pearl River, NY 10965-8686
Telephone:
845.620.9300
Facsimile:
845.620.9340
c THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM, INC.
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