Does your firm accept custody of physical stock certificates? If so, do you know that your firm is required to register with the Securities Information Center (“SIC”)? The SIC has operated the Securities and Exchange Commission’s Lost and Stolen Securities Program since 1977. This program has provided an effective way for firms to deal with lost, stolen, missing, and counterfeit physical securities.
SEC Rule 17f-1 requires firms to report any missing, stolen, lost, or counterfeit securities to SIC. In order to file reports or make inquiries regarding securities with SIC, your firm must first apply for a FINS number (Financial Industry Number Standard) with the Depository Trust & Clearing Corporation (“DTCC”). Once your firm receives a FINS number, it can proceed in registering with the SIC. The SIC operates a central database that processes reports and inquiries. However, the SIC does not issue new certificates. Rather, it is the transfer agent’s responsibility to issue a new certificate.
When do you contact the SIC? It has been recommended that firms should contact the SIC before completing a transaction. However, it is not required unless the market value of the transaction is more than $10,000. Under normal circumstances, a firm should make a report with the SIC as soon as it realizes that there is an issue with the certificate. This eliminates the chance that someone else will have the opportunity to make any illegal transactions using the certificate.
The SIC database will notify the party that is inquiring about the certificate with the name, address, and telephone number of the institution that originally made the report. In addition, the Federal Bureau of Investigation will also be notified if criminal activity is suspected. The time frame for replacing a certificate can range from two weeks to four months. This can be a hassle because the security can’t be sold during this time. So once a firm realizes that there is an issue with the certificate, the firm should begin the process of reporting to the SIC as soon as possible.
Is your firm in the process of filing a continuing membership application? If your firm has decided that it will begin accepting stock certificates, it should not wait until the application is approved by FINRA. Instead, you should begin the registration process with the Securities Information Center so that once your firm recieves FINRA approval, it will be prepared if there is an issue with an investor’s stock certificate.