This notice serves as a reminder that ESI field offices and registered representatives (“RRs”) should not handle stock and certificates; certificates must be mailed by clients directly to NFS for processing.

DETAILS
RRs/IARs who have custody or possession of client securities or funds are subject to extensive regulation pursuant to SEA Rule 240.15c3-3(k)(2)(ii) for broker dealers and Rule 206(4)-2 under the Investment Advisers Act of 1940 for investment advisers. These rules define custody as “holding, directly or indirectly, client funds or securities, or having any authority to obtain possession of them.” ESI is exempt from these rules as long as ESI does not maintain custody of client funds or securities.

Field OSJs, branches and RRs should not accept stock and bond certificates or other negotiable documents. Instead, RRs should provide the customer with an envelope (which can be pre-postage stamped by the RR) and appropriate stock or bond power as described below.

It is considered acceptable for a representative to meet with clients to prepare or compile documents, including stock certificates, for forwarding to the qualified custodian (NFS). However, the client must be responsible for delivering such documents to the qualified custodian (NFS). The client should mail the securities documents directly to NFS. The office and/or RR will not take custody of any certificates, thus no entry of receipt needs to be noted on the Checks Received/Transaction blotter.

In the event that an RR inadvertently receives certificates from a client (e.g. mailed to the office or takes possession), follow the below process to return them:

1. Promptly record receipt on the Checks Received/Transaction Blotter.
2. Scan the following into Docupace using “ESI Inadvertent Receipt”: stock certificate(s), correspondence returning item to client, and the overnight package receipt with tracking number
3. Reject the item(s) in Docupace (submitter rejects).
4. Return to the client in-person or by overnight mail by noon of the next business day.

DELIVERY OF CERTIFICATES FOR DEPOSIT TO NFS
Client stock certificates should be sent to the address below with the NFS Stock or Bond Power Form. All account owners should sign and date the stock or bond power signing the certificate to NFS (for security reasons, do not have the client endorse the stock/bond certificate, rather, use the Stock/ Bond Power Form.

The Stock/Bond Power Form does NOT need to be sent to ESI for a Medallion Guarantee. This shall be handled by the NFS physical deposit team.

National Financial Services
Attn: Mail Zone KC1MO
100 Crosby Parkway
Covington, KY 41015

It is suggested that certificates be sent via certified mail and delivered with a signature required, or by some other traceable method. Physical Certificates should be in negotiable form and have no prior lien. If documents are submitted to resolved previous Not in Good Order (NIGO) issues, the Control Number must be referenced on the top border of the documents to avoid processing delays.

NFS Operational Processing Guidelines

Certificates in Good Order (“IGO”)

• Certificates and related paperwork received IGO will be scanned by NFS.
• An image of the certificate may be viewed in Wealthscape via the Imaged Documents section of the client’s account.

Certificates Not in Good Order (“NIGO”)

• NFS notifies ESI of any items requires to resolve NIGO issues.
• ESI will notify the RR and the RR is responsible for notifying the customers of the missing documentation.
• Customer is responsible for forwarding required documentation to Covington, KY and referencing the control number on the documentation.
• NIGO certificates for which a corresponding account number cannot be identified will be returned to the sender, if known, withing four business days. NFS will provide notification to ESI and ESI will notify the RR. If the sender is unknown, NFS shall return the certificate to the Transfer Agent.
• NIGO certificates that have account numbers but require additional legal documentation will be credited to the account and may be reflected as a Legal Transfer item. When an item is in Legal Transfer Status (Type 4) an additional fee (Safekeeping Fee) of $15/month/certificate is charged to the account. If the legal documents have not been received within forty-five calendar days, the certificates will be returned to the account address of record via overnight carrier. Once a position is moved from Type 4 to Type 1, it becomes negotiable and there is a $100 Legal Transfer Fee charged to the account by NFS.

Restricted Stock

• Certificates that are restricted shall only be deposited into a Customer account as described above on an exception-basis.
• RR’s that receive a request from a customer to deposit Restricted Stock should contact the ESI Brokerage Trading Desk to seek approval to proceed with the transaction.
• Standard process is followed to remove the restricted legend and clear the stock.

To Avoid Processing Delays

1. Verify that the registration on the account is identical to that on the certificate.
2. Verify that the certificate is valid. It is suggested, if there is doubt of that validity that the client call the transfer agent to confirm.
3. Verify the required documentation is included.
4. Verify the additional paperwork is included if the certificate is restricted.
5. Verify all account owners signed and dated the stock or bond power signing over the certificate to NFS (for security reasons, do not have the client endorse the stock/bond certificate, rather, use the Stock/Bond Power).
6. Verify the account number is referenced on the top right corner of the face of the certificate.
7. Keep a copy of all documentation forwarded to NFS along with the date it was sent and the tracking number.

Questions
For questions about this notice, contact the ESI Brokerage Trading Desk at (800) 344-7437, option 2, option 3, option 1.

TC132311(0323)1

Read More