Find out what you need to know about medallion signature guarantees, a necessary step to transfering securities from one investment account to another.
Medallion signature guarantees are often needed to verify a transfer of your investments when it involves certain securities, such as stocks and bonds. Perhaps you thought it was the same as getting a document notarized, but found out that it's an entirely different process. If you've ever needed your signature confirmed or verified for a legal document then, you're probably most familiar with the notarization process, where a licensed notary confirms that he or she personally witnessed that you signed a document. Not only are they confirming that they saw you physically sign this document, they also require you to present valid identification that confirms you are, indeed, who you say you are. A medallion signature guarantee is very similar to the process of document notarization with a few differences.
A Medallion Signature Guarantee is a stamp and signature combination that verifies the authenticity of a signature--commonly required for the transfer of securities.
Physically, it looks like an imprint (stamp) with barcodes surrounding a signature printed in green, high-security ink that can only be verified by STAMP2000 Medallion scanners. Now: If you try to get a document or transaction validated via notary when you really require a Medallion Signature Guarantee, you will find that the transaction cannot be completed or could be deemed invalid. A Medallion Signature Guarantee is really only required under specific circumstances. More importantly: There are only a few types institutions that are authorized to provide this type of highly specialized service.
Medallion Signature Guarantees can only be provided by institutions authorized by SEC Rule 17-Ad15.
This rule says that eligible signature guarantors (most likely, your bank or stock transfer agent) must meet certain Securities Transfer Agents Medallion Program (STAMP) qualifications including submission of a STAMP surety bond as required by the Securities Transfer Association.
Because Medallion guarantors are financially responsible for fraudulent signatures, only entities authorized by the Securities Transfer Association may provide this service.
The institution must also have STAMP Medallion imprinting equipment and get surety bond coverage.
This surety bond coverage is insurance in case a signature and related transaction is found to be fraudulent.
If a bank is hit with a lawsuit because a transaction is found to be fraudulent, the signature guarantor becomes responsible.
As you can see this signature guarantee is serious business, so only a few institutions such as credit unions or banks, transfer agents, or broker-dealers offer the Medallion Signature Guarantee service.
In addition to meeting certain requirements and being bonded, these institutions must be part of one of three Medallion guarantee programs:
The presence of the Medallion Stamp ensures that the entity providing the stamp is a member of a Medallion signature guarantee program and is a verified, SEC-approved, signature guarantor.
The first place to look is your bank.
Otherwise, there are websites and directories that offer up information on how to find providers of the Medallion Signature Guarantee.
For example, you can use MSG Lookup, or simply perform a Google search with the phrase ‘Medallion Signature Guarantee’ along with the city or state closest to where you'd need to obtain one.
Again, because the liability is so great in providing this type of signature guarantee, you'll need to contact individual institutions directly to verify their specific requirements and the actual availability of their Medallion Signature Guarantee program.
It is quite possible that their Medallion Signature Guarantee services are only offered on a limited basis, or may be discontinued altogether.
You should also know that the institution provides you with a medallion signature guarantee must have an ongoing relationship with you.
According to the STA website, “STAMP Guarantors may only provide Medallion Signature Guarantees for their customers.”
This measure helps prevent fraudulent signatures from being verified as well as illicit securities transfers from taking place.
Finally, an institution does reserve the right to not provide a signature guarantee if your documentation or forms are insufficient to determine your identity.
It’s important to know the documents that you'll need to obtain the Medallion Signature Guarantee before trying to get one.
The Medallion Signature Guarantee search website recommends some best practices when it comes to verifying identity and asset ownership in order to obtain a Medallion Signature Guarantee.
With this in mind, here’s some documentation you may have to present in order to receive this service.
Remember, each institution could have its own procedures and best practices in place, so be sure to contact them directly for more information.
For starters, you will have to verify your customer information with the guaranteeing institution.
For example, if you have an account with a bank or are a member of the credit union, they will, more than likely, ask for identification or information that proves you have a relationship or an account with them.
You may also be asked to provide a recent account statement, which proves your ownership and the value of the securities involved in the transaction.
You will have to be physically present along with any other owners involved in the transaction.
More often than not, you will have to show government-issued identification which cannot be expired.
If there are any forms you have to complete related to the transaction, you need to complete, in full, without corrections errors or scratch-outs.
The only thing that you will not do is sign the form.
The signature guarantor must witness you signing the form. So, don't do that ahead of time.
In some cases, you may need to present your stock certificate.
The signature guarantor may also need to verify the current value of the stock or bond through another reliable source before proceeding with your Medallion Signature Guarantee the transaction can be completed.
If you are acting on behalf of someone else, for example, a deceased relative or someone who cannot make decisions on their own, i.e. maybe you have power of attorney or are the executor of an estate, then you must have documentation proving your authority to act on that person’s behalf and complete the transaction.
This may include a power of attorney form, a trust agreement, death certificate, letters of office or corporate resolutions.
Typically, institutions that will offer this service will not charge a fee as long as they are providing the service to an existing customer.
Most financial institutions will not offer a medallion signature guarantee to non-customers.
As mentioned above an order for an entity to provide a Medallion Signature Guarantee, they must be approved by the Stock Transfer Association (STA) and be bonded.
This bonding requirement comes with “surety limits.”
For each stamp, you’ll notice that each alpha-prefix (letter) corresponds to a surety limit for the signature Guarantee.
This means, that the guaranteeing institution cannot guarantee transactions whose limits exceed certain dollar amounts.
| Alpha prefix | Surety amount |
|---|---|
| A | $1,000,000 |
| B | $750,000 |
| C | $500,000 |
| D | $250,000 |
| E | $100,000 |
| F | $100,000 (credit unions) |
| X | $2,000,000 |
| Y | $5,000,000 |
| Z | $14,000,000 ($10 million for Z prefix plus an additional $4 million of coverage for STA members stated in STA rule 1.04(a)) |
Should the Medallion fail, they would be responsible for any financial loss related to the transaction.
As you can see, the business of transferring securities needs several safeguards in place to make sure that only intended transactions take place.
Though it might seem like a hassle to obtain a medallion signature guarantee, it's worth it to observe the safeguards in place that ensure valid transactions for anyone looking to sell or transfer an asset like a security, bond, or mutual fund.
Aja is a writer and blogger based in Chicago who covers topics on personal finance and entrepreneurship. She writes from her experiences with money management and paying off $120,000 in debt. Aja has been quoted and/or featured on sites such as Time Money, Kiplinger's, U.S. News & World Report, Market Watch, and more. Education: B.A. in University of Illinois Urbana-Champaign.
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