What is a Medallion Stamp and Why is it So Hard to Get One?
Medallion stamps are signature guarantees used when transferring securities. Financial institutions like banks, credit unions and broker-dealers typically issue these stamps as assurance that signatures on transfer documents are genuine and that signers possess all legal authority required to execute transfers.
Banks and Credit Unions Are Reluctant to Issue MSGs
Medallion signature guarantees are bright green stamps issued by financial institutions as part of medallion programs to verify the signature on transfer documents as authentic. Financial institutions participating in medallion programs issue these stamps after verifying both signer identity and legality; additionally they accept liability in case of forgery.
Stamps are commonly required when transferring physical securities such as stocks and bonds held in physical certificate form. Investments made through brokers do not need them; however, mutual funds and direct stock investment programs often require this guarantee for investors holding physical certificates of their shares.
Banks recognize the risks and liabilities involved with providing medallion signature guarantees are daunting; therefore, the ideal place to secure one would be at your account-holding bank. One reader reported on this forum that local Citibank, Wells Fargo and HSBC branches all declined or refused altogether providing these services; an HSBC branch even refused those with online HSBC accounts!
MSGs Are a Requirement for Transfers
Historically, bank branches and investment brokers were the main providers of medallion signature guarantee stamps (MSGs). But as these institutions have reduced their branch footprint and services offerings, it has become more challenging to acquire an MSG from them.
MSGs can be difficult to obtain due to the risk they entail for institutions providing them, with most banks reluctant to take this financial liability on. Before providing an MSG, an institution must verify that the person signing the document actually owns the securities being transferred.
To do so, guarantor institutions must carefully examine signatures, documentation of ownership and transfer histories of securities being transferred before issuing MSGs. For this reason, most of them only provide them to customers that already have relationships with them – which was why one reader on a forum post experienced difficulty when applying for MSGs from Citibank, Wells Fargo and HSBC branches near their home; all required him to open accounts in order to issue MSGs.
MSGs Are a Security Measure
Medallion stamps are used when transferring or selling securities and are proof that you own the shares being signed over to someone else. Furthermore, this proof also serves as confirmation that you possess both legal capacity and authority for making this transaction. Providing such guarantees can be a serious business as any institution offering these may incur significant liability should an invalid stamp later emerge from being issued.
Banks and credit unions tend to be reluctant to issue Medallion Signature Guarantees (MSGs). A reader who posted his experiences in an online forum mentioned how local branches of Citibank, Wells Fargo, HSBC and Bank of America all refused to issue MSGs unless someone held an account with one of these financial institutions. As more brokerage firms provide medallion signature guarantees to their clients as an alternative solution if you don’t belong to one financial institution directly, these could potentially provide access to MSGs if necessary.
MSGs Are a Fraud Detection Mechanism
A medallion signature guarantee verifies that you are who you say you are, as well as that you have legal authority to sign. It is typically used when transferring ownership of securities such as stocks or bonds. Furthermore, it offers high levels of security to transfer agents by reducing the chances of signature forgery.
Banks offering medallion programs will typically charge a nominal fee for providing Medallion Service Group (MSG) to well-established customers. They may also require that certain documents are submitted as verification of identity to ensure you are who you say you are.
Finding an MSG from a financial institution without which you are associated or who isn’t your customer may prove challenging; MSGs expose financial institutions to potential liability if issued to individuals they don’t know; most will therefore prefer not taking that risk. As such, only seek a stamp from participating banks, credit unions, savings and loan associations or brokerage firms with whom you already hold accounts in order to get one issued to you.
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