If you are attempting to sell or transfer shares in a US or Canadian corporation, you have likely been advised that you need a Medallion Signature Guarantee. However, most people are unaware that a Medallion Guarantee is a specific type of Surety Bond, not merely a stamp. Here’s how these two ideas relate to one another and why asset protection requires them.
What Is The Purpose Of A Surety Bond?
A surety bond is a three-party contract in which a Surety (often an insurance company) offers a monetary guarantee that a Principal (the individual or business issuing the stamp) will carry out their end of the bargain. The surety covers the loss if the Principal fails or commits fraud. The surety bond serves as the insurance in a Medallion Guarantee, making the stamp enforceable both monetarily and legally.
How Medallion Guarantees Are Related to Surety Bonds?
When a UK bank or attorney applies a Medallion Signature Guarantee to your transfer documents, they are providing a monetary guarantee that:
- The signature is authentic.
- The person signing is the right person to do so.
- The signer is legally able to sign.
All companies offering these assurances are required by the Securities Transfer Agents Medallion Program (STAMP) regulations to be supported by a STAMP Surety Bond. If a transfer turns out to be fraudulent, the US transfer agent files a claim against the firm’s surety bond rather than suing the individual. Each Medallion stamp has a letter prefix. The value of the surety bond supporting that particular stamp is really abbreviated as this letter. The transfer will be denied if the value of your shares exceeds the stamp’s bond limit.
Why are Surety Bonds Important?
Transfer Agents, also known as share registrars, are strictly accountable for any unauthorised securities transfers in the US and Canada. They will only accept a signature from a company that has a surety bond. Guaranteeing coverage of potential losses, because they assume this enormous risk.
This is why you cannot get assistance with US shares from a typical UK Notary Public or Commissioner for Oaths. Although they can confirm your identity, they do not offer the financial surety to support that confirmation. Thousands of UK citizens now hold US shares as more UK businesses merge with or are acquired by US companies. The link between the stamp and the surety bond is what guarantees the security of your transaction, whether you are selling employee stock options or managing an estate.