Key Takeaways
- Authenticates signatures on securities transfer documents.
- Issuer assumes financial liability for fraudulent signatures.
- Required for transferring physical securities certificates.
- Only financial institutions, not notaries, can issue it.
What is Medallion Signature Guarantee?
A medallion signature guarantee is a specialized certification that authenticates signatures on securities transfer documents and confirms the signer’s legal authority to authorize the transaction. Unlike a standard notarization, it carries a financial guarantee, meaning the issuing financial institution assumes liability if the signature is later found to be fraudulent.
This guarantee protects investors and financial institutions by reducing risks associated with the transfer of securities, such as stocks and bonds, which might otherwise require physical handling similar to safe deposit box assets.
Key Characteristics
The medallion signature guarantee offers critical protections and operates under strict standards. Its key characteristics include:
- Financial Liability: The issuing institution financially backs the guarantee, accepting liability for losses due to forgery or unauthorized transfers.
- Verification Process: The institution confirms the identity of the signer and their legal capacity to endorse the security.
- Transfer Protection: It prevents unauthorized transfers of securities like bonds and JPMorgan Chase shares by ensuring signatures are genuine.
- Coverage Limits: Each guarantee has a maximum coverage amount, which varies by institution, sometimes exceeding millions of dollars.
- Distinct from Notarization: Unlike a notary, the medallion signature guarantee assumes financial risk, offering stronger protection for securities transfers.
How It Works
To obtain a medallion signature guarantee, you must visit a participating financial institution such as a bank, credit union, or brokerage firm where you have an established relationship. The institution verifies your identity, ownership of the securities, and the legitimacy of the transaction before issuing the guarantee.
This process involves presenting valid photo identification and documentation proving your ownership, similar to procedures used when handling paper money transactions. Once verified, the institution applies a special stamp that certifies the signature with a backed warranty.
Examples and Use Cases
You typically need a medallion signature guarantee when transferring or selling securities in physical certificate form. Common scenarios include:
- Stock Transfers: Transferring shares of companies like Bank of America or JPMorgan Chase often requires this guarantee to authenticate the signature and prevent fraud.
- Inheritance Transfers: When inheriting securities, you must provide a medallion signature guarantee to change the ownership on certificates.
- Change of Ownership: Updating the name on a security certificate, such as for bond holdings, requires this certification.
- Unit Investment Trusts: Transfers involving these investment vehicles may also require a medallion signature guarantee to ensure proper authorization.
Important Considerations
Remember, medallion signature guarantees are only valid for the specific transaction they cover and do not technically expire, but delays may require a new guarantee. Not all financial institutions offer this service, so check with your bank or brokerage first.
Also, a medallion signature guarantee cannot be provided by a notary public; it must come from an authorized financial institution. Understanding these distinctions is crucial when managing securities transactions to avoid delays or rejected transfers.
Final Words
A medallion signature guarantee provides essential protection against unauthorized securities transfers and is required for handling physical certificates. Before initiating a transfer, contact your financial institution to confirm their process and availability of this guarantee.
Frequently Asked Questions
A Medallion Signature Guarantee is a special certification that authenticates signatures on securities transfer documents and verifies the signer's legal authority. It provides a financial guarantee, meaning the issuing institution accepts liability if the signature is later found to be fraudulent.
You need a Medallion Signature Guarantee when transferring or selling U.S. securities in physical certificate form, such as stocks, bonds, mutual funds, or savings bonds. It is also required for changes in ownership, like inheriting securities or changing the name on a security.
Unlike a standard notarization, a Medallion Signature Guarantee includes a financial guarantee backing the authenticity of the signature. This means the issuing financial institution takes on liability if the signature is fraudulent, offering stronger protection against unauthorized transfers.
You can obtain a Medallion Signature Guarantee from participating financial institutions such as commercial banks, savings banks, credit unions, or broker-dealers where you have an account. Notaries public are not authorized to provide this guarantee.
Typically, you'll need proof of your relationship with the financial institution, valid photo identification, proof of ownership of the securities, and any special documents if applicable, like a Power of Attorney or inheritance papers.
The institution guarantees that the signature is genuine, the signer is authorized for the transaction, and the signer had legal capacity at the time of signing. Essentially, they stand behind the transaction financially as a form of fraud protection.
Yes, each guarantee has a maximum coverage limit, which varies by institution and can range from $1,000,000 to $14,000,000 or more. This limit represents the amount the institution will cover if forgery or fraud occurs.
Generally, no. If you manage securities through a broker using electronic systems, you typically won’t need a Medallion Signature Guarantee, as it is mainly required for physical certificate transfers.
