Medallion Signature Guarantee

Ardenfield Securities' cashiering department obtains a medallion signature guarantee on a customer's securities transfer request. What does the guarantee actually warrant?

1. A.That the certificate presented is authentic and free of any adverse claim.Wrong. The warranty attaches to the signature, and the genuineness of the instrument itself remains the transfer agent's problem.
2. B.That the signature is genuine, the signer is an appropriate person to sign, and the signer had legal capacity.Correct. Those three warranties are exactly what a participating institution gives, and the guarantee reaches no further.
3. C.That the transfer has been reviewed for suitability and approved by a registered principal.Wrong. Suitability review is a sales-practice duty owed to the customer and has nothing to do with a guarantor's warranty.
4. D.That the signer's identity was verified under the firm's customer identification program.Wrong. Identity verification at account opening serves the firm's own program and is not a warranty running to anyone outside it.

Why: A medallion signature guarantee is a warranty given by a participating financial institution, and it covers three things: the signature is genuine, the person signing is an appropriate person to sign for the registered owner, and that person had the legal capacity to do so. It says nothing about the security being transferred, the merits of the transaction, or whether anyone has done anti-money-laundering work on the signer. That is why a transfer agent will still refuse an instrument that is defective on its face even with a medallion stamp on it. If the question were whether the shares themselves were validly issued, the guarantee would be no help at all.

A customer of Winterbourne Brokerage returns a securities transfer request bearing a notary's seal and jurat instead of a medallion stamp. The transfer agent refuses it. Why?

1. A.A notarization is effective only in the state where it was taken, and the transfer agent sits elsewhere.Wrong. Notarial acts are recognised across state lines, so geography is not what is missing from this document.
2. B.A notarization must be renewed each time the customer gives a further instruction on the account.Wrong. This invents a currency requirement and still says nothing about the defect the transfer agent is actually objecting to.
3. C.The branch manager must instead attest to the signature in the firm's own internal records.Wrong. An internal attestation gives an outside party no warranty at all and is weaker than what was already offered.
4. D.A notary attests only that the person appeared and signed; nobody warrants the signer's authority or stands behind a loss.Correct. Only a guarantor's warranty of the signer's authority gives the transfer agent something it can rely on.

Why: A notary public confirms the identity of the individual who appeared and acknowledges that the person signed. A medallion guarantee does something different in kind: a participating institution warrants that the signature is genuine, that the signer is an appropriate person to sign for the registered owner and that the signer had legal capacity, and the guarantor is answerable if that warranty proves false. A transfer agent relies on that warranty when it moves registered ownership, which is why the two formalities are not interchangeable. Had the document been an ordinary affidavit rather than an instruction to re-register securities, the notarization would have been exactly the right formality.