What Is a Chill?

A chill is when the Depository Trust Company (DTC) places one or more restrictions on transactions regarding a given security. A chill can be placed when there is a problem or issue with the security, the security's issuer or the security's transfer agent. Chill restrictions are intended to limit the potential for problems within the financial marketplace, and can be placed on a security for various reasons.

Understanding Chill

A chill occurs when the Depository Trust Company limits the types of transactions that can be performed regarding a security. Owned by many financial companies including the New York Stock Exchange (NYSE), the Depository Trust Company acts as a clearinghouse for stock exchange securities, settling trades in corporate and municipal securities. If the Depository Trust Company has cause to be concerned about a specific security currently processed through its system, it may place a "chill" status on the security. This will restrict brokerages' ability to transfer the shares or units of the security through Depository Trust Company until the security's issues are cleared up or it ceases trading on the market.

Key Takeaways

  • A chill occurs when the Depository Trust Company places limits on the types of transactions that can be performed using a security.
  • It restricts brokerages' ability to transfer shares or units of the security through the DTC.

What Happens During a Chill?

The DTC can place a chill status on a security for various reasons, simple and complex. For example, it may place a chill may be placed by the agency, if there are regulatory concerns pertaining to the issuer. A "Participant Notice" is issued by the DTC to participants, when it places a "chill" status on a security. The notices can be viewed on the DTC's website. DTC also provides automated notifications to participants providing them with the ability to update their systems to automatically block future trading of affected securities and automatically alerting participant compliance departments.