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Simple English definitions for legal terms
guaranteed signature
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A quick definition of guaranteed signature:
Guaranteed signature: A way to make sure that someone who is selling a special kind of paper called a security really owns it. This is important because if they don't own it, the buyer could lose money. Banks can check and guarantee the signature to make sure it's real. If there's a problem later, the bank promises to pay for any losses. It's important to make sure the bank will cover enough money in case something goes wrong.
A more thorough explanation:
Guaranteed signature is a process used in the financial industry to verify someone's identity when transferring securities that are held in a physical document. This is important because it ensures that the seller actually has valid ownership of the security being sold.
Financial institutions become qualified to guarantee signatures through the Medallion program. Members of the Medallion program guarantee that the securities are valid and can be transferred to the buyer. If an issue later arises involving their validity, the financial institution who conducts the signature guarantee promises to cover the losses.
For example, if someone wants to sell their stock certificate, the buyer may require a guaranteed signature to ensure that the seller is the rightful owner of the stock. The financial institution providing the guaranteed signature will verify the seller's identity and guarantee that the stock certificate is valid.
Many banks offer this service to their clients. However, the amount in which financial institutions will insure against losses from an invalid signature varies. Therefore, it is important for individuals purchasing physical securities or serving as a broker to ensure that the financial institution sufficiently covers potential losses.