
A Simple Explanation of How Shares Move Around the Securities Settlement System - rpbertp13
https://gendal.me/2014/01/05/a-simple-explanation-of-how-shares-move-around-the-securities-settlement-system/
======
stygiansonic
In the US, the role of the central securities depository is done by the
DTCC.[0] But the registered holder (nominee) of the DTCC is a separate legal
entity known as Cede & Co. [1] (I recommend reading Matt Levine's article for
further discourse)

So basically, the concept of ownership of a financial asset (which is itself,
an abstraction) is further abstracted, for the purpose of making the system
more efficient.

Fun fact: After Hurricane Sandy in 2012, the DTCC had to recover/restore many
damaged paper certificates after their securities vault was flooded. I don't
know whether these had any electronic entries but I assume they did. But the
physical certificates still needed to be retained.[2]

If you're interested in this sort of market structure/market participant
discussion, I'd recommend the textbook _Trading and Exchanges: Market
Microstructure for Practitioners_ , by Larry Harris.

0\.
[https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_...](https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_Corporation)

1\. [https://www.bloomberg.com/view/articles/2015-07-14/banks-
for...](https://www.bloomberg.com/view/articles/2015-07-14/banks-forgot-who-
was-supposed-to-own-dell-shares)

2\. [http://www.dtcc.com/annuals/2013/superstorm-sandy-
recovery/i...](http://www.dtcc.com/annuals/2013/superstorm-sandy-
recovery/index.php)

~~~
Analemma_
The other Matt Levine article about the Dell buyout is also a really good
explanation of "how stocks really work":
[https://www.bloomberg.com/view/articles/2016-05-13/t-rowe-
pr...](https://www.bloomberg.com/view/articles/2016-05-13/t-rowe-price-voted-
for-the-dell-buyout-by-accident). It really shows the parallels between
finance and software, where we've taken simple primitives and built so many
layers of abstraction on top that no one really knows what's going on top to
bottom anymore. It makes our lives easier when it's all working but it can
also have crazy failure modes.

~~~
myowncrapulence
This reminds me of the irony of people who discredit bitcoin because "it's
digital fairy money" when only 8% of the world's currency is physical.

The entire concept of fiat currency is abstraction. It requires layers of
illusion to maintain its integrity. At it's core, those in charge of the
ledger can change where money goes and who has it.

~~~
pastProlog
> The entire concept of fiat currency is abstraction

Then why does the US still maintain over 8000 tons of gold at Fort Knox and
elsewhere, 45 years after closing the gold window?

Of course even before 1971 paper currency was an abstraction as well - it was
a piece of paper to get a commodity, not the commodity itself.

~~~
myowncrapulence
As of April 2016 , Fort Knox holdings are worth about $180 billion.

There was approximately $1.48 trillion USD in circulation as of October 20,
2016.

There is about $8.22 in digital assets for every $1 we have in physical gold.

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raincom
Both companies and investors who have been ruined by "naked shorting" (a gray
area despite regulation SHO) know more about the shadow world of settlement.

If you are a retail short, SHO regulations apply to you. If you are a shadowy
short running operations in Bahamas, but funded by shadow partners of clearing
house, you can make a killing.

[http://www.economist.com/news/finance-
economics/21678146-lat...](http://www.economist.com/news/finance-
economics/21678146-latest-chapter-companys-battle-show-it-was-victim-abusive)

[http://cdn.static-
economist.com/sites/default/files/pdfs/EN_...](http://cdn.static-
economist.com/sites/default/files/pdfs/EN_Overstock_docs.zip)
[http://cdn.static-
economist.com/sites/default/files/pdfs/Fif...](http://cdn.static-
economist.com/sites/default/files/pdfs/Fifth_Amended_Complaint_%28Redacted%29_Redacted.pdf)

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ry4n413
detailed diagram I have... [http://www.evernote.com/l/AUktHsZP9-xE754ZOPn2Kv-
OkJs74RAb7K...](http://www.evernote.com/l/AUktHsZP9-xE754ZOPn2Kv-
OkJs74RAb7KE/)

