A Simple Explanation of How Shares Move Around the Securities Settlement System
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Re: A Simple Explanation of How Shares Move Around the Securities Settlement System
#2In 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_...
1. https://www.bloomberg.com/view/articles/2015-07-14/banks-for...
2. http://www.dtcc.com/annuals/2013/superstorm-sandy-recovery/i...
Re: A Simple Explanation of How Shares Move Around the Securities Settlement System
#3In 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…
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.... 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.
Re: A Simple Explanation of How Shares Move Around the Securities Settlement System
#4In 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…
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... . 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 i…
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.
Re: A Simple Explanation of How Shares Move Around the Securities Settlement System
#5Earlier quoted context omitted.
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... . 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 i…
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.
> 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.
Re: A Simple Explanation of How Shares Move Around the Securities Settlement System
#6Both 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://cdn.static-economist.com/sites/default/files/pdfs/EN_... http://cdn.static-economist.com/sites/default/files/pdfs/Fif...
Re: A Simple Explanation of How Shares Move Around the Securities Settlement System
#7detailed diagram I have... http://www.evernote.com/l/AUktHsZP9-xE754ZOPn2Kv-OkJs74RAb7K...
Re: A Simple Explanation of How Shares Move Around the Securities Settlement System
#8Earlier quoted context omitted.
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.
> 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.
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.
Re: A Simple Explanation of How Shares Move Around the Securities Settlement System
#9In 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…
Fun fact, if you're fired by a startup and own explicitly own stock (not a vested option, but a vested and exercised option) and they are Delaware C corp which has not been explicitly "uncertificated", you can demand a stock certificate for your shares. Really annoying for the people who fired you.
Re: A Simple Explanation of How Shares Move Around the Securities Settlement System
#10Earlier quoted context omitted.
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... . 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 i…
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.
An important part of the abstraction in any fiat currency with a modern central banking system is that the quantity of future financial obligations in that currency exceeds the broad quantity of money (because the greater part of the money supply created on banks' balance sheets literally is debt, and the government insists your future taxes are paid in that currency too)
Bitcoin isn't dismissed as "fairy money" because it's digital but because it doesn't have a similar rather large built-in reason to assume there will be a non-trivial demand for it at a particular point in future.
However [purposely] opaque certain other classes of financial asset are, they tend share the general property - which BTC doesn't have - of representing one entity having a future claim on another's resources.