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In before someone mentions blockchain as a solution (IBSMBAAS). There already exists a database that works and has been well tested over the past 30+ years of

In before someone mentions blockchain as a solution (IBSMBAAS). There already exists a database that works and has been well tested over the past 30+ years of securities settlement. The issues was the database wasn't updated properly. So if a blockchain was used ti would stand to reason that that also wouldn't have been updated properly

drcode 10y ago
The difference is with a blockchain system every individual actor pushes in the transactions that update the data, whereas with the existing system you have to trust an arbitrary central party to perform the updates. The problem with existing systems is that the incentives of the entity owning the asset and the entity responsible for updating the database are not aligned.
- maxerickson 10y ago
  The problem with existing systems is that the incentives of the entity owning the asset and the entity responsible for updating the database are not aligned. Sure they are. An exchange is a combination of some physical systems and credibility. People won't trade on an exchange they don't trust.
- notahacker 10y ago
  If you don't trust the company you're investing in and the securities regulator to record things faithfully on a non-distributed ledger and uphold the law, update privileges to and mutability of the transaction record is the least of your problems when it comes to investing.
dragonwriter 10y ago
Neither of the two problems were that the existing databases weren't updated properly. OTOH, neither of the two seems to be uniquely well corrected by blockchain: the first problem (the "chill" problem) seems to to be correctable by not having the central database ignore updates in certain periods to rely only on peripheral DBs. A blockchain providing a single source of truth in place of multiple different DBs solves this, but so does any single source of truth, or even something in outline like the current heirarchical system of DBs without the central one taking time outs. The "shorts open at the time were closed long before the decision, and the entities that held them may not even exist anymore" problem is obviously not addressed by blockchain at all.
jonknee 10y ago
You should read the article, it also mentions and plays down blockchains: > Would a blockchain fix this? I don't know. A blockchain would make it easy to identify the short sellers, three years later. (That's what blockchain immutability is good for.) But then what? They could still have died, or closed their accounts, or yell. The issues weren't that the database wasn't updated properly, but that transactions that were closed years ago need to be re-opened. Because of short sellers that means tracking down people who may no longer exist and get them to pay you money that they never planned on owning anyone.
- jldugger 10y ago
  > Because of short sellers that means tracking down people who may no longer exist and get them to pay you money that they never planned on owning anyone. IMO, the death and disappearance problem is amusing, but the more interesting question to me as a layman is how the agreements are worded between brokers, shortsellers and stockholders. I may have to review my own paperwork, because I don't recall giving permission to lend out my stock, or yielding my interest in related lawsuits. I've never short sold, so I don't know how the agreement is intended to work. But if they're not on the hook legally, (which seems like they ought to be?) then it seems like it's up to the broker to make me whole.
  - smallnamespace 10y ago
    "Typical margin account agreements give brokerage firms the right to borrow customer shares without notifying the customer. In general, brokerage accounts are only allowed to lend shares from accounts for which customers have debit balances, meaning they have borrowed from the account. SEC Rule 15c3-3 imposes such severe restrictions on the lending of shares from cash accounts or excess margin (fully paid for) shares from margin accounts that most brokerage firms do not bother except in rare circumstances. (These restrictions include that the broker must have the express permission of the customer and provide collateral or a letter of credit.)" [1] [1] https://en.wikipedia.org/wiki/Short_(finance)#Shorting_stock_in_the_U.S https://en.wikipedia.org/wiki/Short_(finance)#Shorting_stock....
  - jonknee 10y ago

drcode 10y ago

The difference is with a blockchain system every individual actor pushes in the transactions that update the data, whereas with the existing system you have to trust an arbitrary central party to perform the updates. The problem with existing systems is that the incentives of the entity owning the asset and the entity responsible for updating the database are not aligned.

maxerickson 10y ago
The problem with existing systems is that the incentives of the entity owning the asset and the entity responsible for updating the database are not aligned. Sure they are. An exchange is a combination of some physical systems and credibility. People won't trade on an exchange they don't trust.
notahacker 10y ago
If you don't trust the company you're investing in and the securities regulator to record things faithfully on a non-distributed ledger and uphold the law, update privileges to and mutability of the transaction record is the least of your problems when it comes to investing.

dragonwriter 10y ago

Neither of the two problems were that the existing databases weren't updated properly. OTOH, neither of the two seems to be uniquely well corrected by blockchain: the first problem (the "chill" problem) seems to to be correctable by not having the central database ignore updates in certain periods to rely only on peripheral DBs. A blockchain providing a single source of truth in place of multiple different DBs solves this, but so does any single source of truth, or even something in outline like the current heirarchical system of DBs without the central one taking time outs. The "shorts open at the time were closed long before the decision, and the entities that held them may not even exist anymore" problem is obviously not addressed by blockchain at all.

jonknee 10y ago

You should read the article, it also mentions and plays down blockchains: > Would a blockchain fix this? I don't know. A blockchain would make it easy to identify the short sellers, three years later. (That's what blockchain immutability is good for.) But then what? They could still have died, or closed their accounts, or yell. The issues weren't that the database wasn't updated properly, but that transactions that were closed years ago need to be re-opened. Because of short sellers that means tracking down people who may no longer exist and get them to pay you money that they never planned on owning anyone.

jldugger 10y ago
> Because of short sellers that means tracking down people who may no longer exist and get them to pay you money that they never planned on owning anyone. IMO, the death and disappearance problem is amusing, but the more interesting question to me as a layman is how the agreements are worded between brokers, shortsellers and stockholders. I may have to review my own paperwork, because I don't recall giving permission to lend out my stock, or yielding my interest in related lawsuits. I've never short sold, so I don't know how the agreement is intended to work. But if they're not on the hook legally, (which seems like they ought to be?) then it seems like it's up to the broker to make me whole.
- smallnamespace 10y ago
  "Typical margin account agreements give brokerage firms the right to borrow customer shares without notifying the customer. In general, brokerage accounts are only allowed to lend shares from accounts for which customers have debit balances, meaning they have borrowed from the account. SEC Rule 15c3-3 imposes such severe restrictions on the lending of shares from cash accounts or excess margin (fully paid for) shares from margin accounts that most brokerage firms do not bother except in rare circumstances. (These restrictions include that the broker must have the express permission of the customer and provide collateral or a letter of credit.)" [1] [1] https://en.wikipedia.org/wiki/Short_(finance)#Shorting_stock_in_the_U.S https://en.wikipedia.org/wiki/Short_(finance)#Shorting_stock....
- jonknee 10y ago