12 ms·
Banks Forgot Who Was Supposed to Own Dell Shares
- zekevermillion 11y agoThe system of record ownership of stock does seem prone to abuse and mistake, and I can see why Patrick Byrne and others would like to move this into the blockchain. That might open up new avenues of abuse, of course, and I'm not sure those exploits will be any more predictable than the results of this human abstraction.
- huac 11y agoWell, the results are now absolutely predictable now that there is established case law.
- zekevermillion 11y agoI suppose the benefit of a human system is that we can correct errors that we haven't fully anticipated, by using a general rule such as legal precedent. Remote edge cases in a purely machine system would lead to uncorrectable errors, from time to time. I think an ideal system would combine machine rules to avoid dumb-ass mistakes like mislabeling a share cert on transfer, with human systems to overrule unexpected bad results (e.g., transfers that were obviously not intended by the parties, though processed mechanically).
- lsaferite 11y agoMy take away from that is that DTC would be a really juicy target for state-sponsored hackers. Twiddle a few bits here and there and you suddenly own lots of stock.
- sidko 11y agoExcept, individuals don't own accounts at DTC, so you'll have to hack and twiddle a few bits here and there of the custodial bank as well. But these are reconciled each day against Security Position Reports generated at the end of the day, so your bits need to reconcile with trades. So you need to hack and twiddle a few bits here and there for a chosen counterparty as well. Except, the exchanges keep track of trades too, so you'll have to twiddle a few bits here and there for an exchange as well. It's not as simple as this at all, which is why the system has existed for decades. It's not the most efficient, but it's not something that will be replaced by a hackathon project either.
- colinbartlett 11y agoMy startup is, in fact, disrupting the custodial stock ownership space right now and we grew out of a FinTech hackathon last year. I'm joking of course, but it's only a matter of time until someone tries to Uber (can we make that a verb?) their way over these regulations. And fails miserably at it.
- zitterbewegung 11y agoWe would need a verb that encompasses general infringement of laws that isn't trademarked. Also it would have been called someone trying to YouTube their way back a few years ago.
- bronson 11y agoNapstering?
- zitterbewegung 11y agoThat is perfect!
- zitterbewegung 11y agoThat is perfect!
- tedunangst 11y agoBut who would use it? As far as I know, the banks are pretty happy with this system. And while it's possible to be "that guy" with paper stocks, it's a pain in the butt since you can basically only trade them with people you find on Craigslist. A single centrally managed monopoly seems to be exactly what everybody wants.
- erichurkman 11y agoAs-is, if you hold a paper stock certificate for a privately-held company, you likely cannot sell it. Private stock typically has transfer and sales restrictions; you can only sell if the company approves of the sale or transfer.
- protomyth 11y agoTom Clancy used an attack as part of the plot of "Debt of Honor".
- tedunangst 11y agoWorth reading all the footnotes. > BONY found the stock certificates for the shares beneficially owned by Manulife and Milliken and redeposited them with DTC in the FAST Account. I was waiting the whole article to find that sentence.
- jsmeaton 11y agoMay I ask why? The article was enjoyable, but I didn't really grok some of the particulars. Why is this specific footnote interesting?
- tedunangst 11y agoThe sheer predictability. As soon as I got to the part where it was stated that banks don't like keeping certificates in their own vault, I knew what was coming next. The bank ordered the certificate, somebody noticed it in the vault, and then sent it straight back. It just add to happen. But then it didn't, or at least no mention was made. Until I got all the way to end, and there it was.
- mifreewil 11y agoIf there ever was a reason to work on smart property, here it is.
- tptacek 11y agoAll this stuff suggests to me (someone shoot me down) that it's an especially good idea to be incorporated in Delaware. This is the level of drama associated with something as mundane as who has physical possession of stock certificates!
- Quanticles 11y agoAt least the drama is well understood /s
- tedunangst 11y agoI think this angle is under appreciated. People think you incorporate in Delaware for the taxes, but the "real reason" is the large body of established case law.
- dtap 11y agoThe physical holding of a stock certificate is a dangerous thing. If you are an investor in a company that gets sold or goes public (and you have to surrender your shares) and misplace them, it is an expensive mess, even in Delaware.
- tedunangst 11y agoI played this game. It wasn't expensive, but it sure was annoying sending affidavits back and forth to be signed and countersigned and so forth. For bonus hilarity, we got to do it several times because the number of shares was wrong, then the date the stock was lost was wrong, then the date of the affidavit was wrong. In my case, I think everybody was at least motivated in the same direction. But if they had decided to put up a fight? Good heavens.
- erichurkman 11y agoThus the existence of companies like eShares that do away with this very problem for privately-held companies by issuing stock electronically and providing transparency (audit trails) to stockholders that paper certificates suck at. Full disclosure: I work there.
- pash 11y agoThis is why NASDAQ and other trading venues are exploring the possibility of using Bitcoin's blockchain to disintermediate the clearing process. The idea is to use asset-tracking protocols (commonly called "colored coins" in Bitcoin land) to associate ownership of an asset with possession of a small, low-value unit of Bitcoin, which then can be transferred in the usual way. NASDAQ Private Market, the firm's venue for trading private listings, has repeatedly advertised its intention to start testing a blockchain-based clearing process within the next year [0, 1]. The fast, cheap clearing NASDAQ hopes the blockchain will provide may make it much easier to trade shares in private companies (including pre-IPO startups). There are higher regulatory and technological barriers to clearing publicly listed securities, but tracking the ownership of an abstract commodity that is as often traded as a share of stock seems like an obvious application of Bitcoin's decentralized ledger. 0. http://www.technologyreview.com/news/539171/why-nasdaq-is-betting-on-bitcoins-blockchain/ http://www.technologyreview.com/news/539171/why-nasdaq-is-be... 1. http://www.wired.com/2015/05/nasdaq-bringing-bitcoin-closer-stock-market/ http://www.wired.com/2015/05/nasdaq-bringing-bitcoin-closer-...
- jedberg 11y agoSo a while ago there was an article that someone was getting close to controlling 50% of the network, which means that they could make arbitrary changes to the blockchain. Whether true or not, if NASDAQ was using the blockchain to track stock ownership, it seems like there would be a HUGE incentive to try and control 50% so you could manipulate it. This seems bad. EDIT: As I type this my comment sits at 0 points, as does every comment I make even remotely critical of bitcoin and the blockchain. Why does HN hate people that are critical of bitcoin?
- colordrops 11y ago> they could make arbitrary changes to the blockchain It's not that bad. See https://en.bitcoin.it/wiki/Weaknesses https://en.bitcoin.it/wiki/Weaknesses "An attacker that controls more than 50% of the network's computing power can, for the time that he is in control, exclude and modify the ordering of transactions. This allows him to: Reverse transactions that he sends while he's in control. This has the potential to double-spend transactions that previously had already been seen in the block chain. Prevent some or all transactions from gaining any confirmations Prevent some or all other miners from mining any valid blocks The attacker can't: Reverse other people's transactions Prevent transactions from being sent at all (they'll show as 0/unconfirmed) Change the number of coins generated per block Create coins out of thin air Send coins that never belonged to him" Regarding your "edit", perhaps voters don't consider your comment that insightful, especially when you spread negative information about bitcoin, such as 50% attacks allowing attackers to "make arbitrary changes to the blockchain".
- ksec 11y agoAny TL;DR ?
- xanderjanz 11y agoGroup A bought Dell stock with the intention of legally seeking a higher appraisal. But Delaware corporate law has a strange feature of saying appraisal seekers must own their shares continuously after demanding appraisal. But in this case, Group A's bank had changed ownership of the stock with another bank "behind the scenes", which caused a Delaware judge to reluctantly rule Group A's appraisal rights void.
- mirimir 11y agoThanks! My eyes tend to glaze, reading about arcane finance. So how come Group A's bank isn't liable for any loss that A incurred?
- ksec 11y agoAny TL;DR ?
- MichaelCrawford 11y agoI resigned in protest from AMCC for the specific reason that I was concerned that the RAID HBAs whose Mac OS X drivers I worked on were tested in a way that I felt would lead to end-user data loss. This because I was not permitted to test my driver in the same configuration as used by our customers. OS X userspace supported 64-bit, but the kernel was 32-bit, with some magic employed to break up large I/O. Our test tool - and we only had one - was 32-bit. Once I realized that I mailed the tool developer to request a 64-bit build. He had never worked on Macs, so I was walking through Xcode when my manager Mike Benz demanded that I stop spending time that could be employed to meet our quarterly revenue targets. Just before that our CEO Kambiz Hooshmand gave a length talk on the vital importance of ethics at an all-hands meeting, so I had him dragged out of a board of directors meeting so he could tell Benz to let me help our tools coder build a tool that would enable me to prevent end-user data loss. That didn't work out so well so I resigned. I don't recall everything I wrote; while I do still have the original document it's not readily available. But among other things: "When I lay on my deathbed looking back on a life well-lived, I am not going to wish I had shipped more product." Senior Human Resources Manager Sue Depositar knew that I would go to the press so she purchased my silence for thirty-five grand and change. Imagine my surprise when LSI acquired my division a few months later. While I haven't had the headspace to deal with it yet I'll be sending some snail mail to LSI's board of directors, the attorneys general of california and the united states, and each securities and exchange commissioner. I invite AMCC to sue me. I would like nothing more than to testify under oath.
- barrkel 11y agoThis is an interesting comment but it's attached to the wrong article.
- MichaelCrawford 11y agoNo it's not. RAID HBAs are commonly used by banks.
- GFK_of_xmaspast 11y agoBadmouthing former employers by name is a great way to find future opportunities.
- savanaly 11y agoI'll say it again, one glance at the post title and I knew it was Levine. His title's are always one point. >Here are three stylized facts about stocks Hmm..."stylized facts", I'm going to have to remember that phrase, it's a good one.
- D-Coder 11y ago"The financial system is built up in layers of abstraction over some vast and unwieldy machinery... Sometimes the machinery pokes out a bit through the fabric of the abstraction." What does that remind me of? Maybe the concept of "layers of abstraction" applies to many things in life.
- melvinmt 11y agoThat's why: block chains.
- geofft 11y agoHow do block chains solve this problem, compared to, e.g. patio11's LAMP app proposal? https://twitter.com/patio11/status/583696870704152576 https://twitter.com/patio11/status/583696870704152576 It doesn't seem like decentralization or proof-of-work are important here, given that everything is going through a small number of exchanges, and even if not, through a single SEC. The existing system already works on mutual trust between the exchanges and DTC, and it's not the trust that's an issue here, just complexity. Blockchains are complexity. Cryptographic history and authorization of transfers may be useful, but it just requires some straightforward digital signatures, not blockchains.
- nmj 11y agoYou're thinking small. Imagine a world where there aren't parasitic entities littered throughout a process. Imagine a world where I do not need to trust any third parties in order to exchange any sort of value. Imagine a world where you can exchange your stake in a company directly, with another person, P2P.
- geofft 11y agoIn such a world, I imagine a good number of investors will only want to trade when there's an overseer who can promise violence to right wrongs, because trading is historically a great way to get scammed. At the moment, given the state monopoly on violence, an organization like the SEC is a good way to do that. There are other ways to accomplish this without a state monopoly on violence, but the ones that come to mind don't sound like worlds I want to live in.
- nmj 11y agoYou trust violence more than mathematical improbability? Okay.
- cesarb 11y agoThat system sounds convoluted. Here in Brazil, everyone who holds stock has an individual account at the stock exchange (BM&FBOVESPA), managed indirectly through your broker. It's always clear who owns what, since every transfer goes through its systems.
- partiallypro 11y agoThe same is true in the U.S., but brokers can also lend out shares for shorting etc, or write derivatives such as options which are contracts that can be exercised to buy/sell a stock at X price. The same is true in Brazil, rest assured, and it gets even more complex than that when you start taking about ETFs, REITs, and more complex derivatives etc.
- tedunangst 11y agoThat actually sounds like almost exactly the same system.
- guan 11y agoIt’s not quite the same. In the US, the shares are legally owned by Cede & Co. on the books of the corporation. DTC then has a database that says the shares really belong to various brokers, for the most part. Finally, the brokers have a database saying which client owns the shares. This is a legal fiction that you can ignore sometimes, except when you can’t, as in this case. In many other countries, and I’m not sure about the particulars in Brazil, the central book-entry system is the definitive record of who owns shares. There’s no entity like Cede & Co. that is even nominally the owner. (Sometimes brokers are still listed as nominal owners, eliminating one layer compared to the US.) Whoever is in the book-entry system is the owner, at least from the point of view of the corporation. This is more similar to the way ownership of Treasury bonds is recorded in the US. In the countries that I’m familiar with, China has direct recording of ownership for individual brokerage clients, while Denmark has a mixed system where some ownership is recorded directly, but “street name” also occurs. Danish securities owned by foreigners are often held through Euroclear or Clearstream, which does operate more or less like DTC/Cede & Co. in the US.
- 11y ago
- brucefancher 11y agoThey didn't lose the records -- Cohagen stole them!
- ak217 11y agoI love Matt Levine's writing. He has the incredible knack for making finance seem entertaining.
- anigbrowl 11y agoAlso the rare ability to be critical without being condescending.
- golergka 11y agoI find it interesting how abstractions in law are similar in abstractions in software engineering: they are created to simplify complex stuff underneath, which are there for historical and backwards compatibility reasons. These abstractions also tend to be leaky, and while beginners rely on them, advanced users dig down and know the stack (or, at least, have a pretty good understanding of what they don't know about the stack) down to the physical realm. So, I hope that at least software engineers wouldn't be fast to blame "evil lawyers" for purposefully creating a complex system, but rather understand how this clusterfuck comes into being by himself, out of mismanagement and laziness over generations.
- tzs 11y agoAre Delaware appraisal rules being applied, and interpreted under Delaware law, in the cases discussed because Ancestry.com and Dell are both Delaware corporations, or because the entity that actually owns the shares is a Delaware corporation? While many big public corporations are incorporated in Delaware, there are also quite a few that are not. About 36% of the Fortune 500 are not. Some prominent tech examples are Microsoft (incorporated in Washington) and Apple (incorporated in California).
- lmm 11y agoBecause the companies that the shares are of (Dell) is a Delaware corporation. The whole appraisal process is a Delaware thing.
- zaphar 11y agoThis article reads like the description of a legal Rube Goldberg machine. Fascinating to watch in action but horrifying to imagine your money caught up in.
- SonOfLilit 11y agoI sent a friend xanderjanz's TL;DR and a link, and he replied: > I have to admit I don't know much about stocks, but the grammar of those sentences hints that this was a C++ problem of misusing pointers :) My response below, with a warning that if you're not a low level programming geek you should probably not even try to read it: Actually, it's more like a C# problem of misusing non-pinned-pointers, where the generational garbage collector isn't aware that some invoked C library holds a pointer to something and happily moves it around in memory, and then the C library segfaults. This is the full story: Some laws were written under the assumption that owning stock is like calling VirtualAlloc(), but in the 70s there was a paperwork crisis (too many calls to allocate and free pages, the system grinded to a halt) and the US government wrote an stdlib malloc(), which everyone's been using. There are legacy libraries (laws) written under the assumption that "owning memory" means that the OS page table marks this page as yours, but it's silly because now all pages are marked as malloc()'s. There is case law (bugfix patches) to try and make some sense of it, but in this case malloc() had to free() most of a large allocation but keep some of it allocated and a legacy library that remembers and compares page region base pointers (changed, because most of the large region was free()d) and doesn't look at the malloc() allocation lists (where there was no change in ownership) decided that this memory no longer refers to the same stuff and declined to provide services to it (specifically, a service called "appealing appraisal" that would net the owner of that memory a lot of money). The CPU (the judge) said he knows this code is buggy and it's not what the user OR the programmer wanted, but he's only the CPU and all he can do is execute the buggy code, and someone please call a programmer (Congress) to fix this code.