Cede & Co is widely misunderstood. No more evident than in the comments made here about them. Hopefully I can help.
First you need to understand that in this country, publicly traded stock does not exist in private hands (mind blown, I know)
It is not owned by the "owners", who, have purchased shares in a company. That is because technically, what you really own is a debt instrument or an IOU. The true ownership lies with a DTC partner.
Private-company stock is however directly owned by shareholders though.
Almost all publicly traded equities (as well as the majority of bonds) are owned through a partnership, Cede & Co., which is the nominee of the Depository Trust Comany (DTC is nothing more than a depository that holds securities for approximately 600 broker dealers and banks). For each deposited security, Cede & Co. owns a master certificate or what they refer to as a "global security" which never leaves a vault. Transactions are recorded as debits or credits to DTC members securities accounts, but the registered owner of the securities, Cede & Co, remains the same.
What you as a shareholder/investor actually have instead of direct ownership, is a contractual right against your broker. The broker then has a right against the depository institution where they have membership. Then the depository institution is obligated to the issuer. This creates a 3 step process before you get any rights to "your" stock.
This is where it gets really complicated.
This reduction in straight forward property rights makes it impossible to maintain 100% accuracy of who owns what. It would scare many shareholders to know that discrepancies between the records of various counter parties occur EVERY day (they are usually resolved without an issue). In a crisis, when liquidity dries up and the system comes to a halt, discrepancies could potentially result in securities that are outstanding as opposed to those that have been actually issued. Why is this a problem? This creates the potential for some investors to be out of pocket, with nothing to show for their purchase or investment (dont panic yet).
As regulated and mandated, within a 3 day period to settle, securities cross the balance sheets of several intermediaries. If one of those intermediaries becomes insolvent and fails (Lehman Brothers or MF Global ring a bell?) then an investor who was under the misguided belief that he or she was buying 100 shares of AAPL finds themselves instead in the position of being the creditor to a bankrupt firm. Its so much of a mess that 10 years later they are still trying to figure out what companies Lehman Brothers actually owned.
Dont panic, these types of collapses are not common or frequent but it does put a point on why so many of us are not a big fan of DTC. Why the exchange is still done this way goes back to the 60's and that is a very long explanation about the switch from paper to electronic book keeping through the regulations enacted in the 70's. I dont have time for that right now and its off the point.
This matters because this is how market makers "borrow" against YOUR stock to create a market even though at the time they might not have anymore of a particular stock. An example would be that a firm or market maker like Maxim Group out of New York might have sold all their shares in UATG but in order to "create" a market they need to buy or sell shares. How do they do that? Simple, they find someone else who has shares in UATG (on deposit with DTC) and essentially use YOUR holdings to "borrow" against. Essentially borrowing your assets without your permission (they dont need permission, they are market makes with direct access). Dont worry, once the sale is settled and comes full circle (market made) then the "register" is balanced. If YOU decide to liquidate YOUR shares that have been leveraged by a market maker then the Market Maker simply "pays it back" by "borrowing" from another shareholder. This carries potential risk on many levels but is a topic for another day. Market makers can also sell to themselves which of course we can not. In fact they are authorized to do a lot of things we can not all in the name of making the market and of course while turning a small profit, lol. I will let everyone here decide if they think that is a good practice.
Sorry for the long post but its important to understyand this in order to understand a financial disclosure when you read Cede & Co is holding "equity" or has been issued shares in a company we bought into. Cede & Co is not one person, its actually US. In most cases Cede & Co shares are OUR shares. This is what is referred to has held in "street" name. Technically speaking and in many ways functionally speaking, Cede & Co owns almost all of the publicly issued stock in this country.
The point is, that UATG did not issue Cede & Co directly, ANY stock nor is being held their for nefarious reasons by a shadow arm of the company or its friends. Its simply a master transfer agent and processor for DTC. Hopefully I didnt lose anyone and hopefully this actually helped everyone
AI
