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Replies to post #321189 on Spongetech Delivery Systems, Inc. (fka SPNGQ)
With dematerialization came major revisions to the
Uniform Commercial Code in 1977, and later in 1994. Those
revisions introduced “security entitlements” to our markets,
which took the place of direct share ownership. Strictly defined,
a security entitlement “guarantees an entitlement holder a priority securities intermediary or the security intermediary’s creditors.”Today, investors trade in securities entitlements while physical certificates are held in “fungible bulk” at the dtc."
Broker participants in dtc own a pro rata interest in
the aggregate number of shares of an issue held by
dtc. And their beneficial owners, the end customer,
owns an interest in the shares in which the brokers,
themselves, have an interest. Consequently, there are
no specific shares directly owned by either broker participants,
dtc, or the underlying beneficial owner. As
a result, the beneficial owner’s ownership cannot be
tracked to a specific share, but rather, his ownership
interest is represented as a securities entitlement at his
or her own broker dealer. Each of these beneficial
owners don’t own the actual shares that have been
credited to their account, but rather, they own a bundle
of rights defined by Federal and State law and by
their contract with the broker.
Though part of the Federal Reserve System, the dtcc is collectively owned and operated by the large U.S. brokerages. As a
result, dtcc operations are technically overseen by the sec. In
fact, the dtcc operates with minimal sec oversight.
CNS In equity markets, the origin of ftds is obscured by the Continuous Net Settlement (cns) system, operated by the
nscc. The cns constantly nets stock trades among brokerdealer
accounts at the dtc. In a dematerialized world, the
cns allows trades to settle promptly and efficiently, and helps
By cloaking delivery failures in anonymity, cns opens up the settlement system to abuse and fraud. Pollack remarked in
Neither the sec nor the exchanges will disclose the names of the institutions failing to deliver on the grounds
that “fails statistics of individual firms…is proprietary information and may reflect firms’ trading strategies.” That statement seems odd; what is proprietary about data on illegal
trading activity? Moreover, how are ftddata more proprietary
than short interest data, which are reported twice monthly?
THE IMPACT OF FTDS
ftds threaten market integrity in at least three ways:
¦ They undermine corporate voting mechanisms.
¦ They damage and destroy firms.
¦ They increase the possibility of systemic collapse.
Notably, those cases focused on the actions of the brokerdealers and not their clients. For example, Goldman Sachs
Execution and Clearing was sanctioned for repeatedly accepting
clients’ faulty locates and allowing those clients to mis-mark
short trades as long (in order to avoid compliance with
Regulation sho). But the stock exchanges’ jurisdiction extends
only to member firms. Institutions and investors fall outside
that jurisdiction, but within the purview of the sec, whose
inaction therefore shields institutions and investors.
sec
The contrast between sifma and retail investors—and their
relative influence over the sec rulemaking process—reflects the
classic dispersed costs and concentrated benefits model of political
action. It is economical for broker-dealers to unite and lobby
the sec for favorable regulations. sifma meets with sec staff
regularly, both to discuss specific proposed rules and to offer
guidance on future sec actions. Retail investors, on the otherhand, are not unified and it is expensive for individuals to gatherinformation, organize, and lobby the sec as the sifma does.
A more sinister explanation is that sec investigators
political pressure and other incentives not to pursue Regulation
shocases. The gaoreport was requested by the Senate Judiciary
