Re: e$: Geodesic Securities Markets

["Perry E. Metzger" <perry@imsi.com>]

Robert Hettinga says:
> Perry Metzger says,
> 
> After about five transfers, I talked to a very nice lady in underwriting.
> She said they really *do* have bales of securities in a vault, and that
> they have a program called FAST, where securities are stored in banks also.
> However, she said that a growing number of securities are issued book
> entry only.  Issues of up to $150 million can be issued on a *single*
> certificate.  That certificate is held just like the other securities
> issues, in a vault.

Yup. The certificate is held in street name -- the name such
certificates are held in is "Ceed & Co." for obscure reasons I've
never been able to fathom.

> She said that like par value, physical delivery is becoming more and more
> obsolete.

That is largely the case for institutional transactions. Lots of
equities are still physically delivered, and in fact all equities are
still physically deliverable. (Many holders still request physical
delivery, and there are many instances in which physical delivery is
still in fact necessary -- for instance, when you purchase
unregistered securities in a private placement. I still have bad
memories about trying to get the incompetant 144 department at my
broker to deal with some previously unregistered certificates.) There
are no US govvies that are physically deliverable any more, although
of course the older ones still are.

> That makes sense. Once a certificate is put into the vault at
> DTC, it usually never leaves.  It might as well not be there at all.

However, it is still there, fulfilling technical legal requirements,
and the vaults on Long Island are heavily guarded in spite of the fact
that the certificates are non transferable.

> Oddly enough, an e$ certification scheme reverses that paradigm. The book
> entries disapear, the certificates proliferate, and the clearinghouse
> becomes a referee, "blessing" the trade.

Its not really practical to do this with things that aren't bearer
instruments. You need to know the beneficial owner of virtually all
securities issued in the U.S., and even if we had a completely free
market we would still likely not have bearer certificates for most
corporate stocks, since such certificates are hard to track and one
wants to be able to find stockholders for corporate governance
reasons -- when stockholder meetings are called for example.

Perry