T. Rowe Price Voted for the Dell Buyout by Accident | Hacker News Reader

T. Rowe Price Voted for the Dell Buyout by Accident

bloomberg.com

166 pointsevanpw44 comments

I've genuinely never learned so much about a topic from an article that so blatantly buried the lede.

I'm actually more intrigued by the emergent complexity in highly regulated systems thanks to the build-up. It's fascinating seeing the layers of abstraction in stock ownership, to the point where I'm wondering if it's all ripe for disruption.

The complexity is a feature that allows investors to play fun games with each other. Let's not take that away from the investing world.

Why does the Government place so many layers of regulation just to vote? Don't shareholders want it made easy for them vote on the future of the company?

How is this the government's fault? Mostly this seems to be awkward financial machinery built by the industry.

The main problem is that technically, the DTC owns all the shares. So there needs to be a system in place so the DTC knows how to vote for the 'for practical purposes' shareholders

It's kind of like when you sublet your apartment . you're renting the place, but you are also renting it out, so who is the renter?

The simplest idea is that those who hold shares should vote. But that idea leads to the DTC casting all votes.

Capital flight in the tech sector is imminent once again. If the finance sector has a leverage point it's capital. I guess someone could try to distrupt a part of the industry, but I don't see how they would avoid the inevitability of being acquired.

Just say no

Actually, I'm thinking of demanding the paper shares from any firm I invest in now, just to eliminate all that complexity. "I own 0.000002%, and this proves it."

> It's fascinating seeing the layers of abstraction in stock ownership, to the point where I'm wondering if it's all ripe for disruption.

Well, this is Overstock CEO Patrick Byrne's motivation/rationale for creating t0̸.

If you liked this, you should subscribe to Matt Levine's daily newsletter: Money Stuff. Reading it is the highlight of my morning commute: http://www.bloomberg.com/view/topics/money-stuff

Second that recommendation. There's a lot of stuff to check out but even just flipping through his analysis is really informative. If you're interested in financial shenanigans (or bond market liquidiry) this is the thing to read.

His writing is a national treasure (well for financial news anyways)

I don't think he 100% gets the technicalities of bitcoin though, but hey even bitcoiners don't get that...

> I don't think he 100% gets the technicalities of bitcoin though, but hey even bitcoiners don't get that...

Whether or not he gets the technicalities, what he writes about bitcoin and blockchain makes far more sense than 99.9% of what's written on the topic.

He's one of the few people in the world with a more nuanced understanding of blockchains than either "it will male bankers obsolete" or "it's useless nerd money", and that writes about it publicly.

How does one subscribe to this column?

Do you use RSS or do you get this as an email on your inbox?

I noticed it has a feed icon next to the <h1> of the page but clicking it leads me to a 404. Perhaps you can share an rss link that works.

If you scroll down to the bottom of one of his money stuff articles there's a CTA (email signup form).

I also noticed the busted RSS recently on Bloomberg. Don't know what's up

Thanks that worked. If anyone is interested here's a direct link for the subscribe form.

http://www.bloomberg.com/view/?alcmpid=view&subscribe-form=l...

I use rss. The link broke yesterday, but it's fixed now. I suspect it had to do with the move from bloombergview.com to Bloomberg.com/view

Note that standalone articles like this are only in rss, not in money stuff newsletter, although he'll usually link them in the next newsletter.

TL; DR: share management is built on a pile of electronic and legal hacks implemented over several decades. One layer misfired, and people (think they) lost money. Maybe we should rebuild it all but it's such a huge clusterfuck and involves so many entities, it will probably never happen.

But usually it is more complicated than that.

Sounds like the 20 year old codebase at our $company.

If Intuit is influential enough to suppress income tax reform, I have no doubt that the cacophony of financial institutions involved will do whatever it takes to ensure they can continue skimming their margins off the tops of their pieces of the machine.

Intuit is just kinda helping along a system that's already built up to allow politicians to give tax breaks and incentives for political reasons instead of just simply generating revenue.

I disagree with the premise of the article. I don't think that the proxy voting system and share ownership is opaque because it is boring - it is opaque because that is precisely in the mutual interest of all the middlemen you deal with to buy and sell and hold stock.

I see, and make, this argument often in relation to a lot of things.. with one caveat, which I think is important.

The 'because' in "it is opaque 'because' it is in the interest of.." does not have to be a causal because, or even an intentional 'because'. Most conspiracies I have known and loathed are, for better or worse, simply emergent. Each party can be relied on to play their part in conspiracy because playing their part is how the conspiracy came to be.

As I said, I think this is an important distinction. Not least as the hangup most people have about believing in such complex and wrong behaviour, is that so many people can be so smart and organised and so intentionally evil. But it is a real eye opener when you realise these things can function without organisation or intent..

Software engineers work in a field where accreted complexity exists at every turn. Windows has 20-years of bug-for-bug compatibility because of the pressures of hundreds of millions of people relying on it every day. And it's also a field where the dangers of rerwrites are well known and appreciated.

So why is it that many engineers are so ready to see complexity as the product of conspiracy, rather than organic evolution, in every other field?

>So why is it that many engineers are so ready to see complexity as the product of conspiracy, rather than organic evolution, in every other field?

So you are saying that separating voting rights of millions of shareholders and granting them to the hands of a few elites at banks is just a total evolutionary accident? I don't recall getting the option to restore the voting rights of the shares in my index funds - and nobody appears to offer it?

> simply emergent

There are people who model emergent systems and game theory, with the goal of influencing outcomes across a range of scenarios.

References please?

The Predictors by Thomas A Bass

https://www.amazon.co.uk/Predictors-Thomas-Bass/dp/080505757...

Well in the past ownership in shares were linked to pieces of paper. So moving everything around in a 1:1 relation with the real trades is annoying. Much easier to just move things in bulk at the end of the day.

The ownership layer mechanisms are not ways to make more money, but ways to spend less money. It's like how if we're both using the same broker to buy/sell the same stock, the broker could just... Change his records and not actually do any trading.

Though now some layers could be simplified, at one point they stop being middlemen and start being offerers of liquidity. Or something. Is your bank a middleman for mixing your dollars with other people's dollars?

>Is your bank a middleman for mixing your dollars with other people's dollars?

Yes? That seems pretty obvious to me. Mingling segregated accounts is certainly a bad idea if the customer thinks that you have a bailment contract: https://wiki.mises.org/wiki/Fractional_reserve_banking

But that's the amazing part of the story. What happened wasn't in the interest of any of the middlemen involved! They just want to skim off their slice. The last thing they want is any whiff that the ultimate owner might not get their voting rights or might not get the money coming to them. That's the kind of thing that makes people take their business to the other middleman across the street.

The only people who really benefited from this mess were Michael Dell and the others on the other side of the buyout. And they had nothing to do with this clusterfuck.

>That's the kind of thing that makes people take their business to the other middleman across the street.

Yeah except name me a "middleman" passive index fund that allows you to exercise voting rights at your discretion? I would take my business there, but it doesn't exist.

Imagine Matt Levine writing a story on your favorite heisenbug.

> But usually it is more complicated than that. [...]

Nice rhetoric there.

(Advanced capitalism: it is complicated, it is.)

That was an extremely entertaining and fascinating article on an extremely complex topic. Thank you!!

As the author mentioned, shareholder voting is ripe for disruption with a blockchain based system. What is the market size at stake for the middle-man companies?

The author also mentioned -you know- building a solution on 1980's-era tech, namely a single database of actual (rather than proxy) shareholders and contact information/voting instructions/other useful info:

"You could just, you know, build a big database of who owns shares, and transfer shares on that database, and not rely on a system in which people own shares in brokers' databases and brokers own shares in DTC's database and DTC owns shares in companies' (transfer agents') databases. The big database could send out voting instructions directly to the shareholders, cutting back on the outsourcing. You could build a new system, from the ground up, corresponding to the actual practices of finance rather than to the archaisms that they're built on." [0]

No need to go all blockchain and shit, just consolidate the mess of systems into a single well-designed and well thought-out one.

[0] That 'graph is -incidentally- the 'graph that immediately precedes the one that mentions The Blockchain(TM).

In countries that aren't the US, things tend to be somewhat closer to this situation... Here in Australia, for example we've basically completely abolished stock certificates for publicly traded companies, and we don't have any equivalent of DTC as far as I am aware. Nominee holdings still exist, but it's significantly less common than in the US, and it's significantly more common for shareholders to be directly registered.

http://www.computershare.com/News/TransparencyofShareOwnersh... is an interesting read.

When reading that, it's important to recognize it was compiled by Computershare, a transfer agent, who in some ways compete with DTC. Computershare has virtual monopolies in that business globally.

I don't think they are wrong, but they aren't a disinterested party.

So what I imagine when we talk about a single database is just some mapping of stock shares to owner. So to keep track of who owns what share, when some shares gets transferred you just update each row accordingly. (Imagine a stock with 10 total shares and X sells to Y shares #1, #2, #3, you'd just update the table and set owner=Y where share id is in (1, 2, 3))

But for such important financial data you don't want to just update your table and throw away your history. You'd like to also keep a record of what changes occurred. Maybe you'd like to audit your database, and find out the path of ownership from which a current owner obtained their shares. Maybe you'd like to make your history immutable, so as to not have headaches later on trying to validate the current state, or to discourage tampering with the database.

So now you have a datastore where the current state relies on an ever-growing stack of immutable changesets. This sounds exactly like what we talk about when we talk about blockchains. There are people who define a blockchain more strictly (e.g, The Blockchain(TM) with decentralization and crypto), but I think the author was going for the former meaning.

That is to say, you can implement a blockchain and still be using a single well-designed and well thought-out database.

> So what I imagine when we talk about a single database is just some mapping of stock shares to owner.

Mmhmm. Keep simple things as simple as possible.

> So now you have a datastore where the current state relies on an ever-growing stack of immutable changesets. This sounds exactly like what we talk about when we talk about blockchains.

Well, if that's what a "blockchain" is, then git [0] was doing blockchains way before they were cool.

> There are people who define a blockchain more strictly (e.g, The Blockchain(TM) with decentralization and crypto)

I can see not having a distributed ledger, but if you eject the cryptographic part of it then you don't get any of the tamper resistance. Without that, all you have is a linked list. And -as we all know- "linked list" is a much less sexy phrase than "blockchain".

[0] And -if we drop the cryptographically verifiable history part- pretty much every VCS ever.

It also sounds like Git and other version control systems with hash chains.

What Bitcoin did different was adding chain selection using accumulated proof-of-work, incentivized using scarce digital tokens within the same database.

> now you have a datastore where the current state relies on an ever-growing stack of immutable changesets. This sounds exactly like

A ledger! A concept which goes back to at least the Sumerians, and can now be efficiently implemented with a variety of technologies - databases, version-control systems, log-structured messaging systems, even good old fashioned files.

> what we talk about when we talk about blockchains.

Er, no. A blockchain is specifically a ledger where the entries are certified by a distributed proof-of-work mechanism. A blockchain is useful where the parties contributing to the ledger don't trust each other, have no way to establish trust with each other, have no trusted intermediary, but are willing to found trust on the cost of computation.

That isn't the situation that the financial industry is in - there, it is a lot of existing trust, it is fairly easy to establish trust, there are plenty of trusted intermediaries, and the amounts involved mean that founding trust on computation would be astronomically expensive. A blockchain would be a really bad fit here.

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