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Comment by will_brown | Hacker News Reader

>She doesn't actually own dollars at any point; she is just "trading" with you.

How is that different than trading oil; gold or public stock? If you have ever traded any of those, I'd be willing to wager or invest that if you have, you never took possession of and never really owned barrels of oil; gold bars or even actual stock certificates.

You are most likely to have actually owned stock, but when you get into the real nitty gritty of litigation, you would be very surprised (or not, but many would) how stock trading and ownership actually work.

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I presently own, for the sake of argument, one share of Bank of America. I purchased it through a broker presently owned by eTrade. The custodian for the account is Apex Clearing; they possess custody of the share. The underlying share is somewhere at (IIRC) the Depository Trust Corporation; there may or may not be a physical certificate.

Which is a complicated way of saying that the share that I think I own actually exists in the world, through an admittedly complicated web of commercial relationships maintained by professionals at regulated financial institutions. It is not simply a bookkeeping entry that my broker made up to take my $2. If I sell it, I will likely end up selling it to an internalizer who pays eTrade for the privilege (Citadel?), rather than a counterparty on a lit exchange, but it still exists. It votes in BoA matters. It receives dividends. It seemlessly transfers when I migrate between brokerages, which I have done twice since buying this share. If I wanted to pay an irrational amount of money to win internet points, I could probably even gain physical custody of an actual share certificate.

If you want to nerdsnipe further about the difference between bucket shops, Bitcoin exchanges, and financial institutions, I am happy to go into this topic in arbitrary depth.

> Which is a complicated way of saying that the share that I think I own actually exists in the world, through an admittedly complicated web of commercial relationships maintained by professionals at regulated financial institutions. It is not simply a bookkeeping entry that my broker made up to take my $2.

Why is this the line between investing and gambling? I might own $1 billion of equities on swap. This is just a bookkeeping entry that my dealer made up to take my money. I don't see how not owning the physical stock suddenly makes it gambling.

If you own $1 billion of equities on swap, you can guarantee that your broker has actually bought the equities (or something close to them) as a hedge. There is no way that your broker has an unhedged $1 billion equity swap with you. They collect a spread on the swap transaction of a few basis points, which is hopefully less than the cost to hedge the swap. They don't want to take the risk of the position moving against them by more than a few basis points (typically the equity market moves hundreds of basis points per day) so they almost always hedge.

The Japanese FX broker, on the other hand, has the odds so firmly stacked in their favour that they have no need to actually do any FX trading (though I expect that they do some). If the margin is high enough, the statistical fluctuations don't matter that much. That's the difference between a brokerage and a bucket shop.

What do we mean with "odds so firmly stacked in their favor" here? You seem to imply spreads so large they eat all the volatility? Is that all?

>If you want to nerdsnipe further about the difference between bucket shops, Bitcoin exchanges, and financial institutions

My point is more about ownership (legal vs beneficial). See: https://www.sec.gov/comments/4-537/4537-25.pdf

It would be interesting to seeing a similar legal analysis of ownership applied to bitcoin exchanges (and wallets, bitcoin clients vs mobile).

What you say is kind of true, but it's not that black and white, is it, when you consider naked shorts?

The word you're looking for is dematerialised. Real trading happens with dematerialised assets, where actual assets are given a representation in a ledger and then moved around. This is similar to a currency on the gold standard, where a paper note is generated from and exchangeable for a noted amount of gold. In a Demat trading environment, assets like stocks, gold or any commodities are held somewhere and electronic tokens are issued for them, which are then traded by firms with compatible interfaces.

Not to be confused with gambling, where your tokens do not represent your or anyone's ownership of any tangible asset.

You usually trade futures on commodities, not the commodities themselves. Unless you let it expires and the other side chooses a physical settlement! On stock, you actually own the stock, through your broker.

>On stock, you actually own the stock, through your broker.

I am fairly certain nowadays Cede & Company owns 100% of all the stock in all US markets (NASDAQ, NYSE, etc...). But if you believe you own stock that is exactly the type of confusion and uncertainty the markets themselves want the public to believe, at least according to the litigation I am familiar with, but don't take my word, familiarize yourself with the Depository Trust Company (DTC) and Cede and come to your own conclusions about stock ownership.

You're factually correct about physical tokens, but it's not what the system is built on - that's contracts.

I'm not sure what you mean by physical tokens, but the rest sounds about right. And they can downvote me all they want, as you say I am factually correct, because factually Cede literally and technically owns the stock and everyone else just has varying degrees of contractual rights, but most importantly in no way could that lead to physical possession or even technical ownership of the stock from Cede.

And I will not even go down the rabbit hole of contractual rights, but obviously includes legitimate ideas of economic interest and voting rights, but as the comment above noted about brokers, that is were things get very interesting, because then often times people don't even own contractual rights, or alternatively many party's simultaneously have varying degrees of contractual rights over the same stock (often times leading to factual inconsistencies and legal impossibilities).

Cede & Co isn't the nominal registered owner of all stock on the US markets - not all US shares are street name. My IBM shares, for example, are held directly with Computershare as transfer agent/share registry.

Of course, go outside the US where the stock markets are less insane, and you'll find plenty of places where direct electronic registration is perfectly normal, such as Australia.

John Wilcox is one of the leading legal authorities on the subject and specifically funny enough uses IBM and DTC as an example, in this except from the SEC website:

"Example. John Investor purchased 1,000 sharhs of IBM common stock through Meril Lynch, his broker (a DTC participant). John Investor's shares are a small fraction of the total shares deposited in Merrill Lynch's participant account (i.e,,, 10 million), which in turn are a small fraction of the total number of IBM shares represented by certificates held in DTC's vaults live., 100 million). (DTC's entire position (100 million) is represented on IBM's share register under the name "Cede & Co."') After John Investor gave his broker the instruction to purchase the shares, his broker obtained them in the market from one or more sellers, each of which ultimately had its own DTC participant account. To effectuate the trade, DTC reduced the selling participants' accounts by an aggregate of 1,000 and increased Merril Lynchs account by 1,000.

It is important to understand that DTC legally owned those shares both before and after the transaction-it merely shifted them from one account to another."

See: https://www.sec.gov/comments/4-537/4537-25.pdf

But I'll concede the point as Computershare is the actual owner not DTC/Cede, but replace DTC/Cede with Computershare, the ownership principal is the same, Computershare is the legal owner of IMB shares at all times (before and after you buy the stock) you would only become a beneficial owner at any given point.

(I need to do a bit more research when I get home and have access to my account details... this is, of course, the understanding of one, individual, non-American investor.)

No - in my case, Computershare is the transfer agent, not a nominee. Computershare is contracted by IBM to actually administer and maintain IBM's share register, in which Cede & Co is listed as the legal owner of a huge chunk of shares, and I'm directly registered as the legal owner of a couple of thousand dollars of shares. Google "direct registration".

I didn't buy my IBM shares through a broker/DTC participant/any other financial institution. In my case, IBM issued the shares directly to me, instructing Computershare to update the share register accordingly.

Further you can demand actual share certificates from Computershare and they are obligated to provide them (at least they were >10 years ago when I wrote the software that printed them).

Street side shares are owned by Cede, but as you mention other non street side shares are directly owned. This includes direct share grants, employee stock purchase plans and dividend reinvestment plans.

Can confirm that I still have the ability to request certificates on demand just by filling out a form in the online account manager.

(As an Australian, the idea that stock certificates are still something that exists at all for publicly-listed companies absolutely astounds me, but anyway...)

I don't know if I agree. It's a bit like if you purchased a property through a holding company and that I would object: you don't own the property, the holding company owns it. It might be technically correct but concluding that you do not own the property is misleading.

Speaking of which. https://thedailywtf.com/articles/Special-Delivery

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