Banks Forgot Who Was Supposed to Own Dell Shares(bloombergview.com)
bloombergview.com
Banks Forgot Who Was Supposed to Own Dell Shares
http://www.bloombergview.com/articles/2015-07-14/banks-forgot-who-was-supposed-to-own-dell-shares
116 comments
So a while ago there was an article that someone was getting close to controlling 50% of the network, which means that they could make arbitrary changes to the blockchain. Whether true or not, if NASDAQ was using the blockchain to track stock ownership, it seems like there would be a HUGE incentive to try and control 50% so you could manipulate it. This seems bad.
EDIT: As I type this my comment sits at 0 points, as does every comment I make even remotely critical of bitcoin and the blockchain. Why does HN hate people that are critical of bitcoin?
EDIT: As I type this my comment sits at 0 points, as does every comment I make even remotely critical of bitcoin and the blockchain. Why does HN hate people that are critical of bitcoin?
I downvoted you because - while you raise a generally valid concern - your statement is exaggerated to a degree that makes it grossly misleading. You say:
> which means that they could make arbitrary changes to the blockchain
This makes it sound like the 51% attacker could make arbitrary changes to the ledger, thereby stealing arbitrary shares. That is not the case. For example, such an attacker cannot forge any signatures and thus cannot manipulate transactions. All the attacker can do is censor new transactions or slowly unroll past transactions. In case of 51% of the computing power, unrolling could happen at a speed of (51% - 49%) = 2% of time, i.e. if the attack lasts for 50 days, the attacker could unroll one day worth of transactions. What makes the unrolling problematic, is that it enables the attacker to double-spend. One potential measure for NASDAQ to prevent this is to demand known signatures to be used for transactions (i.e. whenever you transfer shares, you must use a signature you previously registered with NASDAQ). With colored coins, the issuer can enforce such restrictions by refusing to redeem shares that were not properly obtained. So even in case of such an attack, NASDAQ could identify the attacker (or the person collaborating with the attacker in order to attempt a double-spend) and initiate legal measures (i.e. sue the attacker for damages).
> which means that they could make arbitrary changes to the blockchain
This makes it sound like the 51% attacker could make arbitrary changes to the ledger, thereby stealing arbitrary shares. That is not the case. For example, such an attacker cannot forge any signatures and thus cannot manipulate transactions. All the attacker can do is censor new transactions or slowly unroll past transactions. In case of 51% of the computing power, unrolling could happen at a speed of (51% - 49%) = 2% of time, i.e. if the attack lasts for 50 days, the attacker could unroll one day worth of transactions. What makes the unrolling problematic, is that it enables the attacker to double-spend. One potential measure for NASDAQ to prevent this is to demand known signatures to be used for transactions (i.e. whenever you transfer shares, you must use a signature you previously registered with NASDAQ). With colored coins, the issuer can enforce such restrictions by refusing to redeem shares that were not properly obtained. So even in case of such an attack, NASDAQ could identify the attacker (or the person collaborating with the attacker in order to attempt a double-spend) and initiate legal measures (i.e. sue the attacker for damages).
In reference to the voting I'd like to suggest you abandon this strategy of down-voting because it's bad information and instead reply in an informative way like you just did because in this case I and other people learned something through discussion which I otherwise would not have.
> I downvoted you because - while you raise a generally valid concern - your statement is exaggerated to a degree that makes it grossly misleading
Ok, that's fair, however, I specifically said "whether that is true or not" because I didn't know, I was just repeating the article, which is clearly wrong.
Ok, that's fair, however, I specifically said "whether that is true or not" because I didn't know, I was just repeating the article, which is clearly wrong.
Your point is valid but not a reason to downvote - on HN downvotes are supposed to weed out aggression, trolling and other unwanted behaviours, not to express disagreement.
Sadly, that's not the case, according to Paul Graham: https://news.ycombinator.com/item?id=117171
Fortunately that was ~8 years ago. I think the current interpretation is upvote="thank you", downvote="less than uninteresting".
That's what the interpretation should be. But because of a comment Paul Graham wrote ~8 years ago, people think they can downvote just if they disagree.
Anyway, we're not allowed to talk about downvoting because it's against the rules. It's the great HN Catch 22.
Anyway, we're not allowed to talk about downvoting because it's against the rules. It's the great HN Catch 22.
The pretext of the discussion of what sorts of downvotes are okay is that someone is watching and is going to do something about it.
That seems like it might happen in egregious cases, but I'm not sure why people think someone is going to spend a couple of minutes analyzing whether the 4 down clicks on their tossaway comment were fair minded (whatever that means) or not.
So the problem isn't just that it's a boring discussion, it's also just not a reasonable expectation that every single click be fair (whatever that means).
That seems like it might happen in egregious cases, but I'm not sure why people think someone is going to spend a couple of minutes analyzing whether the 4 down clicks on their tossaway comment were fair minded (whatever that means) or not.
So the problem isn't just that it's a boring discussion, it's also just not a reasonable expectation that every single click be fair (whatever that means).
Doesn't a technique like selfish mining (http://arxiv.org/abs/1311.0243) mean that you can undo past transactions faster than 2% of the time, though?
How do you know who the attacked is to then be able to sue them?
> they could make arbitrary changes to the blockchain
It's not that bad. See https://en.bitcoin.it/wiki/Weaknesses
"An attacker that controls more than 50% of the network's computing power can, for the time that he is in control, exclude and modify the ordering of transactions. This allows him to:
Reverse transactions that he sends while he's in control. This has the potential to double-spend transactions that previously had already been seen in the block chain. Prevent some or all transactions from gaining any confirmations Prevent some or all other miners from mining any valid blocks
The attacker can't:
Reverse other people's transactions Prevent transactions from being sent at all (they'll show as 0/unconfirmed) Change the number of coins generated per block Create coins out of thin air Send coins that never belonged to him"
Regarding your "edit", perhaps voters don't consider your comment that insightful, especially when you spread negative information about bitcoin, such as 50% attacks allowing attackers to "make arbitrary changes to the blockchain".
It's not that bad. See https://en.bitcoin.it/wiki/Weaknesses
"An attacker that controls more than 50% of the network's computing power can, for the time that he is in control, exclude and modify the ordering of transactions. This allows him to:
Reverse transactions that he sends while he's in control. This has the potential to double-spend transactions that previously had already been seen in the block chain. Prevent some or all transactions from gaining any confirmations Prevent some or all other miners from mining any valid blocks
The attacker can't:
Reverse other people's transactions Prevent transactions from being sent at all (they'll show as 0/unconfirmed) Change the number of coins generated per block Create coins out of thin air Send coins that never belonged to him"
Regarding your "edit", perhaps voters don't consider your comment that insightful, especially when you spread negative information about bitcoin, such as 50% attacks allowing attackers to "make arbitrary changes to the blockchain".
>As I type this my comment sits at 0 points, as does every comment I make even remotely critical of bitcoin and the blockchain. Why does HN hate people that are critical of bitcoin?
No offense, but you don't appear to understand these subjects very well and you seem to have limited knowledge of them, yet you persist in commenting on them and thereby spreading misinformation.
Possibly you believe you understand the subject better that you actually do? You're not the only person falling into this trap, and I'm sure you intend no malice, but this may be why you get a few downvotes.
I happened to notice this a few days ago, when you made a statement about bitcoin that a few seconds on Google could have shown you was poorly-informed. That's OK, everyone makes mistakes like this sometimes, but when I pointed out the error, you unfortunately tried to divert attention with an extremely weak strawman argument, and then just stopped responding. It's tiresome.
https://news.ycombinator.com/item?id=9837379
There are many, many criticisms that you could make of blockchain technology and bitcoin, not least of which is that nobody even knows for sure if they will work as intended as they scale up. There's no need to leap into the debate with such poorly-informed statements
No offense, but you don't appear to understand these subjects very well and you seem to have limited knowledge of them, yet you persist in commenting on them and thereby spreading misinformation.
Possibly you believe you understand the subject better that you actually do? You're not the only person falling into this trap, and I'm sure you intend no malice, but this may be why you get a few downvotes.
I happened to notice this a few days ago, when you made a statement about bitcoin that a few seconds on Google could have shown you was poorly-informed. That's OK, everyone makes mistakes like this sometimes, but when I pointed out the error, you unfortunately tried to divert attention with an extremely weak strawman argument, and then just stopped responding. It's tiresome.
https://news.ycombinator.com/item?id=9837379
There are many, many criticisms that you could make of blockchain technology and bitcoin, not least of which is that nobody even knows for sure if they will work as intended as they scale up. There's no need to leap into the debate with such poorly-informed statements
They wouldn't use the actual Bitcoin blockchain, I think, as they have nothing to gain from the pseudo-anonymity and have better ways to prevent bad actors than proof of work. Instead they'd use what they call a "distributed consensus ledger" which would require one to get permissions (i.e. be known and sign legally binding agreements) to be part of.
NASDAQ is indeed using Bitcoin's blockchain, via a colored-coins implementation called the Open Assets Protocol [0].
If you have a good reason to use a public, decentralized, open-access, append-only ledger, then you very probably want to use Bitcoin's blockchain. Roll-your-own blockchains make very little sense, as yours will be much less secure than Bitcoin's without massive investments—investments which would give you still better security if they were directed at Bitcoin's blockchain instead.
On the other hand, if you don't want a public, decentralized, open-access, append-only ledger, then you should probably just use Postgres. Like DTC already does.
0. https://github.com/OpenAssets/open-assets-protocol
If you have a good reason to use a public, decentralized, open-access, append-only ledger, then you very probably want to use Bitcoin's blockchain. Roll-your-own blockchains make very little sense, as yours will be much less secure than Bitcoin's without massive investments—investments which would give you still better security if they were directed at Bitcoin's blockchain instead.
On the other hand, if you don't want a public, decentralized, open-access, append-only ledger, then you should probably just use Postgres. Like DTC already does.
0. https://github.com/OpenAssets/open-assets-protocol
If NASDAQ started operating in bitcoins blockchain, the influx capital into it would be so insanely astronomical that the scale of the operation would be impossible to 50%.
When people talk about 50% control of bitcoins blockchain today, they are talking about mining pools, where the ones promising the best dividends get all the registrations and thus get a huge chunk of the mining community. Which just means they always sit at 40 - 49% share in the market, and never 50%, because miners know better.
I would have to doubt the feasibility of even an entity as insanely huge as NASDAQ being able to justify enough computational power to get basically one falsified transaction in bitcoin, before the fact NASDAQ was 51%ing bitcoin caused that huge investment in bitcoin mining I mentioned earlier.
So 51%ing bitcoin is a chicken and egg problem. Any source of capital large enough to monolithically 51% the network is also large enough to bring so much attention to bitcoin that new miners would drive the network size up immediately afterwards. You would probably never be able to maintain continuous 51% control over that kind of runaway interest.
When people talk about 50% control of bitcoins blockchain today, they are talking about mining pools, where the ones promising the best dividends get all the registrations and thus get a huge chunk of the mining community. Which just means they always sit at 40 - 49% share in the market, and never 50%, because miners know better.
I would have to doubt the feasibility of even an entity as insanely huge as NASDAQ being able to justify enough computational power to get basically one falsified transaction in bitcoin, before the fact NASDAQ was 51%ing bitcoin caused that huge investment in bitcoin mining I mentioned earlier.
So 51%ing bitcoin is a chicken and egg problem. Any source of capital large enough to monolithically 51% the network is also large enough to bring so much attention to bitcoin that new miners would drive the network size up immediately afterwards. You would probably never be able to maintain continuous 51% control over that kind of runaway interest.
If you wanted to attack bitcoin, wouldn't it make more sense to attack or conspire with the owners of the largest mining pools instead of trying to amass all that computational power?
Not really - because the pools are collections of individual miners that each can switch which pool they participate in on a whim. There aren't some much "owners" as facilitators. In practice we've already seen this, when several pools have gotten close to the 50% mark, individual minors have switched pools, or even split their participation across multiple pools.
The entire idea of the Bitcoin blockchain is to provide anonymous consensus. This is a tremendous achievement, but it comes at a great cost, in terms of energy consumption, confirmation time, and risk of reversibility.
Participants in regulated financial markets are all known, which makes the entire design of the Bitcoin blockchain moot. There are much better fits in the design space for financial institutions.
The only reason you see NASDAQ playing with such "colored coin" solutions is that there is currently very little expertise in this space in financial institutions, and there is a monumental hype machine behind Bitcoin.
I love Bitcoin for its counter-economics potential, but "colored coin" solutions for established institutions are a horrendously bad idea.
Participants in regulated financial markets are all known, which makes the entire design of the Bitcoin blockchain moot. There are much better fits in the design space for financial institutions.
The only reason you see NASDAQ playing with such "colored coin" solutions is that there is currently very little expertise in this space in financial institutions, and there is a monumental hype machine behind Bitcoin.
I love Bitcoin for its counter-economics potential, but "colored coin" solutions for established institutions are a horrendously bad idea.
> The entire idea of the Bitcoin blockchain is to provide anonymous consensus...
>Participants in regulated financial markets are all known, which makes the entire design of the Bitcoin blockchain moot.
My understanding is that one of the major ideas of the Bitcoin blockchain is to solve the Byzantine generals problem, where it's irrelevant whether the participating generals are known. What is relevant is that the generals cannot/do not necessarily trust each other, yet they must still reach consensus. It's the trust issue that's important here, not the pseudonymity that one particular blockchain (Bitcoin's, in this instance) can provide.
> The only reason you see NASDAQ playing with such "colored coin" solutions is that there is currently very little expertise in this space in financial institutions, and there is a monumental hype machine behind Bitcoin.
I can't read the minds of any NASDAQ VIPs, but I suspect they have more than one reason for experimenting with emerging technologies. Maybe they don't want exposure to counterparty risk such as we find in TFA with regards to DTC/Cede & Co. Or perhaps they're attempting to quantify the tradeoffs in risks among different possession and clearing mechanisms. Or, sure, maybe they're being distracted by the newest hotness.
I welcome being proven wrong, but I'd be very surprised that the "monumental hype machine" behind an emerging technology -- whose market cap is less than half of NDAQ's -- is what convinced a group within NASDAQ to consider some use of Bitcoin's blockchain.
>Participants in regulated financial markets are all known, which makes the entire design of the Bitcoin blockchain moot.
My understanding is that one of the major ideas of the Bitcoin blockchain is to solve the Byzantine generals problem, where it's irrelevant whether the participating generals are known. What is relevant is that the generals cannot/do not necessarily trust each other, yet they must still reach consensus. It's the trust issue that's important here, not the pseudonymity that one particular blockchain (Bitcoin's, in this instance) can provide.
> The only reason you see NASDAQ playing with such "colored coin" solutions is that there is currently very little expertise in this space in financial institutions, and there is a monumental hype machine behind Bitcoin.
I can't read the minds of any NASDAQ VIPs, but I suspect they have more than one reason for experimenting with emerging technologies. Maybe they don't want exposure to counterparty risk such as we find in TFA with regards to DTC/Cede & Co. Or perhaps they're attempting to quantify the tradeoffs in risks among different possession and clearing mechanisms. Or, sure, maybe they're being distracted by the newest hotness.
I welcome being proven wrong, but I'd be very surprised that the "monumental hype machine" behind an emerging technology -- whose market cap is less than half of NDAQ's -- is what convinced a group within NASDAQ to consider some use of Bitcoin's blockchain.
That's a common misconception. Solutions to the Byzantine generals problem have been known for a while. Researchers are still looking for more efficient solutions, but PBFT introduced in 1999 is already, well, practical.
The main problem with anonymous consensus are Sybil attacks. You need a way to limit the size of the consensus pool. Bitcoin does that using proof-of-work (quite elegantly, Bitcoin's PoW does actually a lot more than that, but this is really it's raison d'etre).
I recommend reading Ben Laurie on the topic. http://www.links.org/files/decentralised-currencies.pdf
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If you look at the current problem with DTCC, you'll notice is has little to do with centralization, and more to do with the fact that there is no technological transparency. If all of these systems ran with well defined API, most of the issues would go away.
What financial are mostly after is a shared ledger with programmatic access. Distributed is just a nice add-on.
The main problem with anonymous consensus are Sybil attacks. You need a way to limit the size of the consensus pool. Bitcoin does that using proof-of-work (quite elegantly, Bitcoin's PoW does actually a lot more than that, but this is really it's raison d'etre).
I recommend reading Ben Laurie on the topic. http://www.links.org/files/decentralised-currencies.pdf
---
If you look at the current problem with DTCC, you'll notice is has little to do with centralization, and more to do with the fact that there is no technological transparency. If all of these systems ran with well defined API, most of the issues would go away.
What financial are mostly after is a shared ledger with programmatic access. Distributed is just a nice add-on.
Not sure why you were downvoted. But in response to your query, there is always a risk of someone obtaining more than 50% of the netwrok, however with that comes cost, to attack the blockchain by misusing your 50% of the network causes as much damage to yourself as it does to anyone else. Right now if you contolled 50%+ you could double spend your coins, or perhaps you could swap a load of shares into your addresses if NASDAQ were using it to track share ownership, however if you did how long do you think it would take for them to shut down using the blockchain and use e.g. a centralised vrsion they run themselves, you then lose a lot of value in bitcoin, of which you ar emining over 50% of the daily allowance.
Yes it would be possible but it would be expensive and a very short lived way of making money. of course a nation state that wanted to get rid fo BTC would like this but for private individuals or firms there would be no incentive to under take an attack like this.
Yes it would be possible but it would be expensive and a very short lived way of making money. of course a nation state that wanted to get rid fo BTC would like this but for private individuals or firms there would be no incentive to under take an attack like this.
I've never understood why people whine about upvotes. If there were no upvotes, would you not even post? Do you only post so you can be validated by mouse clicks of people you don't know?
It's a discussion forum not a standalone blog and in discussions people don't like to be ignored or silenced. Just because it's typed out on the internet doesn't change that. I do understand why people whine about people whining about votes but it doesn't make it any less grating.
Bitcoin is crazy polarizing because it fucks with trust. Basically.
It seems like an excellent use case for the blockchain due to the nature of the commodity.
It's basically a contract of sorts changing hands. Could be done efficiently, you could even track what shares voted for what or instruct your blockchain stocks to vote a certain way (smart contracts).
This is a bit off topic but I'm very curious. How would one go about trading consumable items via the blockchain? The entries for the items would have to move to a consumed state somehow which seems really hard to track. Maybe it's trivial and I'm missing something? For arguments sake let's say a barrel of oil or something like that.
This is a bit off topic but I'm very curious. How would one go about trading consumable items via the blockchain? The entries for the items would have to move to a consumed state somehow which seems really hard to track. Maybe it's trivial and I'm missing something? For arguments sake let's say a barrel of oil or something like that.
Colored coins are a clever hack. Newer blockchains like Ethereum[0] are designed to have yet-unthought-of things built on top of them.
0. https://github.com/ethereum/wiki/wiki/White-Paper
0. https://github.com/ethereum/wiki/wiki/White-Paper
> This is why NASDAQ and other trading venues are exploring the possibility of using Bitcoin's blockchain to disintermediate the clearing process. The idea is to use asset-tracking protocols (commonly called "colored coins" in Bitcoin land) to associate ownership of an asset with possession of a small, low-value unit of Bitcoin, which then can be transferred in the usual way.
How would that help? The reason this was an issue at all is that the legal names on the paper certificate matter because of the way Delaware law is written. We already have a perfectly good way of tracking ownership via computer systems; this post is all about the rare case when that fails. I am genuinely struggling to even imagine how you might think the blockchain could possibly help with this. Do you think the Delaware statutes, which have such a specific notion of ownership that being the beneficial owner of a share held at DTC doesn't count, are likely to be worded in a way that makes knowing the secret string of numbers that constitutes a particular private key counts as ownership? That does not seem at all plausible to me.
How would that help? The reason this was an issue at all is that the legal names on the paper certificate matter because of the way Delaware law is written. We already have a perfectly good way of tracking ownership via computer systems; this post is all about the rare case when that fails. I am genuinely struggling to even imagine how you might think the blockchain could possibly help with this. Do you think the Delaware statutes, which have such a specific notion of ownership that being the beneficial owner of a share held at DTC doesn't count, are likely to be worded in a way that makes knowing the secret string of numbers that constitutes a particular private key counts as ownership? That does not seem at all plausible to me.
All this stuff suggests to me (someone shoot me down) that it's an especially good idea to be incorporated in Delaware. This is the level of drama associated with something as mundane as who has physical possession of stock certificates!
I think this angle is under appreciated. People think you incorporate in Delaware for the taxes, but the "real reason" is the large body of established case law.
The physical holding of a stock certificate is a dangerous thing. If you are an investor in a company that gets sold or goes public (and you have to surrender your shares) and misplace them, it is an expensive mess, even in Delaware.
I played this game. It wasn't expensive, but it sure was annoying sending affidavits back and forth to be signed and countersigned and so forth. For bonus hilarity, we got to do it several times because the number of shares was wrong, then the date the stock was lost was wrong, then the date of the affidavit was wrong.
In my case, I think everybody was at least motivated in the same direction. But if they had decided to put up a fight? Good heavens.
In my case, I think everybody was at least motivated in the same direction. But if they had decided to put up a fight? Good heavens.
Thus the existence of companies like eShares that do away with this very problem for privately-held companies by issuing stock electronically and providing transparency (audit trails) to stockholders that paper certificates suck at.
Full disclosure: I work there.
Full disclosure: I work there.
eShares is an interesting solution but with so many parties involved (company, lawyers, several investor groups) how do you get one person to drive the solution? My experience is that something like that may be rocking the boat a little bit too hard.
Apologies for the late reply. Most of the time, the company is the driver, since they are the ones with the highest motivation to actually get a clean cap table. Law firms also drive – smart lawyers and paralegals will recognize they can use something like eShares to cut down on work and free up time for more valuable work.
Sure, there are a few companies that it takes a while for everyone to agree on the facts (example: prior CEO raised a bunch of angel capital on bridge notes, but some notes are missing, incomplete, or not executed...) but we have a lot more companies with near 100% acceptance rate of their outstanding cap.
Sure, there are a few companies that it takes a while for everyone to agree on the facts (example: prior CEO raised a bunch of angel capital on bridge notes, but some notes are missing, incomplete, or not executed...) but we have a lot more companies with near 100% acceptance rate of their outstanding cap.
Brokers used to keep physical certificates in their own vaults. I had physical stock certificates in the vaults of a broker than went out of business. It took a few weeks and a lot of phone calls and legal threats to get them back. But they did come back.
OTOH the whole appraisal process is a Delaware thing (and arguably encourages nuisance lawsuits) - by incorporating in another state you could avoid the process entirely.
There is a benefit to the appraisal process in that it is well-defined and somewhat predictable and rational. In a state with less clear process or case law, a dissenting shareholder's path of recourse against a transaction they disagreed with is shareholder litigation, which is costly and may result in a jury trial with very unpredictable results. The DE appraisal process means both sides know what will happen if a shareholder dissents to a transaction, and there is generally confidence that the DE appraisal process is rational. That mitigates some of the risk of shareholder litigation with unpredictable cost and outcome. If you are a shareholder in a company going through a transaction in which there might be other shareholders that dissent, you definitely prefer the predictability of DE.
The issue with incorporating elsewhere is that Delaware law is understood. It is the baseline.
If you go with some rarely incorporated state's Corporate law you don't even know what traps are there, and there are a lot fewer experts. Also it is perfectly possible that no one will have done what you want to do.
This is why some states more or less slavishly copy Delaware corporate law. Of course the weird and complex case law isn't there, but often it is sort of "ported over".
If you go with some rarely incorporated state's Corporate law you don't even know what traps are there, and there are a lot fewer experts. Also it is perfectly possible that no one will have done what you want to do.
This is why some states more or less slavishly copy Delaware corporate law. Of course the weird and complex case law isn't there, but often it is sort of "ported over".
At least the drama is well understood
/s
/s
I find it interesting how abstractions in law are similar in abstractions in software engineering: they are created to simplify complex stuff underneath, which are there for historical and backwards compatibility reasons. These abstractions also tend to be leaky, and while beginners rely on them, advanced users dig down and know the stack (or, at least, have a pretty good understanding of what they don't know about the stack) down to the physical realm.
So, I hope that at least software engineers wouldn't be fast to blame "evil lawyers" for purposefully creating a complex system, but rather understand how this clusterfuck comes into being by himself, out of mismanagement and laziness over generations.
So, I hope that at least software engineers wouldn't be fast to blame "evil lawyers" for purposefully creating a complex system, but rather understand how this clusterfuck comes into being by himself, out of mismanagement and laziness over generations.
I'll say it again, one glance at the post title and I knew it was Levine. His title's are always one point.
>Here are three stylized facts about stocks
Hmm..."stylized facts", I'm going to have to remember that phrase, it's a good one.
>Here are three stylized facts about stocks
Hmm..."stylized facts", I'm going to have to remember that phrase, it's a good one.
The term is very commonly used in economics and finance.
I'm become a bit hooked on Levine, good thing he pushes out articles often.
"The financial system is built up in layers of abstraction over some vast and unwieldy machinery... Sometimes the machinery pokes out a bit through the fabric of the abstraction." What does that remind me of? Maybe the concept of "layers of abstraction" applies to many things in life.
Worth reading all the footnotes.
> BONY found the stock certificates for the shares beneficially owned by Manulife and Milliken and redeposited them with DTC in the FAST Account.
I was waiting the whole article to find that sentence.
> BONY found the stock certificates for the shares beneficially owned by Manulife and Milliken and redeposited them with DTC in the FAST Account.
I was waiting the whole article to find that sentence.
May I ask why? The article was enjoyable, but I didn't really grok some of the particulars. Why is this specific footnote interesting?
The sheer predictability. As soon as I got to the part where it was stated that banks don't like keeping certificates in their own vault, I knew what was coming next. The bank ordered the certificate, somebody noticed it in the vault, and then sent it straight back. It just add to happen. But then it didn't, or at least no mention was made. Until I got all the way to end, and there it was.
The system of record ownership of stock does seem prone to abuse and mistake, and I can see why Patrick Byrne and others would like to move this into the blockchain. That might open up new avenues of abuse, of course, and I'm not sure those exploits will be any more predictable than the results of this human abstraction.
Well, the results are now absolutely predictable now that there is established case law.
I suppose the benefit of a human system is that we can correct errors that we haven't fully anticipated, by using a general rule such as legal precedent. Remote edge cases in a purely machine system would lead to uncorrectable errors, from time to time. I think an ideal system would combine machine rules to avoid dumb-ass mistakes like mislabeling a share cert on transfer, with human systems to overrule unexpected bad results (e.g., transfers that were obviously not intended by the parties, though processed mechanically).
My take away from that is that DTC would be a really juicy target for state-sponsored hackers. Twiddle a few bits here and there and you suddenly own lots of stock.
Except, individuals don't own accounts at DTC, so you'll have to hack and twiddle a few bits here and there of the custodial bank as well. But these are reconciled each day against Security Position Reports generated at the end of the day, so your bits need to reconcile with trades. So you need to hack and twiddle a few bits here and there for a chosen counterparty as well. Except, the exchanges keep track of trades too, so you'll have to twiddle a few bits here and there for an exchange as well.
It's not as simple as this at all, which is why the system has existed for decades. It's not the most efficient, but it's not something that will be replaced by a hackathon project either.
It's not as simple as this at all, which is why the system has existed for decades. It's not the most efficient, but it's not something that will be replaced by a hackathon project either.
My startup is, in fact, disrupting the custodial stock ownership space right now and we grew out of a FinTech hackathon last year.
I'm joking of course, but it's only a matter of time until someone tries to Uber (can we make that a verb?) their way over these regulations. And fails miserably at it.
I'm joking of course, but it's only a matter of time until someone tries to Uber (can we make that a verb?) their way over these regulations. And fails miserably at it.
But who would use it? As far as I know, the banks are pretty happy with this system. And while it's possible to be "that guy" with paper stocks, it's a pain in the butt since you can basically only trade them with people you find on Craigslist. A single centrally managed monopoly seems to be exactly what everybody wants.
As-is, if you hold a paper stock certificate for a privately-held company, you likely cannot sell it. Private stock typically has transfer and sales restrictions; you can only sell if the company approves of the sale or transfer.
> since you can basically only trade them with people you find on Craigslist.
You can sign them and send them in to your broker.
You can sign them and send them in to your broker.
We would need a verb that encompasses general infringement of laws that isn't trademarked. Also it would have been called someone trying to YouTube their way back a few years ago.
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Tom Clancy used an attack as part of the plot of "Debt of Honor".
This article reads like the description of a legal Rube Goldberg machine. Fascinating to watch in action but horrifying to imagine your money caught up in.
I sent a friend xanderjanz's TL;DR and a link, and he replied:
> I have to admit I don't know much about stocks, but the grammar of those sentences hints that this was a C++ problem of misusing pointers :)
My response below, with a warning that if you're not a low level programming geek you should probably not even try to read it:
Actually, it's more like a C# problem of misusing non-pinned-pointers, where the generational garbage collector isn't aware that some invoked C library holds a pointer to something and happily moves it around in memory, and then the C library segfaults.
This is the full story:
Some laws were written under the assumption that owning stock is like calling VirtualAlloc(), but in the 70s there was a paperwork crisis (too many calls to allocate and free pages, the system grinded to a halt) and the US government wrote an stdlib malloc(), which everyone's been using.
There are legacy libraries (laws) written under the assumption that "owning memory" means that the OS page table marks this page as yours, but it's silly because now all pages are marked as malloc()'s. There is case law (bugfix patches) to try and make some sense of it, but in this case malloc() had to free() most of a large allocation but keep some of it allocated and a legacy library that remembers and compares page region base pointers (changed, because most of the large region was free()d) and doesn't look at the malloc() allocation lists (where there was no change in ownership) decided that this memory no longer refers to the same stuff and declined to provide services to it (specifically, a service called "appealing appraisal" that would net the owner of that memory a lot of money).
The CPU (the judge) said he knows this code is buggy and it's not what the user OR the programmer wanted, but he's only the CPU and all he can do is execute the buggy code, and someone please call a programmer (Congress) to fix this code.
> I have to admit I don't know much about stocks, but the grammar of those sentences hints that this was a C++ problem of misusing pointers :)
My response below, with a warning that if you're not a low level programming geek you should probably not even try to read it:
Actually, it's more like a C# problem of misusing non-pinned-pointers, where the generational garbage collector isn't aware that some invoked C library holds a pointer to something and happily moves it around in memory, and then the C library segfaults.
This is the full story:
Some laws were written under the assumption that owning stock is like calling VirtualAlloc(), but in the 70s there was a paperwork crisis (too many calls to allocate and free pages, the system grinded to a halt) and the US government wrote an stdlib malloc(), which everyone's been using.
There are legacy libraries (laws) written under the assumption that "owning memory" means that the OS page table marks this page as yours, but it's silly because now all pages are marked as malloc()'s. There is case law (bugfix patches) to try and make some sense of it, but in this case malloc() had to free() most of a large allocation but keep some of it allocated and a legacy library that remembers and compares page region base pointers (changed, because most of the large region was free()d) and doesn't look at the malloc() allocation lists (where there was no change in ownership) decided that this memory no longer refers to the same stuff and declined to provide services to it (specifically, a service called "appealing appraisal" that would net the owner of that memory a lot of money).
The CPU (the judge) said he knows this code is buggy and it's not what the user OR the programmer wanted, but he's only the CPU and all he can do is execute the buggy code, and someone please call a programmer (Congress) to fix this code.
Are Delaware appraisal rules being applied, and interpreted under Delaware law, in the cases discussed because Ancestry.com and Dell are both Delaware corporations, or because the entity that actually owns the shares is a Delaware corporation?
While many big public corporations are incorporated in Delaware, there are also quite a few that are not. About 36% of the Fortune 500 are not. Some prominent tech examples are Microsoft (incorporated in Washington) and Apple (incorporated in California).
While many big public corporations are incorporated in Delaware, there are also quite a few that are not. About 36% of the Fortune 500 are not. Some prominent tech examples are Microsoft (incorporated in Washington) and Apple (incorporated in California).
Because the companies that the shares are of (Dell) is a Delaware corporation. The whole appraisal process is a Delaware thing.
That system sounds convoluted. Here in Brazil, everyone who holds stock has an individual account at the stock exchange (BM&FBOVESPA), managed indirectly through your broker. It's always clear who owns what, since every transfer goes through its systems.
Was the Brazilian system set up from scratch that way? The beauty of the DTC approach in the US was that it allowed a gradual transition: people who liked their paper certificates could keep using them, people who preferred to have DTC hold them electronically could do that, and both kinds of people could trade with each other seamlessly.
Nowadays there's probably little need for that, but the anglic approach to law in general is to make incremental changes to minimize unintended harm, with much less concern about keeping the law "clean" than European-style systems. I just went to Wikipedia and discovered that the Brazilian constitution was completely rewritten in 1988 (for the seventh time) - that would be unthinkable in the US.
Nowadays there's probably little need for that, but the anglic approach to law in general is to make incremental changes to minimize unintended harm, with much less concern about keeping the law "clean" than European-style systems. I just went to Wikipedia and discovered that the Brazilian constitution was completely rewritten in 1988 (for the seventh time) - that would be unthinkable in the US.
Wikipedia has the history of the Brazilian system: https://pt.wikipedia.org/wiki/Companhia_Brasileira_de_Liquid...
According to that article, the original system used paper certificates stored with the brokers. To do a trade, the broker sent the paper certificates to a central place (the predecessor of the current one), which recorded the trade and sent the paper certificates to the other broker. The current system is a natural evolution of the old system: instead of paper certificates, we have records directly within the CBLC (now a department of BM&FBOVESPA).
The 1988 constitution was rewritten as part of a regime change (from a USA-supported military dictatorship to its present-day democracy). From what I understand, every time the Brazilian constitution was written or rewritten was due to a regime change. I believe the current USA constitution is also from the last time its regime changed, so there's not much difference in that aspect.
According to that article, the original system used paper certificates stored with the brokers. To do a trade, the broker sent the paper certificates to a central place (the predecessor of the current one), which recorded the trade and sent the paper certificates to the other broker. The current system is a natural evolution of the old system: instead of paper certificates, we have records directly within the CBLC (now a department of BM&FBOVESPA).
The 1988 constitution was rewritten as part of a regime change (from a USA-supported military dictatorship to its present-day democracy). From what I understand, every time the Brazilian constitution was written or rewritten was due to a regime change. I believe the current USA constitution is also from the last time its regime changed, so there's not much difference in that aspect.
That actually sounds like almost exactly the same system.
It’s not quite the same. In the US, the shares are legally owned by Cede & Co. on the books of the corporation. DTC then has a database that says the shares really belong to various brokers, for the most part. Finally, the brokers have a database saying which client owns the shares.
This is a legal fiction that you can ignore sometimes, except when you can’t, as in this case.
In many other countries, and I’m not sure about the particulars in Brazil, the central book-entry system is the definitive record of who owns shares. There’s no entity like Cede & Co. that is even nominally the owner. (Sometimes brokers are still listed as nominal owners, eliminating one layer compared to the US.)
Whoever is in the book-entry system is the owner, at least from the point of view of the corporation. This is more similar to the way ownership of Treasury bonds is recorded in the US.
In the countries that I’m familiar with, China has direct recording of ownership for individual brokerage clients, while Denmark has a mixed system where some ownership is recorded directly, but “street name” also occurs. Danish securities owned by foreigners are often held through Euroclear or Clearstream, which does operate more or less like DTC/Cede & Co. in the US.
This is a legal fiction that you can ignore sometimes, except when you can’t, as in this case.
In many other countries, and I’m not sure about the particulars in Brazil, the central book-entry system is the definitive record of who owns shares. There’s no entity like Cede & Co. that is even nominally the owner. (Sometimes brokers are still listed as nominal owners, eliminating one layer compared to the US.)
Whoever is in the book-entry system is the owner, at least from the point of view of the corporation. This is more similar to the way ownership of Treasury bonds is recorded in the US.
In the countries that I’m familiar with, China has direct recording of ownership for individual brokerage clients, while Denmark has a mixed system where some ownership is recorded directly, but “street name” also occurs. Danish securities owned by foreigners are often held through Euroclear or Clearstream, which does operate more or less like DTC/Cede & Co. in the US.
That system exists in the US as well.
However, that system exists at a level of abstraction WELL above what the author is describing.
In computing terms, you are talking about the system at the HTTP level of abstraction. The author is talking about the system at the transistor level of abstraction.
However, that system exists at a level of abstraction WELL above what the author is describing.
In computing terms, you are talking about the system at the HTTP level of abstraction. The author is talking about the system at the transistor level of abstraction.
From what I understood, it's not a matter of levels of abstraction: the system here really is simpler.
According to BM&FBOVESPA's own website (http://www.bmfbovespa.com.br/pt-br/servicos/servicos-de-pos-... - unfortunately in Portuguese only), it has fiduciary ownership of the assets, and individual accounts for each end investor. The brokerage doesn't "owns is an entitlement to stock" or similar; there's a single indirection layer. Your brokerage manages that account for you, but the account is in your name, not in the brokerage's name; you can even login directly to the bmfbovespa site (your login is your national tax ID) and monitor it.
According to BM&FBOVESPA's own website (http://www.bmfbovespa.com.br/pt-br/servicos/servicos-de-pos-... - unfortunately in Portuguese only), it has fiduciary ownership of the assets, and individual accounts for each end investor. The brokerage doesn't "owns is an entitlement to stock" or similar; there's a single indirection layer. Your brokerage manages that account for you, but the account is in your name, not in the brokerage's name; you can even login directly to the bmfbovespa site (your login is your national tax ID) and monitor it.
Transistors is way too abstract.
He is talking about something around the HTTP and DNS protocol layers, so getting access to 'http://example.com/' for instance, wheras the article is dicussing the IP routing and MAC address layers. That is, where the actual packets eventually end up, on which NIC and which server.
He is talking about something around the HTTP and DNS protocol layers, so getting access to 'http://example.com/' for instance, wheras the article is dicussing the IP routing and MAC address layers. That is, where the actual packets eventually end up, on which NIC and which server.
The same is true in the U.S., but brokers can also lend out shares for shorting etc, or write derivatives such as options which are contracts that can be exercised to buy/sell a stock at X price. The same is true in Brazil, rest assured, and it gets even more complex than that when you start taking about ETFs, REITs, and more complex derivatives etc.
If there ever was a reason to work on smart property, here it is.
That's why: block chains.
How do block chains solve this problem, compared to, e.g. patio11's LAMP app proposal?
https://twitter.com/patio11/status/583696870704152576
It doesn't seem like decentralization or proof-of-work are important here, given that everything is going through a small number of exchanges, and even if not, through a single SEC. The existing system already works on mutual trust between the exchanges and DTC, and it's not the trust that's an issue here, just complexity. Blockchains are complexity.
Cryptographic history and authorization of transfers may be useful, but it just requires some straightforward digital signatures, not blockchains.
https://twitter.com/patio11/status/583696870704152576
It doesn't seem like decentralization or proof-of-work are important here, given that everything is going through a small number of exchanges, and even if not, through a single SEC. The existing system already works on mutual trust between the exchanges and DTC, and it's not the trust that's an issue here, just complexity. Blockchains are complexity.
Cryptographic history and authorization of transfers may be useful, but it just requires some straightforward digital signatures, not blockchains.
You're thinking small. Imagine a world where there aren't parasitic entities littered throughout a process. Imagine a world where I do not need to trust any third parties in order to exchange any sort of value. Imagine a world where you can exchange your stake in a company directly, with another person, P2P.
In such a world, I imagine a good number of investors will only want to trade when there's an overseer who can promise violence to right wrongs, because trading is historically a great way to get scammed. At the moment, given the state monopoly on violence, an organization like the SEC is a good way to do that. There are other ways to accomplish this without a state monopoly on violence, but the ones that come to mind don't sound like worlds I want to live in.
Any TL;DR ?
Group A bought Dell stock with the intention of legally seeking a higher appraisal. But Delaware corporate law has a strange feature of saying appraisal seekers must own their shares continuously after demanding appraisal. But in this case, Group A's bank had changed ownership of the stock with another bank "behind the scenes", which caused a Delaware judge to reluctantly rule Group A's appraisal rights void.
Thanks! My eyes tend to glaze, reading about arcane finance.
So how come Group A's bank isn't liable for any loss that A incurred?
So how come Group A's bank isn't liable for any loss that A incurred?
They didn't lose the records -- Cohagen stole them!
NASDAQ Private Market, the firm's venue for trading private listings, has repeatedly advertised its intention to start testing a blockchain-based clearing process within the next year [0, 1]. The fast, cheap clearing NASDAQ hopes the blockchain will provide may make it much easier to trade shares in private companies (including pre-IPO startups). There are higher regulatory and technological barriers to clearing publicly listed securities, but tracking the ownership of an abstract commodity that is as often traded as a share of stock seems like an obvious application of Bitcoin's decentralized ledger.
0. http://www.technologyreview.com/news/539171/why-nasdaq-is-be...
1. http://www.wired.com/2015/05/nasdaq-bringing-bitcoin-closer-...