Who Really Owns Your Stocks? Hint: It's Not You
Monday, July 20, 2009 | Barbara CohenRating:
So, do you think you own the stocks you've bought? Think again.
For those of you who have not heard of the Depository Trust & Clearing Corp. (DTCC) and you own stocks ... sit down. This might change your your whole way of thinking.
Who is the DTCC and what does it do? The DTCC actually provides clearing for 3.5 million securities from the United States and, get this, from 110 other countries and territories as well -- all valued at roughly $28 trillion. In 2008 alone, the DTCC settled more than $1.88 quadrillion in securities transactions.
The DTCC is also the registered owner and holder of your stock.
At present, the DTCC holds $23 trillion in assets. It has a virtual monopoly on clearing. In fact, 99% of all stocks in the USA are legally owned by it.
When Was the Last Time You Saw a Stock Certificate?
Remember the good old days when you bought a stock and received a certificate for it? The SEC changed that law and went from stock certificates for individual investors to, well, your broker holding the certificate for you so that he or she will be able to legally trade it on your behalf.
The stock certificates were issued in the name of the brokerage ... remember, just so they could trade them for you. In reality, you became the beneficiary of the stocks you bought rather than the owner.
But the SEC, out of the goodness of its heart, changed the laws again, so that now the brokers can't have the stocks in their name. Instead, the stocks must be placed in the name of "Cede & Co."
The excuse you'll hear from your broker is that it is just a fictitious name used by the brokerage so it can trade your stocks for you because brokerages can't, by law, put the stock certificates in their name any longer.
To Whom, Exactly, Have You 'Ceded' Your Stocks?
What we have now suddenly all come to find out is the Cede & Co is actually not a fictitious name, but a subsidiary company of DTCC. In essence, DTCC owns probably 99% of all the stocks in the entire world.
This is how it works. You buy some shares of stock at your brokerage. Your broker tells you that, in order to do business on your behalf, you must give the brokerage power of attorney to buy and sell.
Therefore, your stock purchases are placed in a "street name" because, according to the SEC, no brokerage can place a stock in its own name. The brokerage then notifies the DTCC of the transaction.
The DTCC is a banking trust company and, by SEC regulation, cannot own shares in its own name, either. So it transfers the certificates to its subsidiary, Cede & Co.
What do you own?
How about nothing?
And now you are not even the beneficiary. The brokerage is technically the beneficiary. You are twice removed!
Guess Who's Also Behind the Mortgage Mess
Recently, DTCC presented testimony before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. The hearing was on "Effective Regulation of the Over-the-Counter Derivatives Markets," just a couple of weeks ago, and the transcripts were just released.
The subcommittee is attempting to find out how mortgages could come to be packaged and then sold, and then re-packaged and resold many times over. Since DTCC owns 99% of all derivatives, it seems only fair that it would be called to give testimony.
Larry Thompson, general counsel for DTCC, applauded the good works of the DTCC. In his opening statement, he said, "Now, many of you may not have heard of DTCC before. That’s purposeful. We have traditionally kept a low profile, given the critical nature of the role we play in U.S. financial markets." (Dah ... who would have guessed?)
In truth, DTCC knew all about the Collateralized Debt Obligation (CDO) markets, who owned what, how often the same collateral was used and repackaged, etc. Why? Because they own it all.
DTCC created a massive computer warehouse and keeps records of all CDO trades, all stock transactions, all derivatives, etc. It has a monopoly on clearing. And to justify its great job, Thompson added to his testimony. ...
"I’d submit to you Mr. Chairman, and Members of the Subcommittee, that had DTCC not had the foresight to create this Trade Information Warehouse and load the Warehouse with all these records of CDS trades in 2007, we might still be sitting here today in 2009 trying to sort out the total exposure of trading obligations following the Lehman bankruptcy, i.e., who traded with whom, at what point in time and at what price?”
Next time you are in the market to buy stocks, trade futures. You're only in the trade for four minutes or less. Not enough time for Cede & Co. to get their mitts on your money. ...
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Barbara Cohen
Contributing Editor
The Tycoon Report
Economic Calendar for the Week of July 20-24
THURSDAY, JULY 23
8:30 a.m., Initial Claims
* Importance (A-F): This release merits a C .
* Source: The Employment and Training Administration of the Department of Labor.
* Release Time: 8:30 a.m. each Thursday (data for week ended prior Saturday).
* Raw Data Available At: http://www.dol.gov/opa/media/press/eta/main.htm
Initial jobless claims measure the number of filings for state jobless benefits. This report provides a timely, but often misleading, indicator of the direction of the economy, with increases (decreases) in claims potential signaling slowing (accelerating) job growth.
On a week-to-week basis, claims are quite volatile, and many analysts therefore track a four week moving average to get a better sense of the underlying trend. It typically takes a sustained move of at least 30,000 in claims to signal a meaningful change in job growth.
Highlights
* The latest jobless claims data produced some positive surprises with initial claims declining 47,000 to 522,000 (consensus 553,000) in the week ending July 11 and continuing claims plummeting 642,000 to 6.3 million.
* The unadjusted data showed initial claims rising 86,389 from the prior week to 667,534 and the advance number for persons claiming UI benefits in state programs increasing 63,714 to 6.135 million.
* On a seasonally adjusted basis, the 4-week moving average for initial claims fell to 584,500 (from 607,000) while the 4-week moving average for continuing claims dropped to 6.667 million (from 6.777 million).
Key Factors
* The drop in continuing claims was so large that it was essentially hard to believe and has left many reaching to explain it. Seasonal adjustment factors have been cited by some.
* The headline numbers were certainly much better than expected, but the muted response to them suggests the market wasn't on board with the idea that they paint a true picture of an improving employment landscape, certainly not from a hiring perspective.
Big Picture
* New claims for unemployment are at recessionary levels, as the financial crisis on Wall Street spilled over to Main Street in noticeable fashion with the seizing up of the credit markets in late summer/early fall 2008.
10 a.m., Existing Home Sales
* Importance (A-F): This release merits a C.
* Source: The National Association of Realtors.
* Release Time: 10 a.m. Eastern around the 25th of the month (data for month prior).
* Raw Data Available At: http://www.realtor.org/research.nsf/pages/EHSdata
This report provides a measure of the level of sales of existing home sales. It is considered a decent indicator of activity in the housing sector. Housing starts precede this report each month, but starts are a supply- rather than demand-side indicator.
Existing home sales precede the other key demand-side indicator of housing -- new home sales -- thus boosting the visibility of this report. Sales are highly dependent on mortgage rates, and will tend to react with a few months lag to changes in rates. Sales are also determined by the level of pent-up demand for housing -- immediately after a recession, sales are typically quite strong due to the demand that accumulated through the recession.
Highlights
* Existing home sales for May increased 2.4% from April to an annualized rate of 4.77 million units. That was slightly below the consensus estimate of 4.82 million, so the headline print will be considered a disappointment.
* The uptick in May was the third straight monthly increase. Separately, the level of 4.77 million units was ahead of the 3-month average of 4.66 million units, which lends support to the stabilization argument.
* The affordability factor again proved helpful to sales activity, as the median home price was down 17% from a year ago to $173,000, while 30-year fixed mortgage rates in April and most of May were below 5%.
* Distressed sales accounted for 33% of all purchases, which was down from 45% in April. At the current sales pace, the supply of unsold existing homes stands at 9.6 months versus 10.1 months in April.
* By region, sales were up 3.9% in the Northeast and up 9.0% in the Midwest. They were flat in the South and down 0.9% in the West.
Key Factors
* In general, this report didn't live up to heightened expectations. The specter of a slowdown in home sales in coming months due to rising mortgage rates, and the expectation that unemployment will continue to increase, are tempering the enthusiasm placed behind the housing recovery argument.
Big Picture
* Existing home sales remain at very depressed levels. The current levels have been supported by lower prices and foreclosure sales. Sales may well have bottomed, but that will not bring much cheer at these levels. Further price declines are also likely.
FRIDAY, JULY 24
9:55 a.m., University of Michigan Consumer Sentiment Index
* Importance (A-F): This release merits a B-.
* Source: The University of Michigan.
* Release Time: Preliminary: 10 a.m. Eastern on the second Friday of the month (data for current month); Final: 10 a.m. Eastern on the fourth Friday of the month (data for current month).
The Michigan index is almost identical to the Conference Board Consumer Confidence index, though there are two monthly releases, a preliminary and final reading. Like the Conference Board index, it has two subindexes -- expectations and current conditions. The expectations index is a component of the Conference Board's Leading Indicators index.
Big Picture
* Sentiment readings are a reflection of a variety of events rather than an accurate tool for forecasting consumer spending. Gas prices and political events can have an outsized impact on sentiment. In general, these data are of very little economic value.
