From an SEC speech at a symposium: https://www.sec.gov/news/speech/2007/spch101607ers.htm

The entire document is disgusting!

Here is the SEC outwardly accepting that there are more “security entitlements” than “fungible bulk” ie actual stock. Why even have “fungible bulk” then? Why not let the broker just sell CFDs? Atleast then customers get some disclosure that they only have a contract and no guaranteed ownership or voting rights like you would with a stock purchase.

Why even have a Depository Trust corporation if the beneficial owners are not bound to the amount of stock they hold? Isn’t the whole purpose of the DTCC to hold stock on behalf of institutional and individual investors so that stock certificates don’t get destroyed? Why have this middle man at all if they can’t even keep count of their own stock?

They even go so far to say this is because of FTDs and rehypotheicating shares. They discover brokers are trimming votes before sending to the issuer. They discover brokers are voting on shares that other beneficial owners have chosen not to vote on. All this is okay though because there is a risk of “undervoting” in which there would not be enough votes to substantiate the corporate action. How ridiculous when the whole reason for this investigation is because of rampant overvoting! Just remove the quorum clause rather than allow outside parties to sway voting! Hell, maybe a fail vote would encourage boards to actually engage investors, so that they understand and want to vote.

But wait till you hear their solution to this entire problem of having too many shares owed than actual exisiting stock! The answer to all this is by increasing disclosure to the beneficial owner. Just tell them they are getting fucked fixes everything! And what classifies as disclosure to the client that their shares are nonexsistent? A hidden-away jargon filled sentence in the terms and conditions. That’s it to say you are now well informed.

Fuck this.