A critique on Stock Market Settlement

Someone on the Twitterverse brought up very good questions about the nature of our Markets. If you don’t know, there’s a company that holds onto the direct ownership of almost all of the shares that get traded around between many market participants as a sort of nominated Custodian by the Depository Trust Company. This company that owns these shares is called Cede & Co. That means Retailers who buy shares on Brokerages don’t actually own shares in their own name. They own ‘beneficial ownership’ rights to their shares, which doesn’t actually amount to much.

-And the critique today revolves around the Settlement system and failure to delivers.

“If Cede & Co. holds all of the public stocks not held in individuals names and all brokerage accounts are IOUs for real shares Cede holds, then that means the T+2 stock settlement is only needed for skimming and fraud behind the scenes.

if anyone else has a rebuttal I love a good debate! A nice 3-day window for the market makers to match the highest price buys with the lowest price sells during that time.

Don’t worry though. If there’s some trades that don’t benefit the market makers they can Fail To Deliver for 30+ days to hopefully get themselves a better price with no consequences. Come to think of it they have their own special rules to do this. It would be a shame if they also owned separate hedge funds on the side with their special market making rules.”

-Malone Wealth via Twitterverse

And I’ve got to ask.

Why don’t we have instant settlement?

In the world of today, if I wanted, I could upload a Dick Pic, send it all the way across the world and back in less time then it takes to post updated numbers between trading days. Especially with all the trades being routed through some centralized reporting system. Wouldn’t it make sense to be able to tally the results at the end of the day?

It stands to reason that we may ask the question. What’s the purpose of the T+2 or T+ ‘any number greater than instant’ settlement?

The answer seems to point to the ability to be negligent and fail to deliver. It adds a degree of ‘void’ and wiggle room for people to famoose and ‘cook the books’ to rearrange when and where things are. It’s only made more easier with Omnibus arrangement accounts and the Continuous net settlement system.

Even if people fail to deliver, it won’t be an issue until it’s a threshold security.

Even if it’s a threshold security, there’s tricks to avoid a mandatory buy in, such as performing a reset transaction, using swaps, using futures, or even just pretending to buy in and then reopening the position.

If we had instant settlement, people would immediately know if both sides of the trade were able to execute. If they had a failure to deliver, then of course there wouldn’t be a trade. Meaning no trade, no deal. No possibility for Failure to Deliver.

If they had both sides execute a trade, then there would never be a Failure to Deliver. If there’s no Failure to Deliver, then you wouldn’t be able to extend short positions indefinitely through manipulation, reset transactions, and operational shorting through ETFs and other means.

So Settlement dates allow for Failure to delivers. Thus perpetuating a system of negligence, laziness, and fraud.

In Closing,

I said what I said and it’s accurate as of writing.

I have a lot of thoughts on the matter, and not all of them are published yet.

Eh, that’s life.

If anything, Brokers aren’t your friends, the stock market system is rigged to favor the house, and chances are- you’re not the house.

*Not Valid Financial, Legal, Life or Any Advice

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