[Cryptography] Why Nasdaq Is Betting On Bitcoin’s Blockchain

Jerry Leichter leichter at lrw.com
Tue Jul 28 08:17:26 EDT 2015

> Why Nasdaq Is Betting On Bitcoin’s Blockchain
> Bitcoin’s public transaction record will help startups keep track of shares and shareholders
There may be some backstory here.  It turns out that "owning shares of a stock" isn't quite so simple as you might think.  You can fall into (at least, there may be more) kinds of ownership:  You can be a beneficial owner, or a registered owner.

A registered owner has his ownership registered on the corporation's books.  That's how stock ownership used to work.  When a few million shares a day total changed hands, keeping registrations up to date was reasonable.  But by the '70's - I didn't check the exact date - the number of shares trading hands just got to be two large for the corporations.  Enter Cede and Company, which is the actual registered owner of most American shares.  The people (natural and otherwise) who actually buy and sell shares are *beneficial* owners:  They get all the rights of ownership (dividends, voting rights), but Cede keeps track of them; the corporations themselves are out of the registration business.

It's actually more complicated for individual, small-scale investors who deal with retail brokers.  Normally, the shares are held "in street name" - i.e., the broker keeps track of who the beneficial owners are among their customers.  I don't know if the brokers themselves are registered owners, or if they leave that up to Cede and then just transfer the beneficial ownerships around.  But large investment funds, at least, deal directly with Cede.  It's always been taken as a given in the industry that beneficial ownership is equivalent to registered ownership.

Except ... it turns out that it isn't.  A group of large funds that held shares in Dell when it was public didn't like the terms under which Michael Dell and some partners took Dell private in 2013.  They sued - and they just lost (http://www.theregister.co.uk/2015/07/13/jude_rules_no_appraisal_for_dell_shareholders/):  Under Delaware law, for the purpose of certain kinds of lawsuits, only *registered* owners have standing.

Needless to say, every large fund and partnership out there is now looking for ways to ensure that they are registered, not just beneficial, owners.  The corporations involved have little reason to want to go back to the old registration maintenance game.  So I'll bet Nasdaq is floating this idea now in an attempt to get more business.
                                                        -- Jerry

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