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Publicly traded securities generally are held by investors in securities accounts with intermediaries such as stockbrokers and central securities depositories—intermediated securities. For many investors this is the only practical means of holding and dealing with securities. These intermediated holding systems (IHSs) impose a variety of risks and costs. Investors are exposed to intermediary risk (default or insolvency of an intermediary holding securities) as well as impediments to the exercise of rights such as voting and asserting claims against securities issuers. The nontransparency of IHSs imposes other social costs, such as obstacles to anti-money laundering enforcement. The emergence of FinTech and the potentially disruptive effects of distributed ledger technology (blockchain) now present realistic opportunities for reforms of securities holding infrastructures that would increase transparency and allow investors to hold securities directly on the books of their issuers.

This article proposes a “New Platform System” (NPS) for the direct holding of securities that would connect issuers and investors and also connect both with trading and settlement systems (which would remain intact, at least for now). Unlike other recent transparency and direct holding proposals, the NPS would cover both equity and debt securities and would flexibly accommodate beneficial aspects of current IHSs, such as margin lending, securities lending, and rehypothecation. The article presents a broader menu of problems that the NPS could resolve. The NPS addresses the probable objections that the intermediaries who benefit from the status quo would make to any transparency or direct holding proposals. Disintermediation likely would require regulatory intervention by the SEC in the United States. By offering reforms that would minimize the disruption of current market practices, the NPS could encourage intervention and blunt opposition. It also could provide a “primordial soup” for future, more extensive reforms of trading and settlement systems.


intermediated securities, securities settlement, intermediary risk, disintermediation, transparency, financial infrastructure, securities lending, rehypothecation, customer protection, securities regulation, central securities depositories, Depository Trust Company, SEC

Publication Title

University of Pennsylvania Journal of Business Law

Publication Citation

22 U. Pa. J. Bus. L. 386 (2020).