In the 1970’s, at the request of powerful Wall Street and big firm banking institutions, state lawmakers changed the law across all 50 states, one by one, changing the Uniform Commercial Code. According to Fox News Contributor, Justin Haskins, the reason for the modification, at that time, was to reduce the amount of time it took to process paperwork- allowing for a more centralized location- to speed up the process. What once took several days could be completed almost instantly.
This is when the Depository Trust Company was started to allow for this entity to oversee the new legal framework allowing financial institutions to reassign direct ownership of most securities away from individual investors, including those holding retirement accounts and traditional brokerage accounts.
Lawmakers were told this shift was a technical modernization designed to improve efficiency and reduce risk. In many respects, it did exactly that. Haskins says he isn’t sure the lawmakers understood what was happening.
Under this DTC model- most investors no longer directly own their securities. Instead, they hold what the law refers to as a "security entitlement." This arrangement is contractual in nature. It grants certain rights and protections, but it does not confer direct registered ownership.
“If your broker pledges your investments as a collateral to save itself from collapse, the bank has the right to take your investment to keep for themselves to be made whole- that’s in the books right now- to kind of bail out these big institutions.” Haskins said.
The report says in recent years, institutions have reaped enormous profits from riskier practices such as stock lending and derivatives trading. Haskins says these activities could not have occurred at anything close to their current scale under the stronger ownership framework that existed prior to DTC’s creation. Centralized ownership made it possible.
Haskins urges the public to speak to their financial advisors and state lawmakers about the Uniform Commercial Code that has been outdated for half a century. He says this has gone far too long, and he expects the market to take a turn at some point, and people have worked far too hard and for too long- expecting their savings and investments to be there.