As a result of increased trading volume dating back to the 1960s, when paperwork backlogs temporarily derailed Wall Street, as well as the growth in technology, the securities trading industry has come to rely heavily on a system of indirect ownership of securities. Most investors now hold their securities through bank or brokerage accounts, and those banks or brokers will likely, in turn, hold those securities through a central securities depository, such as The Depository Trust Company (DTC). While the intermediated holding system has resolved many problems associated with the growth in trading volume, there have been some recent thoughts and developments regarding this system that require careful consideration.

First, in May of this year, and then in late August, a task force formed by certain members of the American Bar Association Business Law Section issued, respectively, Part One and Part Two of its Final Report on the Work of the Task Force on Securities Holding Infrastructure (available at Final Report on the Work of the Task Force on Securities Holding Infrastructure: Part One and Final Report on the Work of the Task Force on Securities Holding Infrastructure: Part Two) (the “Report”; note that the Report represents only the views of the co-chair authors of the Report and not those of the American Bar Association, or any members of the Business Law Section, the task force or any of their respective firms or clients). The Report identifies certain concerning issues for securities investors which the task force sees as inherent in the system of intermediated holding of securities. (Some of these issues were illustrated in a recent case (the “UMB Bank case”) in front of a New York Federal District Court (UMB Bank, N.A. v. Bristol-Myers Squibb  Co., No. 21-CV-4897, discussed briefly below.)