Indirect Holding System
Because of these disadvantages, the "direct holding system" has been replaced by the indirect holding system. Settlement by physical delivery of certificates worked adequately until the 1960s, when a sharp increase in trading volumes overwhelmed the system. The amount of paper that physically had to be moved around led to the famous "paperwork crisis" on Wall Street in the late 1960s. This provided the impetus for the introduction of the indirect or multi-tiered holding system.
Although the indirect or multi-tiered holding system has increased settlement speed, thus reducing the risk that the counter-party in the relevant transaction will fail before the transaction is settled, it effectively cuts off the issuer of shares from the shareholders. This is because either a central securities depository or a financial institution becomes the recorded shareholder on the books of the company and the real, or beneficial shareholder is known only to the financial institution with which he or she has an account. The result has been to drastically complicate communication between shareholders and their companies, and increase the cost of such communication.
Read more about this topic: Direct Holding System
Famous quotes containing the words indirect, holding and/or system:
“An indirect quotation we can usually expect to rate only as better or worse, more or less faithful, and we cannot even hope for a strict standard of more and less; what is involved is evaluation, relative to special purposes, of an essentially dramatic act.”
—Willard Van Orman Quine (b. 1908)
“The growing of food and the growing of children are both vital to the family’s survival.... Who would dare make the judgment that holding your youngest baby on your lap is less important than weeding a few more yards in the maize field? Yet this is the judgment our society makes constantly. Production of autos, canned soup, advertising copy is important. Housework—cleaning, feeding, and caring—is unimportant.”
—Debbie Taylor (20th century)
“Television is an excellent system when one has nothing to lose, as is the case with a nomadic and rootless country like the United States, but in Europe the affect of television is that of a bulldozer which reduces culture to the lowest possible denominator.”
—Marc Fumaroli (b. 1932)