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Because of these disadvantages, the "direct holding system" has been replaced by the indirect holding system.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 slogan offers a counterweight to the general dispersion of thought by holding it fast to a single, utterly succinct and unforgettable expression, one which usually inspires men to immediate action. It abolishes reflection: the slogan does not argue, it asserts and commands.”
—Johan Huizinga (1872–1945)
“Science is a system of statements based on direct experience, and controlled by experimental verification. Verification in science is not, however, of single statements but of the entire system or a sub-system of such statements.”
—Rudolf Carnap (1891–1970)