Here’s a fun fact: you don’t own any stocks. Now, I don’t mean that in the sense that, like,
you don’t own any stocks because you haven’t bought any stocks because you’ve been too busy
watching useless videos about stock market technicalities to figure out how to actually
invest your money so you can retire or whatever. I mean you don’t own any stocks because nobody
owns any stocks. If you think you own stocks, you don’t. What you actually own is an entitlement to
a stock which is held for you by your broker—the bank or whatever is allowed to actually buy stock
because you’re a little dumb dumb who isn’t allowed to play with the big business boys.
Except wait—actually your broker doesn’t own any stock either. Your broker actually owns
an entitlement to stock that is held by Cede & Company, the partnership nominee of the Depository
Trust Commission. In fact, Cede & Company technically owns every stock in the New York Stock
Exchange, COMEX, and NASDAQ: tens of trillions of dollars in assets are held by a company with
about a dozen employees, located right here at 55 Water Street, which raises the question: why?
Well, I should start by saying that doing research for this episode was extremely difficult because
if you Google Cede & Company, you mostly find a lot of conspiracy theories about how it’s proof of
some sort of global financial conspiracy, when the truth is that it’s actually just proof of a bunch
of weird and confusing legal and logistical technicalities. The good news is, weird and
confusing legal and logistical technicalities was actually the original name of this channel before
we realized it would be too long for merch. Our story begins, much like Beatlemania or
legionnaires disease, in the 1960s. Back then, the stock market ran on these weird little flat
dead tree things called paper. Stock trades used to involve actual people on the floor of the stock
exchange yelling a bunch and exchanging actual paper stock certificates, and then at the end of
the day, giving those paper stock certificates to brokers who gave the traders paper checks
that they then gave to the people they bought the stocks from. If you can believe it, this system
of mostly drunk businessmen literally carrying a good chunk of the American economy around in their
briefcases was enormously inefficient and also quite bad and also not particularly good. In fact,
the paperwork processing got so backed up that the stock exchange began closing on Wednesdays to
give firms time to catch up. This period, known as the paperwork crisis, got so bad that Congress did
something they almost never do: passed legislation to help fix a problem. Among other things,
they passed the Securities Act Amendment of 1975, which created the National Market System,
a series of centralized institutions that made equities trading more secure
and more efficient and overall more better, although, you know, only so much more better.
One of the main pillars of the National Market System is the DTC, or Depository Trust Company,
and its main function is something called immobilization. Basically,
one of the primary solutions to the paperwork crisis was to immobilize physical stock
certificates—stopping them from having to be passed around so much, from sellers to brokers
to traders to brokers to buyers. The trouble was, transferring actual legal ownership of the stocks
legally required moving physical pieces of paper, through a complicated, multi-step process that I
don’t feel like totally walking through so I’ll just put it up here for you to read if you want.
So, DTC streamlined everything with an innovation so simple it sounds like it should be illegal: if
the problem was that transferring legal ownership meant transferring pieces of paper, just make DTC
the legal owner of every single stock, and they’ll keep all the pieces of paper in one big vault.
And so, they did. While they’re shifting to mostly digital certificates now,
for decades DTC housed millions and millions of physical paper stock certificates in their vaults,
representing every stock in the New York Stock Exchange and NASDAQ—and still today,
they hold a significant number of paper stocks. I should mention that technically, DTC doesn’t
own it, they just hold it. For weird and boring legal reasons, they created a separate legal
entity—a partnership of DTC employees—that owns the stocks, called Cede & Company—Cede as in
Central Depository and also cede as in “give up,” as in, “the entire American stock market
gave up their stocks to us.” By allowing Cede to own and DTC to hold and maintain all the stocks,
clearing and settling trades becomes much easier, because DTC can simply electronically
transfer contractual rights to a stock from one firm’s account to another firm’s account
in their own internal bookkeeping records. No stock certificates, physical or digital,
have to get moved around, because technically, legal ownership didn’t change.
So when you think you buy a stock, what are you actually buying? Well,
you’re buying contractual rights and becoming the stock’s beneficial owner. That title gives
you the right to receive dividends the stock pays, to vote as a shareholder, and to sell the
stock should you choose and receive the value of that sale—basically, everything an owner
would normally be able to do, you can do, but technically you don’t own it. But hey, ownership
is overrated anyways. Just ask Elon Musk. If you want to spend 1/7th of $8 a month
on something worth far more than some checkmark-shaped pixels, then boy do I
have a suggestion for you. Myself and a bunch of other internet creators teamed up to start our
own streaming site, basically solving every single issue that’s ever existed in the digital creator
ecosystem ever—maybe. It’s called Nebula, and the idea is that it’s an algorithm free, ad-free
platform, which removes our incentive to just make the most clickbaity videos possible, and rather
pushes us to make the best, most genuinely good videos possible that’ll make you all want to stay
subscribed. That, and the general economic model of Nebula, has led to some really good exclusive
content like our wacky, cross-country travel-based game show called Crime Spree, and Real Life Lore’s
fantastic series Modern Conflicts, diving deep into recent battles and wars in a way that isn’t
allowed on YouTube due to their content policies. What makes Nebula even better is the best way to
get access to it: weirdly, by subscribing to an entirely different streaming service called
CuriosityStream. They have some fantastic stuff: long-form non-fiction shows and documentaries with
some really big names like David Attenborough, Jane Goodal, and Nick Offerman. They’re running
a bundle deal with Nebula where by going to CuriosityStream.com/HAI and signing up for
any of their subscriptions, including the annual one that’s currently discounted to about $1.23
a month, they’ll include a Nebula subscription for free. That’s an unbelievable deal for you,
and it still even helps support HAI and loads of other independent creators, so click the button
on-screen or head to CuriosityStream.com/HAI to sign up for the bundle deal today.