In the 1960s, when I was not yet involved, Wall Street was in a bull market, but behind the scenes market operations were frequently tight. Most clearing and settlement transactions still rely on expensive and cumbersome processes. Paper stock certificates pile up like mountains and must be transported by staff on carts, shuttling back and forth on Wall Street and in financial centers across the United States.
This paper-based clearing and settlement system was designed for a milder era and is clearly no longer able to withstand the rapidly increasing trading volume. A delay in processing by a certain company can drag down the entire chain; Frequent occurrences of securities loss and theft; Transaction failures have significantly increased; Some securities firms with weaker capital even face bankruptcy due to trading interruptions. Helplessly, trading hours have been shortened, and trading platforms even close every Wednesday, just to give the company time to deal with the pile of paper certificates.
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The then chairman of the SEC described this systemic collapse as “the most serious and persistent crisis in the securities industry in 40 years… bankruptcy of companies and a sharp decline in investor confidence.” It is worth noting that the SEC actively responded and promoted market participants to establish the well-known Depository Trust and Clearing Corporation (DTCC), which completely changed the way securities are held and traded today.
Afterwards, there is no longer a need for paper certificates to circulate between customers and securities firms, or between securities firms themselves. The ownership of securities began to be completed through electronic ledger accounting. The certificate itself is’ frozen ‘and securely stored in a vault, while ownership is transferred through a computer system, laying the foundation for today’s clearing and settlement system.