Electronic trading in stock shares and bonds are facilitated via depository transfer check (DTC), which serves as the repository and record-keeping clearinghouse for negotiable securities. However, there are circumstances when shares or bonds are held in physical certificate form, i.e. custody-only trading.
Often, in the past, people would buy and hold the certificates with the intention of passing them down to heirs in their wills. Early buyers of Walt Disney Co. stock often framed their certificates, which were inscribed with a photo of Walt Disney surrounded by Mickey Mouse, Donald Duck, and other beloved characters. These have since become collectibles, with a certificate for a single share of stock worth a few hundred dollars.
The other reason to keep securities in physical certificate form is to prevent illegal short selling, which still is practiced regularly in spite of a 2008 SEC ban. The unavailability or limited supply of stock that can be “loaned” for legitimate short sales allows for companies to forensically track which market makers may be in violation. This is a tactic that Pink Sheet and small cap public companies may need to deploy to avoid predatory speculation and manipulation of stock prices by market makers.
True story: a Market Maker naked shorted about 20,000 shares of stock at $2. It subsequently dropped to about $0.65, where it stayed for over 9 months. The Market Maker had a $27,000 positive carry on his P&L for so long that he forgot to follow the position for news. One day he saw that he had a -$10,000 position, and was shocked to see the stock at $2.50. There had been a tender offer to go private, and 94% of the stock had been purchased. The Market Maker had to bid on the Street and try to locate any shareholders without stock in Street Name, i.e. certificate form. Every electronic purchase of 10 shares increased the price by 25-50 cents. They wound up paying an average of over $38 per share, after finding several certificate owners to sell to them to cover the rest of the short. Expensive lesson, but the alternative could have been to possibly lose their NASD trading authorization.
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Finance: What is an Omnibus Account?110 Views
Finance a la shmoop. What is an omnibus account?
Herbi just eats leaves, Carni just eats meat, Omni well it's pretty much [Different buses eating stuff]
everything. So yeah an omnibus as in bus-i-ness or business account services is
a bunch of investors who've all pitched in or wired in their capital to become a
percentage owner of that omnibus account. Why would people do this? Scale, volume,
discounts size, heft. When you have a lot of money in an account basic things like [Lots of money in a suitcase]
audit and legal fees and brokerage services and the fees with them and
other one-off costs get amortized across a lot of people in dollars invested [Definition of Amortization]
rather than being laid entirely or solely on one investor where they can
then be a meaningful percentage of the total and with an omnibus account you [Bus labelled Omni eating leaves]
also get anonymity since it's a broker dealing in street name with the account [Anonymity stamp]
interfacing with the street well investors can live if they want in the
lovely dark shadows of Erewhon. Omnibus accounts are sort of like your own [Full moon in a dark sky]
custom mutual fund without the whole nav, net asset value stamp requirements at
the end of each trading day and all the other regulations and filings and legal
crap needed for publicly offered securities it's like having a fully [Book labelled my very own omnibus account]
gassed up bus with a working GPS and Waze system you can drive anywhere you [Guy sat on a bus]
want on the investing landscape you don't have to tell anyone outside of
your own partners about it, and it works great as long as you all want to eat the
same kind of financial cooking.. [Omni asking Carni if he is going to finish his food]
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