Layers of abstraction build up in the financial world, just like they do in software

Interesting:

This is good and almost funny:

The financial system is built up in layers of abstraction over some vast and unwieldy machinery. The machinery is complicated in part in order to make the abstraction simple: You can buy stock with a click of a mouse because armies of people devote their careers to the legal niceties and operational maintenance and integration of all this back-office apparatus.

The boring details:

But usually it is more complicated than that. Mostly, it is inconvenient for shareholders to show up at the meeting, so mostly they don’t. Companies mail out proxy cards, and if you are a shareholder with better things to do that day, you fill out the proxy card and mail it back. The proxy card appoints someone who’ll be at the meeting anyway — typically someone who works for the company — to vote on your behalf. You tell her how to vote, and then she does it, and it’s as though you’d been there and voted yourself. You don’t even have to pay postage; the company provides a self-addressed stamped envelope.

But usually it is more complicated than that. Most shareholders in most companies are not actually shareholders in those companies. That is, they are not “shareholders of record,” who own shares that are reflected on the stock registry of the company, or physical paper stock certificates. Instead, they hold shares in “street name,” meaning that their banks or brokers own the shares on their behalf. This makes a lot of things more convenient, especially if you want to sell your shares: You don’t have to contact the company and tell it to update its shareholder records, or mail stock certificates anywhere. Your broker, who actually owns the shares, can handle it for you. But this means that your broker also has to handle voting for you: The broker is the legal owner, so it gets to vote, but it will ask you for instructions and then vote however you tell it to. (Incidentally, this means that, if you are a shareholder in street name and you want to show up and vote at the actual meeting, you have to get a proxy from your broker so that you can get in.)

But usually it is more complicated than that. Even the brokers mostly don’t own the shares they hold for customers in “street name.” Instead, they’ve all agreed to put their shares in one place, called the Depository Trust Co., which owns all their shares for them. This makes transfers even more convenient; instead of moving around physical share certificates between brokerages, everyone can just move around entries in DTC’s central computer. It does make voting one level more complicated: Delightfully, DTC (or, strictly, its nominee, Cede & Co.) is the record owner for state law purposes, while the brokers are the record owners for federal law purposes, with the odd result that Cede (the Delaware owner) has to give proxies to the brokers (the federal owners) so that they can vote. By proxy. On behalf of their customers.