May 9, 2014
the clearinghouse might get into the ownership/title verification if they suspect counterfeiting or compromised title. i notice that the DTC had a rule proposal about compromised title and there were many comments on that rule. it appears to me that the SEC needs to set the standard and the clearinghouse needs to comply. considerations might be:
1) can title transfer when the title to a security has been questioned/impaired/possible counterfeit? i think not. i think the buyer likely is ignorant that they might be given an impaired claim when they buy on the stock market, so items that have questionable titles probably cannot be transferred. this idea might cause a formal procedure to resolve title.
2) what occurs if a stock certificate is suspected to be counterfeit? should the clearinghouse report to anyone? what are the deadlines to resolve impaired title? is there an appeal procedure? should the clearinghouse report title issues before or after resolution or both?
3) because clearinghouses net long and short balances, the clearinghouse needs to segregate impaired or suspicious stock certificates. since the clearinghouse appears to resolve all balances to $, instead of counting certificates, then they need to not allow suspicious stock certificates in these balances. a stock certificate that is counterfeit has a value of $0. a stock certificate that has impaired title might not be valued at the same price as a stock certificate with a clear title that can freely trade in the stock market.
4) counterfeiting $ is illegal, and since stock certificates are frequently valued in the financial system as money, the clearinghouse clearly must report illegal transactions to a regulator of some kind. i would suggest that the SEC suggest a law enforcement arm to receive such a report.