TLDR – The Great Taking, Ch. 3 Security Entitlement

The greatest subjugation in world history will have been made possible by the invention of a construct; a subterfuge; a lie: the “Security Entitlement.”? Begin The Great Taking chapter 3, Security Entitlement.

For an estimated four centuries, tradable financial instruments were legally recognized as personal property.? Today this may no longer be the circumstance.

Securities “owned” by the public in custodial accounts, pension plans and investment funds now serve as collateral to support the global derivatives complex – futures, options, and swaps.? Recent BIS figures estimate the total notional value of Over-the-Counter derivatives is $610 trillion. In comparison, Statista calculates 2023 global GDP of $106 trillion.?? Beyond derivatives contracts at nearly 6x global GDP, collateral itself is a mirage enabled by hypothecation and re-hypothecation (i.e., the same underlying client collateral asset is reused more than once by a series of secured creditors).

Should an adverse global liquidity event transpire, would client assets be handed over to secured creditors in the derivatives market due to legal changes made over recent decades?? This is the fundamental question of The Great Taking.

Amendments to the US Uniform Commercial Code (UCC) replaced ownership of securities as property with the legal concept of “security entitlement.”? The account holder may sit in a position of weak legal recourse if the account provider goes bankrupt.? Account providers may be lawfully allowed to borrow pooled account holder securities to pledge a collateral for proprietary trading.

In March 2006, the New York Fed provided a 21-page response to the European Union’s Clearing and Settlement Legal Certainty Group Questionnaire.

• Q (E.U.): Where securities are held in pooled form (e.g. a collective securities position, rather than segregated individual positions per person), does the investor have rights attaching to particular securities in the pool?
• A (N.Y. Fed): No. The security entitlement holder . . . has a pro rata share of the interests in the financial asset held by its securities intermediary . . . This is true even if investor positions are ‘segregated.’

In the next global financial panic, what are the chances that there will be much of anything remaining in these pools of securities after the secured creditors have helped themselves?

Further reading:

BIS Global OTD Derivatives Market:? https://stats.bis.org/statx/srs/table/d5.1?f=pdf

Statista Global GDP:? https://www.statista.com/statistics/268750/global-gross-domestic-product-gdp/

NY Fed Legal Response to the EU Clearing and Settlement Legal Certainty Group Questionnaire:? The New York Fed's reply to questions posed by the EU Commission regarding clearing and settlement : EU Commission : Free Download, Borrow, and Streaming : Internet Archive

European Commission:? “Legislation on Legal Certainty of Securities Holding and Disposition”? EU Commission Securities Legislation / 10th Discussion Paper : EU Commission : Free Download, Borrow, and Streaming : Internet Archive