Monday, March 03, 2014

Brokerage systems have trouble keeping track of old certificates properly, especially after splits or mergers (even reverse splits) ; a security issue?


Here’s a little issue.  In processing my own mother’s estate, there have been issues with at least two company’s securities.  One company, a bank, did a reverse split after the 2008 crisis.  Another had done mergers and then splits back in the 1990s.
   
What has happened is that old stock certificates appear in Mother’s safe deposit box.  We turn them in through channels.  The companies are unable to determine reliably if these are duplicates or reissued certificates.  In a couple of cases, accounts have been shown on my books in more than one place, overstating the value of the estate.
   
This does sound like an old fashioned mainframe IT problem.  Presumably, a public company would be able to look up an account or certificate number (these are separate items) with a transaction that in turn invokes an SQL statement (possibly with a correlated subquery) that returns the location of the security.  The editing rules in the computer system should allow a certificate to be found in only one location.  If a submitted certificate, as found in an estate’s safety deposit box, is a duplicate, it should be rejected, and the certificate “confiscated”.  Executors of estates are not in a position to know how a certificate was handled years in the past and whether it could be a duplicate. 
   
It would be desirable if portfolio listings on investment accounts show users the certificate and full account numbers online. 
   
Problems with the technical integrity of the certificate systems (even on the legacy mainframe side) could invite fraud and hacking.  This could potentially have ramifications for the entire financial system, deserving the attention of the Secret Service.   

Update:  I've been told that brokerages have no access to the location of shares at other brokerages.  But the subject companies should know!

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