@Neonmoon
1) see below
2) Brokerages, institutional investors and Banks specifically
3) No, I diverge from his nefarious source of this and chalk it up to extreme complexity and a tolerance for systemic risk that non-participants get to judge for the participants. I think that corporate entities will act in the best interest for the corporation to the extent of the law, the law is set up to benefit a small set of banks and institutions. I am not a conspiracy theorist, and don’t think they are trying to take everyone’s shit, they just know they can and have shown in the past that they will (Lehman bros and JPM)
Starts here: https://www.law.cornell.edu/ucc/8/8-511
in depth analysis of the systemic risk here:
you can also DRS your shares, but this protection is cumbersome and not used by the majority of brokerages because they can’t lend your shares out however the fuck they want.
https://www.sec.gov/about/reports-publications/investor-publications/holding-your-securities-get-the-facts
https://www.finra.org/investors/insights/know-the-facts-direct-registered-shares
The issue is that there is now precedent to actually have this happen, but in a bankruptcy situation the only entity protected is the broker. https://www.mondaq.com/unitedstates/commoditiesderivativesstock-exchanges/36408/the-effect-of-the-new-bankruptcy-code-on-safe-harbor-transactions
so the issue isn’t that these things are kind of possible it’s that we are so far away from the core purpose of derivatives to where now if something on a chain reaction of derivatives goes bad then it’s going to fuck everything and cause a meltdown of a liquidity crisis because there isn’t actually enough money in the derivatives contract backing bodies.
https://www.dtcc.com/-/media/Files/Downloads/legal/financials/2023/DTCC-Annual-Financial-Statements-2022-and-2021.pdf
70B+ in liabilities and only 3.5B in assets backing it. So in the event that something fucks up or things move fast this just becomes insolvent. When this becomes insolvent then all the collateral involved starts a chain reaction because the banks aren’t going to allow themselves to be fucked. They will go after the brokerages who lent out the shares and anything not DRS will get scooped in the collapse.
the paranoia isn’t about what causes this event, but rather that we are now so fucking crazy when it comes to what’s going on with derivatives and a stressful financial event. (See SVB run and all the treasuries which have trillions in paper losses maturing).
basically if we had a more sane derivatives market and more transparency into wtf is actually going on this would probably not be a concern, instead there’s a pretty solid chance that if some fucks up it doesn’t mean all liquidity is halted (market stop trading etc) and government bailouts (at this scale, likely not possible without causing hyperinflation)
individually there are ways to deal with these things, but all together a chain reaction protects only the banks and is irrelevant to those unencumbered by the banks. Right now there is too much from a derivative and swap basis out there to settle in any reasonable way with the existing liquidity in the market.