Flame bait alert. Those of you who "know this already" (or know who's posting ;-)) hit your spacebar (or down-arrow, whatever) now. When it rains, it pours. I've been yammering about e$ to another one of my UofC friends for a while now. He's ABD (all but dissertation) in Physics, repeated the process in Finance, spent some time at First Boston and now builds asset/liability software for insurance companies. He'll remain nameless, 'cause if he wants to fess up for his part in this craziness, he can do it himself. Recall I'm screwing around with business models for e$ financial entities, and how I talked about how the crypto-security it requires makes the funds transfer system more granular and the network it lives in more geodesic. Definition of geodesic network: a network where nodes (switches) become more prevalent than lines (lines :-)) the opposite of pyramidal or hierarchical, where the opposite holds. (From Peter Huber's "The Geodesic Network", 1987, U.S. Government Printing Office) So I'm swapping OJ jokes with this guy, and he says, "I've been thinking about how this electronic money stuff makes brokerage firms disappear". And I blurt, "like I did with banks!", and I sent him my last e$ screed, about how to make demand deposits obsolete with digital cash ;-). We gibbered at each other for an hour or so, and here's how *he* made *brokerage firms* go away... The primary reasons for a brokerage account are 1.) safety, to protect your securities from theft. 2. To be able to trade those securities conveniently, by keeping them in "street name", 3. only brokerage firms can trade in the capital markets, because the markets are a giant "web-of-trust", to quote someone around here. Strong crypto accomplishes 1, and e$ protocols make 2 and 3 meaningless. Without boring you folks too much, trades are executed by brokerage firms for their clients in the market, where buyers and sellers are matched. The trades are given to clearing houses, which are like banks, but hold nothing but stock. The clearing houses swap book entries around and then notify the corporation that the stock was sold so the company know who the new stockholder is. The reason this can happen is because your stock is actually held at the clearinghouse in the name of your brokerage. You've signed paper somewhere allowing all this to happen. Otherwise you have to take physical delivery of your securities, and re register them in street name when you want to sell them, which takes time and money to do. Your time and your money. Most people don't take physical delivery as a result. They just leave it at the brokerage in street name. If you remember the last post, you can see where I'm going with this. Strong crypto allows the reinstitution of physical delivery. Well, the electronic analog of it, anyway. Instead of keeping a security at a broker's account in a clearinghouse, a stock "certificate" is issued by the clearinghouse to the buyer immediately at the time of sale. Instead of keeping brokerages' securities on account and swapping accounting entries, the clearinghouse acts more as an officiator, "blessing" the trade, and notifying the corporation of the change in its ownership, etc. Like digital cash, No one can steal your certificate or use it if they do, and if you're backed up, you might as well have it in Fort Knox... Okay. Those are points 1 and 2 from above. Point 3 is where we wave our hands a bit. Unless I'm beaten senseless by arcana, it seems to me that every kind of securities market (including the electronic ones!!) from the specialist system to open outcry can be done on line. (In cyberspace no one can hear your open outcry <hyuk!>). The important question here is, _who trades?_. It seems pretty obvious to me that if you can prove you own a security, you should be allowed to trade it. Since you have taken "physical" (metaphysical???) delivery, if *you* can't prove ownership, no one can. Notice this system allows for position traders, arbitrageurs, portfolio managers, investment bankers, equity and fixed income salesmen (who buy inventories of securities and resell them to their clients at a spread for the information<fat chance!>), and lots of other current players in the markets. In addition, it blows the doors off the role of the brokerage firm as the gatekeeper to the capital markets. It also creates a menagerie of other financial creatures and entities... To quote the famous Dr. Emil Lizardo, "It make-a the ganglia twitch!" My pal says that these protocols could help in derivatives markets, where securing ("insuring?") instruments is a problem...When I get that out of him, in a form that I can understand, I'll write it up and kill more bandwidth... Cheers, Bob Hettinga ----------------- Robert Hettinga (rah@shipwright.com) "There is no difference between someone Shipwright Development Corporation who eats too little and sees Heaven and 44 Farquhar Street someone who drinks too much and sees Boston, MA 02331 USA snakes." -- Bertrand Russell (617) 323-7923