Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, July 8, 2019

Panisi, Buckley & Arner on Blockchain and Public Companies

Federico Panisi, Ross P. Buckley and Douglas W. Arner have posted Blockchain and Public Companies: A Revolution in Share Ownership Transparency, Proxy-Voting and Corporate Governance? on SSRN with the following abstract:

Under the traditional paradigm, the shareholder was the one in whose name company shares were registered. However, for public companies in the US, this system became highly inefficient by the 1960s due to high numbers of transactions. As a result, shares began to be “immobilized” at central securities depositories (“CSD”s) and held through the Indirect Holding System (“IHS”), with share transactions settled through “book entries,” first in the US and then in other major markets. Although market liquidity benefited, the system broke the direct relationship between companies and shareholders, introducing also a discrepancy between “recorded shareholders” and “beneficial shareholders.” Communication solutions were developed to bridge this discrepancy and allow “beneficial shareholders” to cast their votes through proxies. However, they currently rely on highly intermediated “pass-it-along” architectures, which cause several inefficiencies, the costs of which are borne by the shareholders themselves and raise questions in the context of collateralization. By increasing share “ownership transparency,” blockchain has the capacity to streamline the entire share ownership architecture. Indeed, blockchain could enable the tracking of share ownership through the complete settlement cycle, enhancing the “shareholder democracy” of listed companies, and benefiting their corporate governance and the market in their shares. However, blockchain also brings risks, including those related to greater ownership transparency. Consequently, a management system for the digital identity of share transactions is necessary to foster the benefits of such blockchain-based voting architectures, while reducing the risks.

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