United States: Blockchain And Public Securities: Shedding Light On 'Going Dark'

The application of blockchain technology to the securities market could prove to be a game changer by adding transparency, reducing costs and speeding up settlements.

Initially known as the technology underlying the cryptocurrency Bitcoin, "blockchain" is a distributed digital ledger technology used to confirm transactions and record ownership of assets, among other potential use cases. At a fundamental level, a blockchain is a type of database. What makes a blockchain different from most other databases is the way in which users interact with the database. For example, common attributes of blockchain implementations are that they are "distributed" and "self-proving" such that the digital ledger is maintained by consensus through a network of users (or organizations), as opposed to a single copy maintained by a centralized authority.

The blockchain distributed ledger technology promises a more efficient, secure and transparent mechanism for storing, tracking, trading and verifying assets and information. Proponents of the technology believe it has the potential to drive positive disruption across many industries, including the financial services industry. Some would argue nothing is more ripe for disruption than the book-entry system used in connection with share ownership.

The Current Approach to Recording Stock Ownership

Historically, the stock of a corporation was represented by physical stock certificates. These certificates were exchanged, revised and/or reissued each time the stock was traded. Over time, a system developed in which intermediaries became the holders of most certificates, and the stock could be traded underneath these intermediaries without the need to exchange, revise or reissue any of the certificates. The intermediary holder of the certificate is the "holder of record," while the investors for which the intermediary is holding the certificate are the "beneficial" or "real" owners of the stock at issue. Although an investor's broker may be the intermediary that is the holder of record, the vast majority of stock held in the United States is held by an affiliate of The Depository Trust Company called Cede and Company.

Many federal and state corporate and securities laws are built around the holder of record concept, and this creates issues because, in most cases, the holder of record is not the ultimate beneficial owner of the stock at issue. For example, under many state corporate statutes, only the holder of record may exercise certain rights as a stockholder. While a stockholder may choose to receive a certificate and become a holder of record, there is concern that the rights of beneficial owners are not fully realized as a result of the fact that the stock's holder of record must be the one to exercise such rights.

Another example relates to the Securities and Exchange Commission's (SEC's) requirements regarding public filings. A company that has fewer than 300 holders of record may choose to cease filing its financial statements and other disclosures with the SEC, even while the stock continues to trade publicly. This is called "going dark." According to a recent Wall Street Journal article, "more than one-fifth of the 1,500 largest companies in the U.S. have fewer than 300 shareholders of record. Eight companies with market values of at least $1 billion each report having no more than 10 shareholders of record."1 While we are not likely to see many large corporations "going dark," the risk of companies going dark could be alleviated if there were a simple way to break the distinction between holders of record and beneficial owners, such that all owners of a company's stock may be counted as holders of record.

Though most securities held today are still held in the form of physical certificates, a new system has been developed in which the physical certificates are replaced by electronic certificates. This is known as the "book-entry system." The book-entry system is an improvement over the use of physical certificates, but the dichotomy between holders of record and beneficial owners still exists, as do all of the problems associated with this dichotomy.

Issuance of Digital Securities

Using blockchain's distributed ledger technology could help solve some of these issues through increased transparency. Recently, Overstock.com gained SEC approval to issue up to $500 million in equity or debt securities that would trade on a digital platform, where ownership of the digital securities will be reflected in a publicly distributed, proprietary ledger maintained by an alternative trading system operated by a subsidiary of Using blockchain's distributed ledger technology could help solve some of these issues through increased transparency. Recently, Overstock.com gained SEC approval to issue up to $500 million in equity or debt securities that would trade on a digital platform, where ownership of the digital securities will be reflected in a publicly distributed, proprietary ledger maintained by an alternative trading system operated by a subsidiary of Overstock.com. The digital securities are evidenced only by entry into the publicly distributed ledger, and transfers of digital securities can only be effected on that ledger. This new application of blockchain technology to the securities market could prove to be a game changer by adding transparency, reducing costs and speeding up settlements.

Under the current book-entry system, the issuer of securities does not have direct insight into who are the beneficial owners of its securities. With a distributed ledger, such as the one used by Overstock.com, retail and institutional investors could open accounts for trading in digital securities instead of acting through brokers. As a result, the issuers of a security would have the ability to see the identity of those holders and the ability to see who holds the securities in real time.

The Delaware Blockchain Initiative

Under the corporation laws of several states, including Delaware, only stockholders of record can propose directors for election, and, in proxy contests, companies have refused to allow stockholders to propose directors if they were not stockholders of record. While both federal securities and state corporation laws are probably in need of amendment with respect to "shareholders of record," a share register using blockchain would likely lead to a good solution for all interested parties.

The state of Delaware has recognized the problem, and there is movement afoot to encourage legal changes that would allow and promote a distributed ledger-based share ownership system as part of Delaware's blockchain initiative. While still in its initial phases, Delaware Governor Jack Markell has announced his support for the creation of a new method of representation of corporate share ownership, in which all Delaware corporations will soon have the ability to issue shares using distributed ledger technology. As part of the initiative, the governor has appointed Andrea Tinianow as the state's blockchain ombudsman to spearhead the effort. In addition, Delaware has launched a proof of concept with Symbiont — a blockchain technology provider — to develop distributed ledger solutions for archival records for the state. Given the large percentage of Fortune 500 companies that are incorporated in Delaware, the blockchain initiative could provide a spark to ignite the fire of disruption with this exciting new technology.


1 Jason Zweig, "Shareholders Are Disappearing Before Our Eyes," The Wall Street Journal (June 10, 2016).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.