will pay the first-of-its-kind digital voting series A-1 preferred stock (OSTKO) dividend on May 19. How the market will trade and value the security remains to be seen; no one has a crystal ball. But OSTKO, a DTC eligible security, is a baby step toward using distributed ledger technology to measure share ownership. A baby step for blockchain adoption in the financial market that could help the average investor understand what they buy better than traditional markets do now.
OSTKO will trade on tZERO’s Alternative Trading System (ATS) only and not multiple exchanges. Shareholders as of record date April 27, 2020, will receive the dividend, which will be distributed on a 1:10 basis in shares of OSTKO on May 19, 2020.
Shares of OSTKO are publicly traded. As with any regulated security, the usual stock transfer agent systems will track shares, nothing new. OSTKO will also be measured on tZEROS’s blockchain platform. This means that existing systems will be used simultaneously with tZERO’s ATS token trading innovation. This dividend is a blockchain first for tracking share ownership.
This sounds like a baby step in the halls of blockchain hype. Will it change the way we understand equity to be valued or traded in the U.S.? Probably not, at least not yet. But it does highlight a shortcoming in how traditional securities are valued and puts into question who owns a company’s stock.
In the U.S., stock transfer agents and security custodians manage transaction changes in equity issuance, clearance, and settlement – keeping a record of who owns what company. The Bank of New York Mellon and State Street are two of the largest custodians. However, there are other custodians and many more transfer agents. The possibility of different ownership interpretations exists and applies to both public and private transactions. Transfer agent’s information is not always consistent. One famous example from 2017 is the fallout from the Dole Foods Buyout, which resulted in a $115.7 million settlement because of conflicts in shareholder records. To understand who owns a company, from individuals to institutions, insiders and outsiders, you need to understand a company’s stock registry. The accuracy of ownership, blockchain’s promise of transparency, is Overstock’s big idea.
This kind of tracking system could improve fiduciary requirements when tracking closely held companies, as in the case of employee stock ownership plans. Antitrust and buyout lawsuits could also be streamlined because of this level of ownership accuracy.