Derek Pain: Exchange merger will hit the small investor

Life is going to get more difficult for the small investor, already the poor relation of the stock market.

Life is going to get more difficult for the small investor, already the poor relation of the stock market.

The controversial London-Frankfurt Stock Exchange merger, assuming it goes through, could be the next development to create problems. I expect the small player to be shunted to the bottom of the priorities list if this miscalculation is allowed to become another example of merger madness.

Fears about the merger have prompted Brian Winterflood, who specialises in making markets in the shares of smaller companies, to explore the possibility of establishing AIM, the small company nursery, as a stand-alone market.

By fretting about AIM, where small investors have their greatest influence, Mr Winterflood is highlighting the damage the merger could inflict at the bottom of the market.

Any Anglo-German alliance will compound the agony which Crest, the computerised share settlement system, is already inflicting on traditional investors who are essential to the stock market, representing much of the trading carried out by smaller stockbrokers.

The trouble is the small investor, and, indeed, private-client stockbroker, carry little clout when their very different needs are compared to those of major fund managers and the big investment houses master-minding million-pound deals.

The private investor, who likes the obvious safety paper certificates provide, is likely to be the major casualty of the next round of Crest changes.

Crest has no time for certificates as, for reasons which are not entirely clear, it relentlessly reduces the settlement period for completing share transactions. The present settlement time - the days allowed for cash and shares to change hands - is T+5 (trade, plus five days) although most private-client stockbrokers permit T+10. But in February T+5 is expected to come down to T+3, putting more pressure on brokers still prepared to continue absorbing the extra cost of T+10.

Clearly, T+3 is an impossibly short time to complete a certificated share deal. And, allowing for our postal system, T+5 is exceedingly tight.

So the squeeze is on. One execution-only broker refuses to undertake certificated deals; another private-client broker charges £10 for the privilege.

Lumping extra charges on the investor who wants the security of paper certificates seems to be the most likely outcome. But there is an added danger. Besides, say, a charge levied by the broker, there is a possibility a two-tier market in share prices could develop. T+3 trades could be completed at lower prices than T+10, if market makers decide they want compensation for waiting longer for their cash.

So should investors move to Crest, with their investments acknowledged on occasional, bank-like statements? I would advise caution. There is always the chance some brokers will retain T+10 at no extra cost, even if they do sometimes have to endure a paper chase. And certificated trading does provide the advantage of satisfying even the trunk-in-the-attic mentality.

Crest offers two options, a nominee account through a broker or personal membership.

Both incur varying dealing costs. One major disadvantage of accepting a brokers' nominee account is that the shareholder becomes divorced from his investment. He loses the right to attend yearly shareholders' meetings and collect any perks available. Nominee shareholders are unlikely to receive yearly reports, and takeover and rights issue documents are a grey area.

To add to the remoteness, it is not uncommon for brokers to hold back dividend payments until they reach a certain level before sending a cheque to the investor. Some brokers do not charge for joining their nominee account, others up to £150 a year.

Personal membership is through a sponsoring broker who can charge the investor what he likes; the Crest fee to the broker is £10 a year. By having his own account, the investor remains the legal owner of the shares and therefore gets all the bumf and any rewards which go with it.

I would not be surprised, even if the Anglo-German merger fails, to see some form of break-away, small-players share market develop. After all, Ofex, the fringe share market created by John Jenkins, has proved there is life outside the shadow of the Stock Exchange.

Now, I shall be away for a summer break, and will return to the plight of the small investor in three weeks.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Arts and Entertainment
Frank Turner performing at 93 Feet East
musicReview: 93 Feet East, London
News
Toronto tops the charts across a range of indexes
news

World cities ranked in terms of safety, food security and 'liveability'

Extras
indybest
Voices
A mother and her child
voices
Voices
The veterans Mark Hayward, Hugh Thompson and Sean Staines (back) with Grayson Perry (front left) and Evgeny Lebedev
charity appealMaverick artist Grayson Perry backs our campaign
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Product Manager - (Product Marketing, Financial Services)

    £30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Recruitment Genius: Technical Report Writer

    £25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

    Day In a Page

    Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

    Isis hostage crisis

    The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
    Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

    The runaway buccaneers and the ship full of gold

    Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Maverick artist Grayson Perry backs our campaign
    Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

    Assisted Dying Bill: 'I want control of my life'

    This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
    Move over, kale - cabbage is the new rising star

    Cabbage is king again

    Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
    11 best winter skin treats

    Give your moisturiser a helping hand: 11 best winter skin treats

    Get an extra boost of nourishment from one of these hard-working products
    Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

    Paul Scholes column

    The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
    Frank Warren column: No cigar, but pots of money: here come the Cubans

    Frank Warren's Ringside

    No cigar, but pots of money: here come the Cubans
    Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

    Isis stands strong as its numerous enemies fail to find a common plan to defeat it

    The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

    Virtual reality: Seeing is believing

    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
    Homeless Veterans appeal: MP says Coalition ‘not doing enough’

    Homeless Veterans appeal

    MP says Coalition ‘not doing enough’ to help
    Larry David, Steve Coogan and other comedians share stories of depression in new documentary

    Comedians share stories of depression

    The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
    Has The Archers lost the plot with it's spicy storylines?

    Has The Archers lost the plot?

    A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
    English Heritage adds 14 post-war office buildings to its protected lists

    14 office buildings added to protected lists

    Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Scientists unearthed the cranial fragments from Manot Cave in West Galilee