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

Finacial products from our partners
Property search
  • Get to the point
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

    Recruitment Genius: Retirement Coordinator - Financial Services

    Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

    Recruitment Genius: Annuities / Pensions Administrator

    Negotiable: Recruitment Genius: You will be the first point of contact for all...

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

    The saffron censorship that governs India

    Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
    Prince Charles' 'black spider' letters to be published 'within weeks'

    Prince Charles' 'black spider' letters to be published 'within weeks'

    Supreme Court rules Dominic Grieve's ministerial veto was invalid
    Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

    How did fandom get so dark?

    Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
    The galaxy collisions that shed light on unseen parallel Universe

    The cosmic collisions that have shed light on unseen parallel Universe

    Dark matter study gives scientists insight into mystery of space
    The Swedes are adding a gender-neutral pronoun to their dictionary

    Swedes introduce gender-neutral pronoun

    Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
    Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

    Disney's mega money-making formula

    'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
    Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

    Lobster has gone mainstream

    Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
    Easter 2015: 14 best decorations

    14 best Easter decorations

    Get into the Easter spirit with our pick of accessories, ornaments and tableware
    Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

    Paul Scholes column

    Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
    Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

    The future of GM

    The greenhouses where Monsanto 'plays God' with the future of the planet
    Britain's mild winters could be numbered: why global warming is leaving UK chillier

    Britain's mild winters could be numbered

    Gulf Stream is slowing down faster than ever, scientists say
    Government gives £250,000 to Independent appeal

    Government gives £250,000 to Independent appeal

    Donation brings total raised by Homeless Veterans campaign to at least £1.25m
    Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

    The most borrowed book at Bank of England library? Oh dear

    The book's fifth edition is used for Edexcel exams
    Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

    Cowslips vs honeysuckle

    It's the hunt for UK’s favourite wildflower
    Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

    Did a botched blackmail attempt help Cyril Smith escape justice?

    A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss