Goodbye to all that paper
The Crest electronic share settlement system may cause some confusion, but Liam Robb tells investors: Don't panic
Wednesday 17 July 1996
First, Crest is a share settlement business managed by the Bank of England in the form of a company called CrestCo, with its shareholders drawn from the broking and banking communities. It stands independently of the Stock Exchange, which has opted out of being a settlement agency. Second, the system will, in the short term at least, make little difference to how the majority of private investors buy and sell shares.
It will, however, offer investors three choices as to how they hold their shares:
through a nominee account;
through retaining existing share certificates;
through sponsored membership of Crest.
For those who already hold their shares in nominee accounts - and who are therefore accustomed to never laying eyes on their actual share certificates - the industry's move to Crest will pass by unnoticed. Such investors will continue to buy and sell shares via their broker over the phone - and whether one particular stock has already passed through the dematerialisation process or not will not matter to them; the task of overcoming any unforeseen hiccups with the system will rest with the broker.
Similarly, for those who wish to retain their share certificates in paper form, little will change in the short term; Crest is designed to run parallel with the existing Talisman share transfer system and there is no obligation on investors to switch to electronic trading.
It is the third option, however - sponsored membership - which may initially cause confusion. The likely subscribers to sponsored membership are those investors who trade shares frequently but do not wish to open a nominee account with their broker.
Some investors feel uncomfortable with nominee accounts because although they own the shares, their name does not appear on the issuing company's share register. As a result, it is the broker, not the individual, who receives annual reports and who is entitled to vote at company meetings. In addition, certain shares carry with them perks not enjoyed by nominee customers; for example, P&O shareholders whose names are on the register qualify for discounts on ferries.
To become a sponsored member of Crest, an investor must first seek an authorised sponsor (a stockbroker or a bank, for example) and sign a sponsored membership agreement. The cost is pounds 20 a year, although some brokers may not pass on this charge. It is then simply a case of sending in the share certificates as and when the individual shares are due to be dematerialised. And herein lies a potential problem. For in an effort to avoid the trading of large volumes of shares which may clog up an as yet unproved system, the dematerialisation process, whereby listed companies create electronic share registers, is due to be implemented in phases. The transition is expected to take at least nine months to complete, with the first tranche comprising those companies identified by Crest as being unlikely to be affected by corporate actions, for example take-over bids. Therefore, an investor who opts for the sponsored membership route at the beginning of the transition could end up with some shares in paper form and some in electronic form. The result is likely to be a rather messy portfolio.
Like most stockbrokers, Ray Pinner, director of special projects at Greig Middleton, is advising his clients to hold off for the moment. "Crest should make share dealings much more efficient in the long run. However, those active clients who wish to retain share certificates will have problems if they become sponsored members now because they won't necessarily know when the individual stocks they are holding are due to be Crested," he says. "At the moment, therefore, we are encouraging potential sponsored members to open a nominee account until the efficiency of Crest is proved by the stockbroking and banking communities." The advice, then, is to let the institutions act as guinea pigs.
Although a nominee client would never see certificates for any securities, once the Crest system is fully operational, a sponsored member would still have to use transfer forms for gilts, unit trusts and overseas holdings and would relinquish only those Talisman securities that are eligible for Crest.
Not all investors are necessarily suitable candidates for nominee accounts, however, and the advice offered will depend to a great extent on the sort of broker you are speaking to - a point highlighted by Michael Savory, director of Midland Stockbrokers.
"I represent the nine million or so investors who hold only one or two shareholdings, picked up mainly from privatisation issues," he says. "The majority of my clients are not that interested in regular dealing and they are not too bothered whether it takes an extra day to settle their transactions. It would be uneconomic - both for me and for them - if I encouraged them to become sponsored members or to set up nominee accounts."
But some brokers are worried that not enough thought is being given to the problems that inevitably lie in wait for those investors who retain only one or two stocks in paper form.
It is expected that when Crest is fully operational in April of next year, the industry will reduce the settlement period allowed to complete a transaction from T+5 (ie, five days after the transaction) to T+3. Beyond that, there are already plans for a system called Real Time Cross Settlement, which would allow instantaneous dealing - in other words, T+O. As the settlement periods shorten, those retaining paper certificates will either struggle to find a broker who will transact for them, or if they do the costs may prove prohibitive. Some brokers have already hinted that they will be charging more for paper transactions come next April. This could leave the nine million or so investors that Mr Savory represents with a problem.
In its defence, Crest says that this is something for market forces to thrash out, and whether the cost of trading paper increases will depend on how many investors switch to nominee accounts or sponsored membership.
But given that many brokers would eventually seek to discourage the use of paper - for no other reason than that it keeps administrative costs down - Crest may unwittingly be sounding the death knell for paper transactions. The days of what is still essentially a quill and ink system look numbered.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Scottish referendum: So how about the English now being given a chance to split from England?
- 2 Friends 20th anniversary: Alison Jackson photographs reunited cast
- 3 London council removes 'unacceptable' Stamford Hill posters telling women which side of the road to walk down
- 4 The response to my Pizza Express review has been overwhelming, and taught me a lot about journalism
- 5 Free U2 album: How the most generous giveaway in music history turned into a PR disaster
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Archbishop of Canterbury admits doubts about existence of God
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
Day In a Page
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize