Goodbye to all that paper

The Crest electronic share settlement system may cause some confusion, but Liam Robb tells investors: Don't panic

Crest, the new electronic share settlement system which went on- line on Monday, is meant to "dematerialise", ie replace share certificates with electronic holdings. With some of the recent coverage afforded the system, investors could be forgiven for thinking that the London Stock Exchange is about to be turned on its head. The message from stockbrokers, however, is clear: "Don't panic!"

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.

News
Ian Thorpe had Rio 2016 in his sights
people
Sport
Thiago Silva pulls Arjen Robben back to concede a penalty
world cup 2014Brazil 0 Netherlands 3: More misery for hosts as Dutch take third place
News
Tommy Ramone performing at The Old Waldorf Nightclub in 1978 in San Francisco, California.
peopleDrummer Tommy was last surviving member of seminal band
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

PROMOTED VIDEO
Life and Style
Several male celebrities have confessed to being on a diet, including, from left to right, Hugh Grant, Benedict Cumberbatch and Ryan Reynolds
life...and the weight loss industry is rubbing its hands in glee
Voices
Spectators photograph the Tour de France riders as they make their way through the Yorkshire countryside
voicesHoward Jacobson: Line the streets for a cycling race? You might just as well watch a swarm of wasps
Life and Style
lifeHere's one answer to an inquisitive Reddit user's question
Arts and Entertainment
'Eminem's recovery from substance abuse has made him a more potent performer, with physical charisma and energy he never had before'
arts + entsReview: Wembley Stadium ***
Sport
Joe Root and James Anderson celebrate their record-beaking partnership
cricketEngland's last-wicket stand against India rewrites the history books
News
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Finacial products from our partners
Property search
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

    Information Security Manager (ISO 27001, Accreditation, ITIL)

    £70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

    Biztalk - outstanding opportunity

    £75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

    Trade Desk Specialist (FIX, Linux, Windows, Network Security)

    £60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

    Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

    £35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

    Day In a Page

    Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

    How Saudi Arabia helped Isis take over the northern Iraq

    A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
    The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

    The evolution of Andy Serkis

    First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
    You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

    You thought 'Benefits Street' was controversial...

    Follow-up documentary 'Immigrant Street' has got locals worried
    Refugee children from Central America let down by Washington's high ideals

    Refugee children let down by Washington's high ideals

    Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
    Children's books are too white, says Laureate

    Children's books are too white, says Laureate

    Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
    Blackest is the new black: Scientists have developed a material so dark that you can't see it...

    Blackest is the new black

    Scientists have developed a material so dark that you can't see it...
    Matthew Barzun: America's diplomatic dude

    Matthew Barzun: America's diplomatic dude

    The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
    Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

    Meet the 'Quantified Selfers'

    From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
    Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

    Five-star reviews are just the opening act for British theatre's first non-white artistic director

    Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
    Mrs Brown and her boys: are they having a laugh?

    Mrs Brown and her boys: are they having a laugh?

    When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor
    Gavin Maxwell's bitter legacy: Was the otter man the wildlife champion he appeared to be?

    Otter man Gavin Maxwell's bitter legacy

    The aristocrat's eccentric devotion to his pets inspired a generation. But our greatest living nature writer believes his legacy has been quite toxic
    Joanna Rowsell: The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia

    Joanna Rowsell: 'I wear my wig to look normal'

    The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia
    Bill Granger recipes: Our chef gives raw ingredients a lift with his quick marinades

    Bill Granger's quick and delicious marinades

    Our chef's marinades are great for weekend barbecuing, but are also a delicious way of injecting flavour into, and breaking the monotony of, weekday meals
    A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

    A History of the First World War in 100 Moments

    Peace without magnanimity - the summit in a railway siding that ended the fighting
    Scottish independence: How the Commonwealth Games could swing the vote

    Scottish independence: How the Commonwealth Games could swing the vote

    In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport