One nuisance after another
Saturday 20 May 1995
In July 1994, the Stock Exchange set out to overcome the nuisance of delay and uncertainty inherent in the traditional two-week dealing period known as the "account". Until that time, all share transactions in one account were not due for settlement until the second Monday following the end of the period. That meant that it could sometimes be as long as three or more weeks before investors received the cash for shares they had sold or were registered as owners of shares they had bought.
Instead, the exchange introduced "10-day rolling settlement", where all transactions would be settled 10 business days after they took place. On the face of it, this looked straightforward enough. Investors would easily be able to predict when they would have to hand over their money or their shares. However, it simultaneously introduced the new nuisance - the need for faster administration.
Unless investors delivered cheques promptly, clearing times could mean that their funds were not available on settlement day. Similarly, any delay in delivering share certificates could lead to problems in receiving payment.
Now the Stock Exchange is making further "progress". On 26 June, the 10-day settlement period is reduced to five days. The tighter deadlines will make it even more important for the investor to have a reliable method of achieving settlement.
The solution for many people is to switch from holding share certificates in their own name to joining a "nominee company", run by a stockbroking firm or other financial adviser.
The firm then takes on all the administration of settling transactions on behalf of the investor and the investor no longer has the nuisance of having to check and keep share certificates.
However, this in turn introduces a new nuisance. While the investor remains the beneficial owner of the shares, he or she is no longer separately named on the share register. Consequently, he or she will will no longer automatically receive reports and accounts for the companies in which shares are held and can lose the right to vote, to attend meetings and even to receive shareholder perks.
Of course, it is possible for the investor to retain all these things while in a nominee - but usually at a cost.
There is an alternative, though, and one that is not often publicised. For some investors, it is worth just continuing as before. There are a few caveats but shareholders should not be bamboozled into joining a nominee without giving the matter proper consideration.
Confused? Here are a few questions you should be asking yourself:
How often do I trade in shares? If the answer is "no more than once or twice a year", the cost and nuisance of a nominee may outweigh the possible costs of settling a day or two late. Stockbrokers can make special arrangements with the Stock Exchange for non-standard settlement and investors should ask their advisers whether they can offer this facility.
How confident am I of dealing with the paperwork and taking the risk of possible late settlement? If you are confident, again there may be no need to go to the trouble of entering a nominee arrangement.
Do I trust a third party to hold shares on my behalf? If not, it may be preferable to put up with the administrative headache than pass ownership responsibility to a nominee. Of course, nominees are generally run by reputable organisations and special rules ring-fence their assets from those of the parent company.
Nevertheless, as Barings showed, there is a risk involved although it needs to be offset by the risk of holding, and possibly losing, certificates oneself.
Certain shareholders may already be in a nominee without realising it and need take no action. For example, PEPs are held by nominee companies, as are company share savings schemes. If your only shares are held in these ways, the new settlement rules will not affect you directly.
Progress, of course, is never-ending. The move to five-day rolling settlement merely paves the way for the next bit of progress, electronic settlement. This will arrive in about 18 months' time in the form of a system known as Crest.
The Stock Exchange hopes the nuisance of paper-based share trading will then be banished altogether. Far be it from me to suggest that it could possibly create a new nuisance, when shareholders suddenly find they have no certificate to prove what they own.
The author is business development director of Barclays Stockbrokers.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Thailand deaths: Pair's bloodied bodies found naked on Koh Tao beach
- 2 Scottish independence: Ireland since 1919 is a lesson for Scotland in what a Yes vote means
- 3 Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
- 4 John Travolta addresses former pilot's gay romance allegations publicly for the first time
- 5 Kanye West stops concert after two fans don't stand up - doesn't realise one is in wheelchair and the other disabled
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Scottish independence: Yes campaign feels the heat as Alex Salmond's NHS claims come under furious attack
Portuguese academic says British are 'filthy, violent and drunk'
£23m Birmingham cycle scheme is attacked by Tory councillor for not catering to the elderly
iJobs Money & Business
£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...
£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...
£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Day In a Page
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
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony