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.
Compare with the Independent: See how much you could save by switching credit cards. Compare now
- 1 Refugee facing deportation from Sweden saved by fellow passengers refusing to let plane leave
- 2 The best movies on Netflix: 32 films that will end your endless scrolling
- 3 Naked yoga: the bare truth - it's already big in the US, and has now landed here
- 4 24 people applied for the 'world's toughest job', here are their interviews
- 5 Drugs giant GlaxoSmithKline bribed doctors to boost sales, says whistleblower
David Cameron: 'Jesus invented the Big Society – I'm just continuing God's work'
US Navy christens huge $3 billion destroyer ship USS Zumwalt that appears as a fishing boat on enemy radar
Nigel Farage fatigue? Half of voters ‘immune’ to Ukip’s appeal
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
Nigel Farage on Have I Got News For You: Ukip leader ridiculed over expenses and party 'fruitcakes'
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
iJobs Money & Business
£40000 - £50000 per annum + BONUS + BENEFITS: Harrington Starr: A leading, Cit...
£35000 - £50000 per annum + Bonus + Benefits: Pro-Recruitment Group: You must ...
£45000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: Corporate Acti...
£350 - £400 per day: Harrington Starr: An opportunity has arisen at a FCA regu...
Day In a Page
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
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds