One nuisance after another

The sexologist Havelock Ellis might well have had modern shareholders in mind when he wrote in 1912: "What we call `progress' is the exchange of one nuisance for another nuisance."

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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Life and Style
Suited and booted in the Lanvin show at the Paris menswear collections
fashionParis Fashion Week
News
i100
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
News
An asteroid is set to pass so close to Earth it will be visible with binoculars
news
News
Finacial products from our partners
Property search
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: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

    £45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

    Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Day In a Page

    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project