Private Investor: After the Rock, what else could go wrong...
Saturday 24 November 2007
The crisis at Northern Rock has had a salutary effect on many of us. Watching a British bank humbled in this way sharpens the senses. We never thought it could happen. It did. What else is supposed never to happen – but might?
One possibility is a problem with a nominee account. This is where you hold your shares with a stockbroker, but via a separate nominee company. Legally you are the beneficial owner of the shares, but the nominee company actually owns them. Whatever they may say, you don't own those stocks. You can write the script; a broker goes bust and, somehow, takes the nominee account with it; you stand to lose the lot.
Alternatively, and more realistically, the broker goes bust and the nominee account company survives, but there is a lot of wrangling about who owns what. This can be exacerbated by poor record-keeping by the broker. In those circumstances, you might well get your shares back, but not until you've undergone a fair amount of stress. And while it's all being sorted out, how do you sell a share you no longer wish to hold if the broker can't say if you own it, and is bust in any case? You are stuck. Imagine being lumbered with Northern Rock these past few weeks. You see the problem.
The UK Shareholders Association is a small but doughty body that tries to lobby on these matters. They point out that such a scenario is not, in fact, in the furthest realms of fantasy, but has happened recently to a UK institution, though admittedly not the sort of high-street name I'd be inclined to trust (no, don't mention Northern Rock again, thanks).
An outfit named Pacific Continental Securities specialised in promoting smaller companies such as AIM-listed stocks, and I've received a few of their unwanted and cheeky mailings in the past. I knew to steer clear of them because of the feeble and all-too-obvious way they tried to lure me in as a client. Lucky I resisted their sales appeal.
They were ordered to cease accepting new business by the FSA and soon after, in June, went into administration. The administrator subsequently sold some of the assets to Caspian Stockbrokers, which has since been renamed Brooklands Securities and operates from the same address as did Pacific Continental.
I have no idea whether they're any better, but let's say I'm not inclined to spend any time finding out.
Anyway, the shares purchased by investors from Pacific Continental were held by Pacific Continental in a nominee account.
After Pacific Continental went into administration the investors could not trade those shares until the administrator had established that they were the rightful owners of those assets, and had reconciled the claims of all the former Pacific Continental clients to the holdings on the share registers of the companies in which Pacific Continental had invested on their behalf. In effect, shareholders cannot obtain full title to the shares or sell them, even now.
The administrator doing their best in a difficult situation has had problems getting access to the details of the claimed holdings which are held by a third party. So even though the shareholders may well get the shares back, they'll probably be worth less than they were in the summer. There will be nowhere to turn to make good such a loss.
My fellow columnist, Derek Pain, has written a number of times about how hellish the brokers are making life for those who prefer the absolute title and certainty afforded by paper shares in their own name. Quite right.
The brokers are also none too keen on the alternative to paper and nominee accounts – the personal Crest account, though some offer the service, I'm pleased to say, such as Stocktrade, Brewin Dolphin and NatWest Stockbrokers. Crest is the electronic settlement system through which the London Stock Exchange settles bargains.
Participating shares (i.e. crest eligible) are held electronically, your name appears on the shareholders' register and it's about as easy to trade as it is with a conventional nominee account, though it can be a bit dearer. Most precious of all, your shares really are all yours.
You shouldn't need to do this, because the chances of the worst happening are tiny to nil, but then those of us who've lived through the Maxwell pension crash, the collapse of Barings and the near failure of Northern Rock may feel a little nervous about the supposedly impossible.
- 1 Fifty Shades of Grey trailer released: First look at Jamie Dornan as Christian Grey
- 2 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 3 50 books for students to read this summer: From Ernest Hemingway to Gillian Flynn
- 4 Students offered grants if they tweet pro-Israeli propaganda
- 5 Rebecca Hall on her film career so far: ‘I’ve played too many repressed neurotics’
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£60000 per annum: Harrington Starr: Trade Desk Specialist (Linux, Windows, FIX...
£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...
£70000 - £90000 per annum + Job Satisfaction: Harrington Starr: Project Manage...
£300 - £350 per day: Harrington Starr: C#.NET Developer C#, WPF,BLL,MVVM, SOA...
Day In a Page
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
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