Private Investor: After the Rock, what else could go wrong...
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 Man and woman arrested on suspicion of conspiracy to murder victim of Woolwich machete attack, named as Drummer Lee Rigby
- 2 'Sickening, deluded and unforgivable': Horrific attack brings terror to London’s streets
- 3 Grace Dent: I’m not sure how these people can avoid being called ‘bigots’. And the more ‘civilised’, the worse they are
- 4 Woolwich murder: They killed, then they performed - these men should be starved of our attention
- 5 Woolwich attack: The EDL will seek to exploit this evil crime for their own evil ends
BMF is the UK’s biggest and best loved outdoor fitness classes
Find out what The Independent's resident travel expert has to say about one of the most beautiful small cities in the world
Nook is donating eReaders to volunteers at high-need schools and participating in exclusive events throughout the campaign.
Get the latest on The Evening Standard's campaign to get London's children reading.
Win anything from gadgets to five-star holidays on our competitions and offers page.
Day In a Page
A modern home of almost 1,000sq ft is close to Stoke Newington's high street. £499,950
A five-bedroom bungalow in Hoveton with riverside garden and mooring dock, £550,000
A refurbished one-bedroom flat with south-facing reception and high ceilings. £579,950
A four-bedroom Grade II-listed house in Nazeing with large gardens. £550,000
A modern four-bedroom house in a converted stable within walking distance to Peckham Rye. £695,000
Three-bedroom house in a quiet residential area within close distance to Battersea Park. £450,000
A three-bedroom cottage within commuting distance of London, Norwich and Cambridge. £250,000
A two-bedroom cottage with a sun room and gardens in South Chard. £350,000.
A three-bedroom semi-detached house with original features including fireplaces and wooden flooring. £399,950
A modern two-bedroom flat split across two floors and close to several public transport links. £595,000
A one-bedroom flat with an open-plan reception/kitchen and private balcony. £315,000.
A bright two-bedroom garden flat between South Acton and Chiswick Park. £499,950.
A listed four-bedroom farmhouse with stables, set in four acres. £500,000.
A three-storey family home with four bedrooms and an extended kitchen/diner. £995,000.
A three-bedroom Hamstone cottage in the rolling Somerset countryside. £430,000.
A luxury one-bedroom apartment on the first floor of a converted Victorian house. £425,000.