Wind of change blowing through stock market: Private shareholders face pressure to join brokers' nominee accounts

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The Independent Online
THE SYSTEM of share dealing is about to change, affecting all active share traders. The first stage of the move in the middle of next year will sweep away the old way of dealing within a set three-week period. Trades will go on rolling settlement with the initial change to settlement 10 days after the bargain is struck.

This does not involve fundamental change as 10 days is long enough to send share certificates through the post and clear cheques.

But the 10-day scheme is designed as a staging post lasting no more than six months. Then the timetable will be tightened to five working days, with three days as a long-term goal.

When the five-day period becomes the norm, brokers will need to know that they have funds before they will buy shares on behalf of clients. So they are likely to set up banking arrangements to persuade clients to keep money on standby with them.

Albert E Sharp, the Birmingham stockbroker, already has a working arrangement using Bank of Scotland, which gives clients an Albert E Sharp-branded cheque book and plastic card to gain access to a deposit account. The first pounds 3,000 on deposit earns 5 per cent below base rate (ie 1 per cent) and higher sums 0.25 per cent below base (ie 5.75 per cent). Arranged overdrafts are charged at 1 per cent over base, and others at 3 per cent over base.

Ted Greey, a director of Albert E Sharp, said: 'We will use the account to settle trades. We will have much lower share-dealing charges because we will have the cash at hand.'

But rolling settlement is only part of the coming change. The other element of Crest, the successor to the failed Taurus system, is paperless share dealing.

Private clients have been assured that they can keep their share certificates if they want to. The report by the Bank of England states: 'Existing shareholders who do not trade will not incur any cost on the introduction of this service. Relatively inactive investors, who only occasionally buy and sell, may still find that the certificated route is the cheapest way of handling shares.'

While infrequent share dealers may use one-off, cash settlement, execution-only brokers, the active traders will be edged towards a closer relationship with one stockbroker.

As Richard Twydell, marketing manager of the stockbroker Henderson Crosthwaite, said: 'You will either use one of the banks or dealer such as ShareLink, or you will be dragged towards investment management - either discretionary or active. In other words, if you are active, you will have to join your stockbroker's club, and get the benefit of its systems.'

Justin Urquhart Stewart of Barclays Stockbrokers said he was concerned that the push towards getting active private clients into nominee accounts would sever the direct relationship investors felt with companies.

'Investors will be worried about losing perks, like cheap dry cleaning, and their right to get full information and attend meetings,' he said.

Laurie Faulkner, senior vice-president at Fidelity Brokerage, said investors were already actively encouraged to hold stock in nominee names to cut down on paper and cut costs. But he said that those who chose to hold shares in their own names would not be charged extra.

Richard Larner, managing director of Norwich broker Waters Lunniss, said he welcomed the report's assurance that investors would not be forced to abandon their certificates. 'I'm in favour of anything that doesn't railroad clients. It will not necessarily be cheaper to move clients into nominee companies.'

Susan Concannon, special projects director of ShareLink, the Birmingham- based dealer that has developed telephone and postal dealing, also welcomed choice. She said brokers would be out of pocket on five-day settlement because of the time taken for cheques to clear. 'Brokers will need to charge interest for the days when they are out of the money. But they can offer good rates of interest to those who leave money on deposit with them. There are benefits in both directions.'

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