Brokers attack proposed Crest charges criticised

Small investors will face higher commissions, say critics

TOM STEVENSON

Deputy City Editor

Small shareholders will face higher commission charges following the introduction of automated settlement next year, critics claimed after the proposed tariffs for the Crest system were put out to consult- ation yesterday.

The Association of Private Client Investment Managers and Stockbrokers (APCIMS) said it had serious concerns about the charges that Crest's operators will levy on brokers for settling bargains on the new computerised system, a replace- ment for the ill-fated Taurus system.

Despite the criticisms, the Crest project team said the new system was on time, on budget and on course to reduce the settlement costs of stockbrokers by between 40 and 50 per cent. Crest estimates the total annual costs of the new system at pounds 28m-pounds 33m compared with the Stock Exchange's current income from settlement services of pounds 56m.

But John Cobb, chairman of APCIMS, said: "We believe that paper-based investors, who are currently responsible for a large majority of the transactions effected on the Stock Exchange, will be penalised by the proposed arrangements."

He calculated that the settlement element of the commission a small investor pays on a small bargain worth pounds 1,000 could quadruple from the 75p currently charged by the Stock Exchange's Talisman system to pounds 3.

Mr Cobb added: "Our concern is that this overall charge will form an unacceptably large proportion of a retail bargain."

The opposition of APCIMS to the Crest charging proposals hinges on a decision taken by CrestCo, designers of the system, to charge a flat fee for bargains regardless of their size. That is in contrast to the current Talisman arrangement, whereby brokers are charged more for settling a larger deal than a smaller one.

According to CrestCo, its proposed tariff structure reflects the real cost of settlement more closely, as the marginal cost of settling a pounds 1m deal is no more than that for a pounds 1,000 bargain. Small investors, it suggests, have been subsidised by large investing institutions.

As well as being fairer, CrestCo claims any increased cost on small bargains is likely to be too small to have much effect on investors' desire to deal. The cost of settlement is only a small part of the commission an investor pays to a stockbroker, so even if any increase is passed on in full, total commissions might only rise by about 5 per cent - or pounds 1 on a pounds 20 commission.

CrestCo also claimed that the average investor and average retail broker would be no worse off than at present.

Crest is due to be launched next July. Definitive transaction charges are expected to be published next April.