Task force sets out paperless dealing plan: Bank proposes phased three-year move and offers to finance and run system

A PHASED three-year move to a new paperless share settlement system to be called Crest was recommended yesterday by a Bank of England task force set up in the wake of the collapse of the Stock Exchange's Taurus project in March.

The Bank of England also offered to finance and run the system if users decide not to take on the responsibility.

But Pen Kent, the associate Bank director who chaired the task force, said a decision on the ownership of the project would be left until later. It is expected to cost several tens of millions of pounds.

Another item on the agenda for later consideration is the Government's promise to abolish stamp duty on share transactions at a cost of pounds 1bn a year once paperless settlement is introduced. The collapse of Taurus has put the date off until at least 1996, when Crest is to start up. The task force said it hoped the concession would still be available.

Under the proposals, paper will not be abolished altogether, since small shareholders will be allowed to keep share certificates if they want, though it will almost certainly cost more to trade them.

The plans include a move in July next year to a 10-day rolling share settlement period, then to five days the following January, using the Stock Exchange's existing 20-year-old Talisman settlement system.

This follows international agreement that settlement periods should be shortened to avoid the risk of domino collapses in the markets.

Proposals to make Talisman the basis of the new system were dropped because it is old technology and not flexible enough for long-term needs.

The task force's plans were generally welcomed in the City. The pressure to find a compromise acceptable to private investors, institutions, market-makers, brokers, registrars and share custodians has led to a system widely admitted to be second best for most of the participants - but the only one acceptable to all.

Market-makers were concerned whether the new plans would cope with stock lending and borrowing. Some of the facilities available to them on Talisman will be unavailable on Crest because of complexity.

ProShare, which promotes wider share ownership, warned that the new system could endanger the rights of private shareholders and make it harder for companies to identify their shareholders.

But share registrars have dropped initial objections and have promised substantial improvements in their systems to cope with Crest.

The task force rejected proposals for a central depository for paper share certificates in favour of fully electronic settlement, except where shareholders specifically opt to keep certificates.

This will produce a two-tier market, split between professional and private investors, but the distinction will not be rigid. Private shareholders will be able to switch to electronic transfer by putting their holdings into nominee accounts maintained by brokers belonging to Crest.

In either case, ownership will still be logged on company share registers maintained by existing registrars, which was welcomed by companies.

The Bank will fund and organise work on detailed specifications, expected to take six to nine months.

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