View from City Road: Cut the bull and leave the Bank in the china shop
Friday 02 July 1993
The proposed system is nobody's first choice. But Crest has the overwhelming advantage that the Bank of England has been able to carry along with it all the main vested interests, including the registrars, whose stubbornness is blamed by some for making Taurus over-complex and sowing the seeds of disaster.
The Bank is funding the next stage, drawing up detailed specifications. It is widely expected to design and build the whole system, but has drawn back from committing itself, saying it will be willing to take the responsibility if Crest's users decide against ownership.
This is pussyfooting, since the key development that restored confidence after the Taurus debacle was the Bank's direct intervention. There would be disappointment if it did not carry out the whole job. With experience of gilts and money market settlement under its belt and another project on Euro-securities under way, it makes sense for the Bank to finance and run Crest.
Indeed, if the Bank is as good as it thinks, why not aim to float off all the settlement operations at a profit, as a commercial business?
There are plenty of snags to be ironed out. Weaker share registrars may have difficulty meeting the new technical standards. The system will not be able to do everything for market makers that Talisman does. For example, it is hard to see how Crest will cope with stock lending and borrowing. It will handle rights issues, partly-paid new issues, conversions, scrip dividends and takeovers, but some other operations done by Talisman may have to be put back on paper. The argument for this is that Crest must avoid the over-complexity that brought down Taurus.
Small shareholders will worry that higher charges for paper share certificates will force them towards electronic registration. And there is concern that it will be harder for companies to identify their shareholders, as more are encouraged to join a pool of nominee holdings in the electronic system rather than hold shares directly in their own name.
In fact, the registrars will be fed information about changes of ownership direct from Crest's computers. Mr Kent hoped Crest would make it easier and faster to see through nominee holders to the beneficial owners. If the system fails to live up to this promise, the notification threshold for share stakes should be dropped another notch to 2 per cent.
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