Instead of settling up with their broker at the end of a two- or three-week account, netting off sales and purchases, the private shareholder will now be expected to meet his obligations on a gross basis not more than 10 days after placing an order. By January next year, the time scale will have shrunk to five days. Ten days might just about be long enough to allow for the vagaries of the UK postal and banking system, but five days is surely too short. Hence the concern that the private shareholder will be consigned to second-class citizenship able to deal only at less favourable prices than big investing institutions.
The ultimate goal of rolling settlement is the Crest automated settlement system, scheduled to come into operation in 1996. Unlike Taurus, its doomed precursor, Crest can cope with share certificates but it will work best when users deal out of nominee accounts, operated by brokers. If the private shareholder embraces nominee accounts there should be no problem in fitting in with Crest. There's a big downside, however. Nominee accounts will undoubtedly mean greater anonymity for the small shareholder, and in all but the best firms it could cut him off from company accounts, rights issue documents, annual meetings and other information.
Some of these concerns are undoubtedly exaggerated. A few securities houses, notably Smith New Court, are setting up new systems to allow their country broker clients to continue with two-week settlement should they wish. And most firms that operate nominee accounts treat their private clients with all due respect, sending them company accounts and other important documentation. However, as Eddie George, Governor of the Bank of England, pointed out last week, it is a hit-and-miss process requiring some goodwill.
A little tardily ProShare, the crusader for wider and deeper share ownership, has added its halfpenny worth. Funded by the Bank of England, the LSE and HM Treasury, it is to examine what private investors want from rolling settlements and Crest with a view to drawing up a code of conduct. Anything less would certainly be a heavy blow to the interests of wider share ownership and shareholder democracy. If private share ownership is to survive rather tougher measures might have to be taken.Reuse content