Your Money: Share system ends in tiers

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The Independent Online
ANYONE who either owns shares or plans to buy some should take an interest in last week's collapse of the Taurus project, the embryonic share registration and settlement system.

This was to have been the great revolution that swept away paper share certificates and brought in swift trading through a system of inter- locking computerised account holders.

Now the question is whether there was too much compromise to devise a system that could accommodate huge institutions and the ordinary people who wanted to invest a few pounds.

The Thatcherite view was that the market would sort out the details, and according to many who see the shares world through the eyes of private investors, the banks muscled their way to powerful positions with their giant, unregulated registrar departments.

'Taurus was a monster,' said David Jones of Sharelink, the Birmingham- based stockbroker that has carved out a way of dealing for private clients on the telephone or by post. This suits those who do not expect to meet their pin-striped broker for a sherry now and then.

This new breed of investor bought into the stock market on the tide of 1980s privatisations and just wanted a good deal and good dealing.

Sharelink has already set up trading using nominee accounts that give bulk to the deals and offer economies of scale.

Mr Jones is not perturbed by the prospect of a two-tier stock market - with one arena for the big institutions, which will set up their own computerised instant settlement system, and another for private clients who can deal in smaller lines of stock and perhaps take longer about it.

He believes the difference between the price of, say, BP shares on the institutional market and on the private client circuit will be no greater than the current margin between the prices offered on huge numbers of shares and the odd handful.

Add in different commission levels and different levels of service, and in many ways there is already a two-tier system. Recognising it may be no bad thing.

The US runs a two-tier share system, with a few traditionalists clinging to their paper shares and being dubbed 'bad names' for their quaint ways. This is because brokers find dealing with the paper a bore and are less confident of good title when they embark on a selling transaction - so they offer a poorer price.

Another advantage of a two-tier market is that there could be two settlement periods. Britain is already committed to abandoning the current two or three-week Stock Exchange periods in favour of rolling settlements.

Under Taurus, this was to go from five to three days - which is fine for the institutions and their electronic money exchange systems.

But for private clients and their stockbrokers, who have to rely on cheques that take three days to clear (never mind the minimum 24 hours that the Post Office requires to shift an envelope across town or country), it is not difficult to see that three-day settlement poses awful problems.

In the US, complex banking arrangements have grown up as an integral part of the settlement system to jump this hurdle. Client management accounts offer deposit accounts, cheque books, credit cards and easy credit with share portfolios as collateral.

In the UK, an American firm, Pershing, has already signed up around 20 small brokers who contract out their settlement. The first broker to join up was Killik & Co. Director Matthew Orr says that if the UK moves to three-day settlement, small broking firms will not have the capital to stand the cash- flow strain.

The pressure on private clients to operate through a nominee name operated by a broker is likely to step up. But clients will have to be wary about the financial stability of any firms they use, as they will be holding their stock.

HOW would you like power over all the taxmen and women in the country?

There is a job (part-time) going for the tax system's own ombudsman - no tax experience needed, although it will probably help to have paid tax.

The Adjudicator will rule on complaints about discourtesy, delay and wayward use of discretionary powers. As the ad (in today's paper) says: some complaints are justified and some are not.

The Inland Revenue says it is keen to attract a wide range of applicants so it can select a genuine outsider. A 20-hour week, around pounds 30,000 a year . . . tempted?