Electronic shareholding should no longer play the little sister to paper shareholding, according to ...
Electronic shareholding should no longer play the little sister to paper shareholding, according to a report released by the Association of Private Client Investment Managers and Shareholders.
The Way Forward document says while many other countries are moving toward a fully dematerialised shareholding system "there is potential detriment to the UK as a financial centre if we continue to increase the number of paper shareholdings and do not commence steps toward total dematerialisation".
The central proposal of the document is that all shareholders - regardless of whether they hold their shares in paper or electronically in the stockbroker's account - should enjoy equal rights under company law.
This would give an alternative to the current slow and expensive process of trading paper share certificates and encourage private investors into electronic shareholding.
APCIMS chief executive Angela Knight says paper shareholders often enjoy more rights than those holding them electronically at the moment.
"Most importantly they can vote or appoint a proxy at company meetings," Knight says.
"This is fundamentally wrong and needs to be addressed urgently. Of equal importance is the need to create a system which gives investors the reassurance of a piece of paper, a 'share statement', while giving them the convenience and cost benefits of electronic trading."
Knight says the document details an effective way forward which is small investor friendly.
"Nobody would have to give up their existing paper certificates if they didn't want to, but the changes proposed here make life simple, cheap and secure for the small investor who wants to trade.
"Market structure changes always forget about the individual - this initiative has the individual as its focus."
The detailed proposal is the 'issuer sponsored dematerialised account', in which shares are held electronically in the investor's name. The investor accesses the account using a personal identification number (PIN) and receives regular written confirmation of every share holding.
The report was prompted by the extent to which private client stockbroking firms customarily handle large numbers of certificated trades as many individual investors still hold some or all of their shareholdings in this manner.
"Although strenuous efforts have been made to move regular investors into brokers' nominees, without change it is unlikely that further progress can be made," the report says.
"From a purely commercial perspective, universal ease and cheapness of dealing on a UK, European and international markets basis will only be achieved when all private shareholders hold their shares in an electronic or dematerialised form."
According to the report, while there are clear cost incentives for firms in compulsory dematerialisation, it is an action that Government is unlikely to take.
From the point of view of the shareholder, those individuals who have a few shareholdings but do not trade do not have any additional costs for holding the certificates, but dormant shareholdings in a nominee can be subject to ongoing charges. Not surprisingly this acts as a deterrent to many to dematerialise their shareholdings.
The Way Forward set of recommendations will now be put forward for consultation with CREST, the London Stock Exchange, DTI, Treasury, the Bank of England and registrars.
More information: www.apcims.co.uk
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