The nine million Britons holding paper share certificates are being asked to ditch the status quo in favour of an all-electronic system being proposed through consultations led by the Institute of Chartered Secretaries and Administrators (ICSA)
Launched this week and open to comment for the next three months, the consultation will focus on issues such as how to implement a transition, ensuring investors are able to access the full benefits of the CREST electronic settlement system while still retaining the shareholder rights that currently come with certificates.
The solution, according to the proposals, is to introduce a Shareholder Reference Number that would be unique to each certificated holding.
The SRN would have to be inputted into a broker’s system at the point of trade before the stock is transferred to the broker’s clearing account within CREST.
While about 85% of investment activity already goes through CREST, the remaining 15% does not as the shareholdings are held in the form of certificates.
As long as this remains the situation UK plc and investors may be missing out relative to other markets, where the so-called dematerialisation process is much further advances, says Giles Peel, policy and development officer at ICSA.
ICSA’s consultation documents suggest benefits from going all-electronic include reduced costs of holding shares in certificated form, faster trading, and reduced fraud.
An industry-wide clearing and settlement time of T+3 (trade plus three days) is envisaged, rather than the T+5 or T+10 periods more often the case currently for trades where buyers want certificates. Peel says faster clearing and settlement of, say, T+1 or even T+0 would theoretically be possible, but that will depend on how the clearing banks respond to pressure currently being applied by government and regulators to speed up the clearing infrastructure across the UK for all types of financial transactions.
The OFT is separately pushing on this issue in response to pressure from consumer groups on the issue of the current typical time of three days taken to clear cheques written on personal bank accounts.
All-electronic trading already exist for those willing to use nominee accounts with stockbrokers, such as those used by investors investing through maxi-Isas.
Peel expects use of the SRN to sit alongside nominee accounts, with the major difference being that they would ensure full shareholder rights, such as the ability to vote at company annual general meetings.
Implementing the suggested changes may require a section inserted in the Company Law Reform Bill, but once implemented could see the changes take place as soon as early 2008.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Jonathan Boyd on 020 7484 9769 or email [email protected].IFAonline
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