Settlement - how nominees work
Business on the London Stock Exchange is settled a fixed number of days after dealing, currently what is known as T+3 (transaction day plus three working days).
All transactions have to be settled - that is to say, all stock and money transferred - three working days after dealing. It is still possible to deal for delayed settlement, such as T+10, but this may not prove to be so advantageous. All APCIMS members can advise on this.
In 1996, a new settlement system known as CREST was launched. CREST allows investors to retain conventional paper share certificates if they wish, but is encouraging cheaper transactions and faster transaction times by settling as many bargains as possible electronically. Instead of holding paper share certificates, shareholders have their holdings recorded electronically, like money in a bank account.
The problem of day-to-day physical control of your share certificates can be solved using nominee services. These remove a lot of administrative work , ensuring prompt settlement of transactions. If you take advantage of this service, your shares will be registered in the nominee company's name. Your investment adviser will then be able to handle all the administrative paperwork for you (such as transfer deeds, dividend claims and rights issue documentation) without having to send documents backwards and forwards through the post.
This means, for instance, that you will not miss a deadline for signing a document if you are on holiday and uncontactable. Otherwise, if you are unable to settle your deal on time you may have to pay a little more if you are buying or get a little less money if you are selling.
You remain the beneficial owner of the shares, even though your name does not appear on the company share register. You do not have to be a discretionary client to use the nominee service - it is purely an administrative service designed for your and your stockbroker's convenience. Please also note that nominee companies owned and controlled by APCIMS members are monitored very carefully by their external auditors and by their regulators.
Given the problems you would face if your personal share certificates were lost or stolen, it is often safer to have your shares held in a stockbroker's nominee company. If you do hold your shares in a stockbroker's nominee for which the stockbroker has accepted full responsibility, you will be eligible for compensation on exactly the same basis as if the shares were held in your own name.
Some APCIMS members offer CREST Personal Membership (CPM) as a special service for those clients who want the benefits of electronic shareholding but who want the shares to be held directly in their name. A special nominee account within CREST is created for the client, which means that he or she can enlist to receive regular company communciations (such as reports and accounts), attend and vote at company meetings and receive any additional shareholder perks.
Nex: Charges