Investors who buy and sell shares actively, and hold their shares in certificate form should take action to transfer their share certificates into electronic form. But they need to shop around among stockbrokers before making the change because the charges and services involved vary widely.
The need to hold shares in electronic form follows the introduction of the T+3 settlement period for buying and selling shares. It means that buyers and sellers now have only three days to complete the transaction. Completion includes the transfer of share certificates - if the shares are held in that form - as well as transferring payment. With the settlement period expected to be reduced to T+1 (settlement one day after the trading day) within about 18 months, and possibly eventually to T+0, investors who hold their shares in certificate form will find it almost impossible to sell at the price quoted on the day they decide to sell. This is because, in most cases, stockbrokers will require a client's share certificate before they execute an order to sell the shares.
If the share certificate has to be posted to the brokers, the client will not be able to sell until it reaches the broker's office.
There are two options for holding shares in electronic form. People can hold their shares in a nominee account at a stockbrokers or they can register for a Crest Personal Membership Account. To get into either system, they will have to go through a stockbroker in the same way as if they were selling or buying shares.
Holding shares in a stockbroker nominee account means the shareholder's name will disappear off the company register and communications about the company will come from the stockbroker. The shareholder will continue to own shares in the company but the stockbroker will send out dividends (or credit them to the investor's account), annual reports and company information.
The main advantage of holding shares through a nominee account is that the shareholder can deal quickly when prices move - through a phone call to the broker.
The disadvantages are that the investor can only sell through the stockbroker where the nominee account is held and will have to pay an annual charge for maintaining the account in addition to the broker's normal dealing charges. To get into a nominee account, a shareholder would have to open an account with a stockbroker and lodge their share certificates with the broker.
To hold shares through a Crest Personal Membership Account, a shareholder will have to get a stockbroker to sponsor their application to open a Crest account. Each account holder is given a number that they must quote when they are putting a share sell order with a stockbroker.
The advantage of the Crest system is that the investor can sell their shares through any stockbroker by quoting their Crest number, their name remains on the company share register and they get dividends and other communications directly from the company. The disadvantage is that there is an annual charge for the service.
However, the choice for investors is limited because most stockbrokers are offering only their own nominee accounts. This ties the investor to dealing through the particular stockbroker, though an investor can request a transfer to another broker's nominee account. Davy, Goodbody, NCB and ABN Amro confirmed that clients would be offered only the firm's own nominee account at this stage. The brokers said they had not yet got the systems in place to offer Crest Personal Membership Accounts.
Of the brokers who provided their charges for nominee accounts, ABN Amro private clients division was the most expensive with an annual charge of £300 (€380). But this charge includes a high level of service, including liaison with a client's tax advisers and accountants.
NCB has a £50 annual charge but is offering a refund if the client does five deals or more in the year. Davy's annual nominee account fee is €25 (£19.83) but it is being waived for six months to encourage clients to enrol. Goodbody has no charge for its nominee account "because processing through nominee accounts is easier for us and for the clients".
But a valid comparison of charges has to include dealing charges. Davy and NCB dealing charges will be £10 less per deal for investors with nominee accounts. There will be no change in charges at Goodbody and ABN Amro.
Investors can continue to hold share certificates. In time, however, it is possible stockbrokers may discriminate against paper holders in the dealing charges' structures.
But for investors who buy shares to hold for long periods and are unlikely to have to sell in a hurry, there is no disadvantage in keeping the certificates.
