Latest developments in CREST

United Kingdom

In recent newsletters, CRESTCo has provided an update of various developments relevant to issuers and market participants.

Progress of dematerialisation

According to CREST, "the vast bulk of holdings and transactions in securities are now electronic ", and rights issues and takeovers are now routinely processed completely electronically. CREST is also working to do the same for open offers and schemes of arrangement. There remains a small number of securities (known as 'residuals') that are issued and traded in the UK or Ireland that are not currently eligible for CREST, but these are expected to be brought within the system over time. In addition, there is a long tail of mostly small individual holdings of securities which continue to be evidenced by a physical share certificate.

CREST enables investors to choose whether to hold their shares in certificated or uncertificated form by allowing them to deliver or receive share certificates in settlement of their sales or purchases through the CREST Courier and Sorting Service (CCSS). However, the number of certificated deliveries through the CCSS is on a "declining trend", and the number of stock deposits and withdrawals has halved since two years ago. CREST has been looking at possible alternative structures for individuals to own shares in their own name without the need for the delivery of physical share certificates, but as yet no consensus has been reached on an appropriate model. Discussions about alternative structures will be continuing.

Money Market Instruments (MMIs)

As part of CREST's programme to enable as many securities as possible to be dematerialised, from 15 September this year it has been possible to issue new MMIs directly into CREST (see our LawNow article published on 26 August 2003). MMIs include treasury bills, bills of exchange, certificates of deposit and commercial paper. The migration of existing MMIs from the Central Moneymarkets Office (CMO) system into CREST is expected to be completed this month.

Electronic Proxy Voting

In January this year CREST's electronic proxy voting service went live. The service, which was introduced with the aim of allowing dematerialised shareholders to exercise their proxy votes more efficiently, was timed for launch as the 2003 company meeting season was about to begin. Dematerialised shareholders are able to return proxy forms with voting instructions to the issuer through the CREST system, and the issuer is able to ascertain the proportion of votes for and against in real time as the proxy votes come in.

CREST reports "mixed" success for the new service. So far, 74 issuers (comprising 45 FTSE 100 companies, 21 FTSE 250 companies, and eight others) have used the service, but another five FTSE 100 companies need to sign up before CREST meets its own target for this year. The slow take-up is thought to be for three main reasons:

  • The timing of the introduction of the new service was too late for many issuers to use the new service at their 2003 AGMs;
  • Many companies were advised to change their articles of association before attempting to use the new service, despite it being thought by CRESTCo that changes introduced to the model articles in Table A by the Companies Act 1985 (Electronic Communications) Order 2000 would in most cases allow proxy voting by means of CREST, even if a company has not expressly adopted those changes; and
  • In spite of a number of high profile and controversial resolutions at this year's AGMs, levels of votes cast at company meetings appear to have fallen this year. However, institutional voting activity may be expected to increase next year, when the new Combined Code on Corporate Governance will be in place: its 'supporting principles' include a requirement for institutional shareholders to "take steps to ensure that their voting intentions are being translated into practice" and, on request, to "make available to their clients information on the proportion of resolutions on which votes were cast and non-discretionary proxies lodged".

The Institute of Chartered Secretaries and Administrators has produced a helpful guidance note on using the CREST proxy voting service, which is available here. This will open a PDF in a new window.

Payment of Electronic Dividends and Interest

Earlier this year CREST announced that from the beginning of next year companies and other bodies paying dividends or interest will - by agreement with the recipient - be able to do so electronically and will no longer need to send a dividend voucher or tax deduction certificate to the recipient by post. The new service was scheduled to go live on 1 January 2004 but, after discussions with issuer representatives, CREST has decided not to introduce the new functionality until immediately after the main season of AGMs in 2004. This will allow a number of issuers to use the system for their second dividend payment in 2004 if they so wish, and will provide more time for the market to prepare for the 2005 season. The service will therefore now be introduced in July 2004.

Stock Lending Data

In May CREST responded to the FSA's review of short selling by announcing that it will publish data on stock borrowing and lending in CREST. From 29 September such data became available in the 'products and services' section of CREST's website until 20 October the data will be available free of charge, and after that monthly summary data will be available free, with a fee being payable for access to the daily data.

CREST hopes that making this data publicly available "will enable investors to make better informed decisions and put their own activity in the context of the market overall, as well as promoting the better informed public debate on issues such as the impact of stock borrowing on voting or short selling."

Copies of the newsletters (which also cover other issues) are available on the CREST website here.