The European Securities Forum (ESF) has published a proposal to dematerialise share certificates in the UK.
The proposal emerged from an Industry Working Group led by UBS Investment Bank and including representatives from the broker community, the registrars, LSE, CrestCo and industry associations such as ESF which looked how to eliminate paper-based share certificates and transfer forms.
ESF says the Working Group also considered “options to further facilitate shareholders’ enfranchisement.” By which it means that a paperless, electronic approach will make it easier to vote proxies.
The Working Group recommends full dematerialization of all shares issued in the UK; enfranchisement of all shareholders, whether they hold their shares directly or indirectly, so that they have the opportunity to receive company reports and to vote; and the establishment of a second working party to refine the details of the proposed solution and formulate a detailed implementation plan.
Any solution will require legislation. But ESF says dematerialization will reduce trading costs and transaction times for individual investors, and make it easier for them to vote. More broadly, ESF reckons dematerialization will increase levels of automation, making settlement more timely and efficient, and generate net savings of between 110 and 230 million over the first three years if the proposals were implemented in full.
“Dematerialisation would significantly lower the costs for companies, brokers, registrars and the individual investor,” says Werner Frey, CEO of ESF. “This proposal, if adopted, would moreover mark a major improvement in the rights of shareholders who hold their UK securities through nominees.”
The Working Group hopes the legislation needed to implement the recommendations could be included in the Company Law Reform Bill due to be published later this year. To that end, it has sent its proposals to the Department of Trade and Industry for consideration.