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
http://www.crestco.co.uk/: 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.