Your Questions About CREST and Euroclear Answered
Meredith Charles is proud to announce the listing of the PARDUS Fixed-Income bond on Euroclear, CREST ISIN number = GB00BKC93834
But, what does that mean? Most investors will not necessarily know much about the advantages of CREST and Euroclear as they don’t typically encounter the behind-the-scenes processes of investing.
Consequently our latest post aims to enlighten investors about the benefits of CREST and Euroclear, to give investors a deeper understanding of the alternative ways in which security certificates can be transferred and held.
What is Euroclear?
Euroclear is a global provider of Financial Market Infrastructure (FMI) services and has been operating CREST since 2002. Euroclear handles over €791 trillion worth of securities per year and makes it easier to settle cross-border securities.
Located in more than 90 countries, Euroclear services over 2,000 financial institutions, in addition millions of retail investors are also members. Euroclear provides cross-boarder settlement and asset servicing to countries such as the United States, Australia and Canada. Investors in some countries, such as the United States can also benefit from relief at source taxation services.
Euroclear UK & Ireland is recognised under the Financial Services and Markets Act 2000. In addition, it is an approved Operator under the Uncertificated Securities Regulations 2001 and a recognised inter-bank payment system under the Banking Act 2009.
What is CREST UK & Ireland?
CREST is an acronym for “Certificateless Registry for Electronic Share Transfer” and is an institution used by Investment Houses, International Banks, Custodians and Brokers to settle investment securities electronically.
When a broker purchases an investment product via CREST, the system will electronically transfer the investment fee to the seller and the legal title of the shares to the investor. Transferring documents electronically through the CREST settlement system significantly reduces the time it takes to transfer ownership of share certificates, considerably streamlining the process of investing.
CREST is open to private retail individuals providing they get sponsorship from a Stockbroker or bank. Once a retail investor gains sponsorship, they can access the CREST system via a ‘Personal Member account’ although individuals will have to pay a fee for this privilege.
How can CREST benefit investors?
To understand how CREST can benefit investors, we need to compare this system to the different ways of holding a share certificate. There are three main ways investors can hold stocks or shares. A simple overview of each is as follows:
1. Paper Share Certificates
The traditional way is to hold a paper share certificate. Holding shares this way enables the investor to qualify for any shareholder perks and attend shareholder meetings. An investor can sell their paper share certificate through any stockbroker they choose, but they cannot sell it online. It is also a prolonged process and is often a more expensive way to complete the transaction.
2. Holding Shares Via Stockbrokers
The most common way of holding shares is through a stockbrokers Nominee Account. Whereby shares are held under the stockbroker’s name, so the investor has ‘beneficial ownership’, but they will not be the registered owner. Holding shares this way means that investors may not receive any shareholder perks or voting rights that they should be entitled too. Plus, the trading is cheaper, more straightforward and can be traded electronically.
3. Through CREST
CREST allows the investor to trade shares electronically and be the registered owner. Investors will get automatic access to any shareholder perks, be able to both attend and vote at annual general meetings and receive all corporate reports. All dividends from the shares will be paid directly into a bank account of the investor’s choice. However, many brokers may charge a fee for personal CREST accounts, so this may increase costs.
Will Brexit affect Euroclear & Crest?
Euroclear has been preparing for all eventualities (including a no-deal Brexit) and has made arrangements to ensure continuity of service provision. Euroclear’s website states, “We intend to continue providing services in respect of Irish securities and euro settlement following Brexit”.