On busy days over a million trades take place on the London Stock Exchange, with a value in excess of £15 billion. Each of these trades has to be recorded and settled.
In other words, every time equities are bought or sold, company records have to be updated, while money and shares are transferred from one owner to another.
This used to be conducted manually. Share certificates were posted, cheques were sent back and forth and share registers were updated. The process used to take around two weeks, after which trades were ‘settled’, meaning that the investor who bought the shares became the legal owner and money left their account and arrived in the account of whoever had sold the shares.
Nowadays, almost every transaction is conducted electronically, using a system called CREST.
CREST is akin to a large messaging system, which conveys information about share trades and share ownership. The arrival of CREST in 1996 and subsequent technical developments across the stockmarket have made share trading much faster. Nowadays, most transactions have to be settled within three working days, known as T+3.
While it would be virtually impossible to settle paper transactions in three days, it is commonplace using nominee accounts.. If an investor decides to sell 100 BT shares, for example, he or she will instruct their broker or place the order via an execution-only broker.
The broker then decides how best to execute this trade.
Most trades executed on the London Stock Exchange are carried out on the London Stock Exchange’s own electronic system, SETS.
The system can be used to trade every share in the FTSE All Share index as well as the most frequently traded stocks on AIM and certain other securities. Orders to buy and sell these shares are displayed on computer screens and SETS matches buyers and sellers constantly and electronically throughout the day.
The standard settlement period in the UK for share trades is three days, which means the transaction will be completed three days after a deal is struck. At that time, the broker’s client will be informed that he or she is the new beneficial owner of the shares, the cost of those shares will leave their bank account and the money will be credited to the seller.
CREST informs the company's registrars what names to add to the share register and which ones to delete. The process is speedy, efficient and transparent. There is no need for paper certificates to be posted around the country and much less room for error.
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