For hundreds of years, if you owned a stake in a publicly listed company, you were issued a paper certificate with details of the company and number of shares held; it was proof of ownership. That time is rapidly coming to an end.
Stock exchanges around the world have been engaged in an exercise called “dematerialisation”. Dematerialisation means your ownership will no longer be proven in material form through the holding of a paper certificate, but virtually on a share register. Anyone holding shares in US companies will be familiar with the format.
Ireland is an outlier in this respect, along with the UK. However, new rules introduced by the European Union mean that from the start of this year no new shares can be issued in paper form.
That’s been somewhat academic in Ireland’s case as its stock exchange is shedding companies rather than boasting new flotations. And those companies on the exchange have not put out any new issues this year.
But, from the start of 2025, it will affect the many people who have share certificates in companies listed in Ireland or elsewhere in the EU in file boxes around their homes because, from January 1st of that year, their share certificates will be worthless.
Ireland is not quite the “shareholder democracy” the UK and US are; the Eircom flotation fiasco saw to that, with anyone who bought and held in Ireland’s great privatisation still out of the money all these years later. But for the many small shareholders who buy shares directly, the share certificate was a comforting tactile assurance of the investment.
It also allowed them to manage their own shareholdings, engaging with stockbrokers only when they wanted to buy or sell rather than entertain the cost of a broker account.
So why is this happening, what does this transition mean and how will it take place?
We spoke to Aidan O’Carroll, settlement manager at stockbroker Davy, and his key message was that, unusually for such transitions, there will be remarkably little disruption or cost for the ordinary investor.
The reason behind it is largely to harmonise the way the settlement of transactions in shares takes place across the European Union and to ensure that all share registrars operate in a standard fashion. It is also expected to make the whole process more secure and, from a shareholder perspective, make trading in shares a speedier process.
At a practical level, the share certificates investors hold will be invalid, so they will no longer be accepted by brokers for trading in shares. But details of individual investors’ holdings will be transposed instead to an electronic register held by whichever company is the registrar for the listed business in which they hold shares.
A reference number will apply to each investor’s holding in each company, so you will have a different number for each company in which you have invested. This number is likely to be the shareholder reference number that is already allocated to each shareholder by the registrars. You should be able to see this in any communications for the share registrar about annual reports, annual meetings, share offers or whatever.
“You can be entirely passive on this. It just happens. You do not have to apply to it. You don’t have to agree to it,” says O’Carroll.
Shareholders won’t have to pay for this process and, critically, they will not be required to open and pay for a nominee or other electronic account with a stockbroker in order to continue holding their shares.
This addresses one of the critical issues for many people who had been reluctant to get forced into arrangements where they were having to pay annual management charges for very minor holdings that they rarely trade in.
“There is no issue with clients holding stock in their own name,” says O’Carroll. “Their name will appear on the register directly and they will be communicated with by the issuer through their registrar [on events like annual reports etc].”
What they will need to do from the start of 2025, however, before selling any shares they own, is have details of that unique reference number. It will be available on any share statements or their online accounts.
It is expected that registrars, as with so many other providers of services, will be encouraging people to operate online but there will not be any obligation to do so. As O’Carroll says, “if you are not an online person, you will still have a statement” showing details of your shareholding.
The big issue right now, everyone involved in the process agrees, is communication. While the rules on new issues are already in place, the big “education” piece will come in getting the message out to existing holders of share certificates, many of whom might be older people.
This campaign is likely to come closer to the January 1st, 2025, date for the changeover and the message is likely to be that they get in touch either with their stockbroker, if they have one, or with the share registrar of the company in which they hold shares — in the Irish market, this is largely Computershare and Capita.
But as we have seen with the big bank switch, where thousands of customers are trying to make contact at the same time, it can be chaotic and people get awfully stressed. There is nothing to stop shareholders getting in touch with registrars well ahead of time.
On the upside, the move to dematerialisation will have one big plus for small shareholders — and the executors of their estates: reducing the stress involved in tracking down old share certificates or the costs involved in replacing them where necessary. You can pay an indemnity fee alone of between 2 per cent and 5 per cent just to give the issuers security that duplicate certificates are not going to resurface.
For now, the reassuring message for those independent shareholders who have remained attached to holding their own shares down the years is that they will not have to become anonymous numbers on broker accounts — and pay for the privilege. Their shares will still be held in their names if that’s what they want and the companies they invest in will deal directly with them through the registrars so they remain actively involved in their investments. And there’s no effort involved in the process either.
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