Over the next two weeks, I'll be reviewing the key industry topics of 2015 on the Knowledge Exchange. My first post focuses on developments in connection with the requirement to implement dematerialisation.
Our progress in 2014
Legislation commonly referred to as the Central Securities Depositories Regulation (CSDR) entered into force in September 2014.As a result, the UK and Irish markets implemented a shortening of the settlement cycle from T+3 to T+2 in October 2014. Another impact for issuers is the requirement for Member States to introduce full market dematerialisation by 2023, which will effectively remove the need for paper certificates in future. Whilst this deadline may seem a long way away, the issue has thankfully not been kicked into the long grass.
What are the challenges?
Market participants and government departments are in active debate about how the requirement to remove certificates will be progressed and what the implications would be for fundamental issuer and shareholder rights. If designed properly, a paperless securities market has the potential to deliver positive change and long term benefits, both in terms of modernisation and market efficiency.
Where we're going
We chair an industry working group looking at this very topic. In December 2014 the group published a paper proposing a way forward. The proposals outline a model which reflects a similar structure to that currently in operation, one which respects the right of shareholders to hold shares directly in their own name (but without the need for certificates) and choose the broker they trade through. This would preserve ownership transparency for issuers and offer the potential for greater use of electronic channels for shareholder communications.
The proposals are under discussion with government officials and there is the possibility of a 'call for evidence' or public consultation from the UK government at some point during 2015. I will keep you updated on progress throughout the year.
download our one-page proposed approach for dematerialisation