The consultation paper recommends that dematerialisation – the elimination of paper share certificates and the CREST transfer form - be introduced in Ireland. These would be replaced by a new Shareholder Statement and an electronically enabled Shareholder Registration Number.
“The consensus view of the Group, after considerable analysis and discussion, is that dematerialisation should be pursued as a matter of priority by the Irish equity market,” said Irish Stock Exchange Director of Trading and Regulation and Chairman of DIG, Brian Healy. “There is a growing realisation that a system using paper share certificates is outdated and inefficient compared to a fully electronic means of holding and settling shares. In such an environment shares would be traded and settled electronically although shareholders would still have the ability to hold their shares directly on a share register.”
“As a Group we cannot emphasise strongly enough that a move to dematerialisation will not disenfranchise shareholders in any way. They will retain all their current rights. The only difference would be that, rather than holding a paper share certificate they would instead receive a detailed statement of their shareholding. In fact investors would benefit from the increased efficiency and speed of settlement that a fully electronic system will bring,” said Mr Healy.
According to the consultation paper published today, the Irish market needs to dematerialise for the following main reasons, it will:
- Facilitate ease and speed of trading by investors
- Enhance Ireland’s international competitiveness for securities trading
- Reduce the costs associated with cumbersome paper-based transactions
- Reduce the risk of fraud from misplaced or stolen share certificates
- Make possible an eventual move to T+1 (one-day) settlement from the current T+3 (three-day) settlement
- Avoid cost escalation and the inevitable reduction in competitiveness if the British market dematerialises and the Irish market does not.
The move would also ensure that the Irish market keeps pace with developments in other markets in Europe. The merger of CRESTCo, which operates the CREST settlement system and EuroclearBank created Europe’s largest settlement services provider which operates under the Euroclear brand name. This company is now harmonising settlement infrastructure and practices in the five national markets which it serves.
“If the four other countries using Euroclear implement fully dematerialised systems, it would be too expensive to retain a paper settlement system for the Irish market alone and this would put the Irish market at a serious financial disadvantage to other markets,” said Brian Healy. “Markets like Ireland have to continuously assess and develop their services to ensure they meet the demands of customers, whether they are institutional investors or the retail investor,” he added.
The Group has liaised closely with the advocates of a similar initiative in the UK and the Irish proposals have contributed significantly to the work now underway in the UK. In fact the Irish proposals predate the present initiative for UK equities.
The consultation paper notes that if the UK market were to dematerialise and Ireland did not or if the UK dematerialised ahead of Ireland, it would mean that Euroclear would have to maintain a mechanism in both Ireland and the UK to facilitate the settlement of certificated securities. The cost of this would have to be borne predominantly by the shareholders of Irish securities. There is a clear cost factor involved in not moving to a fully electronic market.
“A move to a fully dematerialised electronic market would bring Ireland into line with most other European stock markets and with what constitutes best international practice for the most competitive and developed securities markets,” Brian Healy added.
The experience of markets which have moved to full dematerialisation has been positive. In New Zealand where the market has been dematerialised since 1999, securities fraud has fallen dramatically since dematerialisation. Likewise, Australia has been fully dematerialised since 1998 and has experienced similar investor benefits and efficiencies as New Zealand.
Click here to download the consultation paper
