What is CREST?
CREST is an electronic settlement system for securities transactions, specifically shares, which was developed by the Bank of England and began operations in 1996. Through this system, shares are registered electronically, and transactions are settled electronically on the due date. As a result, the manual handling of paper share certificates and associated paperwork is eliminated, providing a more efficient and seamless process for both issuers and investors. Furthermore, CREST supports electronic dividend payments directly into shareholders’ bank accounts.
CREST was fully acquired by Euroclear, a Belgium-based company that specializes in the settlement of securities transactions, in September 2002.
Key Features
- Electronic Registration: Shares are registered electronically, eliminating the need for paper certificates.
- Instantaneous Settlement: Purchases and sales of shares are settled electronically on the due date.
- Direct Dividend Payments: Dividends can be paid electronically directly into shareholders’ bank accounts.
- Optional Paper Certificates: Shareholders who prefer to retain paper certificates are still able to do so.
- Proof of Ownership: The company register of shareholders maintains proof of ownership just like with paper shares.
Examples of CREST in Action
Example 1: Automating Settlements
A company issues new shares that are traded on the London Stock Exchange. Using CREST, these shares are registered electronically. When an investor purchases these shares, the transaction is settled instantly and electronically on the due date, with no need for paper documentation.
Example 2: Dividend Payment
An investor holding shares in a company listed in CREST receives dividend payments directly into their bank account electronically, reducing the time and paperwork involved in managing dividend disbursements.
Example 3: Paper Certificate Opt-In
Although most shareholders utilize CREST for the convenience of electronic transactions, some shareholders prefer to keep physical paper certificates. CREST accommodates this preference by allowing these investors to opt to retain their paper certificates.
Frequently Asked Questions (FAQs)
What is the main benefit of using CREST?
The primary benefit of using CREST is the efficiency and convenience of electronic transactions and settlements, which eliminates the need for paper certificates and associated paperwork.
Can I still keep physical share certificates if I prefer?
Yes, CREST allows shareholders who prefer to retain physical paper certificates to do so.
How does CREST ensure proof of ownership?
Proof of ownership is maintained through the company register of shareholders, similar to how it was with paper share certificates.
Who owns and operates CREST?
Since September 2002, CREST has been wholly owned by Euroclear, a Belgium-based securities settlement specialist.
Can dividends be paid electronically through CREST?
Yes, dividends can be paid electronically directly into the shareholder’s bank account through CREST.
When was CREST created?
CREST was created by the Bank of England and began operations in 1996.
Is CREST used worldwide?
While CREST primarily serves the UK securities market, its parent company, Euroclear, operates internationally.
Are transactions instant in CREST?
Yes, transactions are settled instantaneously on the due date in CREST.
How does CREST improve the securities industry?
CREST improves the securities industry by streamlining settlement processes, reducing paperwork, and accelerating the payment of dividends.
What entity originally created CREST?
CREST was originally created by the Bank of England.
Related Terms
- Euroclear: A financial services company that specializes in the settlement of securities transactions and owns CREST since September 2002.
- Settlement: The process of transferring securities from a seller to a buyer and ensuring payment is made.
- Electronic Registration: The process of documenting ownership of shares in an electronic format rather than on paper.
- Dividend Payments: Distributions of a portion of a company’s earnings to its shareholders.
- Securities Industry: The sector of the financial industry that deals with the issuance and trading of securities like stocks and bonds.
Online Resources
Suggested Books for Further Studies
- “Operations Management in Financial Services” by David Loader
- “Securities Operations: A Guide to Trade and Position Management” by Michael Simmons
- “Understanding the Securities Laws” by Larry D. Soderquist and Theresa A. Gabaldon
Accounting Basics: “CREST” Fundamentals Quiz
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