New three-day limit for investors to submit share certs

A change of rules at the Irish Stock Exchange next week will test the fondness of Irish investors for holding share certificates. From Monday, investors will have to settle deals - purchases or sales of shares - within three working days. At present, investors have a full working week to get their share certificates into their brokers.

The tighter timeframe will make it difficult, if not impossible, for investors, particularly those outside Dublin, to hold onto the certificates that register their ownership of the shares.

Professionals at the exchange and in various stock brokerages admit that is one of the reasons for the move. Small Irish investors have shown a greater attachment to share certificates than their counterparts in other states. Stockbrokers say the practice slows up dealing and is more prone to error than the increasingly popular electronic systems available.

A spokesman for Davy stockbrokers said the long-term aim was to improve the efficiency of dealing. Ultimately, the exchange and its member broking firms would like to remove paper certificates from the system altogether.

"Most of the problems that do occur in private client dealings are in relation to the delivery of paper [certificates] to the broker and then to the company registrar," said the spokesman. The share certificates have to be returned to the registrar so the ownership of the shares can be transferred to the new owner on the company's share register.

The stock exchange said the winners under the new system would be the investors themselves. "A shorter investment cycle will mean that investors get their money or ownership of their shares more quickly."

Without settlement and the attendant share certificate, investors cannot return to the market to trade again.

Brokers point out that the US has been operating on the three working day rule for some time, and indicated that Ireland and the EU, which are following suit, would probably move to settlement of deals within one working day in a couple of years.

"The simple truth is that online trade can only take place in a paperless system," said one broker.

In the absence of certificates, shareholdings will be held in nominee accounts. As Mr John Keilthy, director of private client services at NCB, says: "There are pluses and minuses to nominee accounts and people need to weigh them up."

On the plus side, you can pick up a phone and instruct your broker to buy or sell with no hassle or paperwork. That may eventually lead to lower commissions. Further, it suits many people not to have their names on share registers.

On the other hand, in nominee accounts, the shares will be held in the name of the nominee company, not the beneficial owner, and the shareholder will have to receive company information through the nominee company.

Most brokers will also offer personalised Crest accounts, where the individual's shareholding is held electronically but in their own name. Many would see this as the best of both worlds although some brokers argue that costs would be higher.