What it means
Settlement is the step after a trade where the securities are delivered to the buyer and the cash goes to the seller. Before electronic systems, this meant moving paper share certificates, which was slow and risky.
CREST replaced paper with electronic records of who owns what. The system works on delivery versus payment, which means securities are only transferred if the cash is paid at the same moment.
This removes the danger of one side handing over its part and never receiving the other. It is a major reason settlement is considered safe.
Investors can hold shares through CREST in two ways. They can hold them in their own name as a direct member, or more commonly through a nominee account with a broker who holds them on their behalf.
Holding in your own name gives you direct shareholder rights, while nominee holding is usually cheaper and easier. For finance teams and company secretaries, CREST matters when a company issues new shares, pays out corporate actions such as dividends or runs a share buyback.
Registrars and brokers use it to update ownership records quickly and accurately. Settlement time frames are set by the market rules and have shortened over the years.
Because those rules change, any specific settlement period should be checked with a broker or the operator before relying on it. The system also supports record keeping for compliance.
Because every transfer is logged electronically, companies and regulators can trace who held a security on a given date, which is valuable for dividend entitlement and audit work.
In practice
Real-world examples.
Example
An investor in London buys 500 shares of a listed retailer through her broker. The trade settles through CREST, and the shares appear in her nominee account while the cash leaves it on the same settlement date. She never handles paperwork and can see her holding in her broker's online account.
Example
A fund manager sells shares in a large pharmaceutical company to rebalance a portfolio. CREST transfers the shares to the buyer's broker only when the payment is confirmed, so the manager is never left exposed. The buyer's broker must have the cash ready, or the trade will fail to settle on time.
Example
A listed engineering company issues new shares to raise money. Its registrar uses CREST to credit the new shares to investors electronically, so no paper certificates are needed and holdings are visible within the settlement cycle. Existing investors who prefer to hold shares directly can ask to be entered on the register in their own name.
Case study
Seen in the real world.
Ashgrove Packaging is a fictional listed company, and this story is illustrative only. It decided to raise $12,000,000 by issuing new shares to existing shareholders in a rights issue.
Its registrar and brokers used the electronic settlement system so that shareholders could take up their rights and receive new shares without handling paperwork. The finance team had to coordinate the timetable carefully, because the rights traded for a short period and settled in the same system.
The issue completed on schedule, and investors received their new holdings in electronic form. The company secretary said the biggest benefit was certainty, since each investor's allocation was recorded accurately on the day. The firm has since made the electronic settlement timetable a standard part of its checklist for any capital raising. Looking back, the project team recorded that early contact with the registrar had been the most useful step, because it avoided last-minute errors in the allocation files.
Watch out
Common mistakes.
- Thinking an investor holds a share certificate, when ownership is usually recorded electronically. Paper certificates still exist in a few cases, but most holdings today are dematerialised, meaning held only as electronic entries.
- Assuming nominee holding gives the same direct rights as holding in your own name, such as receiving company documents automatically. Ask your broker how your shares are held and what that means for voting, documents and dividends.
- Quoting a settlement period from memory, when market rules change and need to be checked. Your broker or the settlement operator can confirm the current timetable.
Questions
People also ask.
Is CREST a stock exchange?
No. A stock exchange is where trades are agreed, while CREST is the system that settles them afterwards. The two work together, because a trade agreed on an exchange is passed on for settlement, much as a contract is signed first and the keys handed over later.
Does delivery versus payment really remove risk?
It removes the risk that one party delivers and is not paid, though other risks such as failed trades remain. Operational risks, such as a seller lacking the shares or a buyer lacking the cash, can still cause a trade to fail and may lead to fees or penalties.
Do individual investors need to join?
Not usually, since most use a broker's nominee account and never deal with the system directly. Those who want to hold shares in their own name can apply to become a sponsored member through a broker or registrar, though fees and paperwork apply.
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