Internal links

Modernising securities settlement index

PART VI: DRAFT AMENDMENT TO CREST RULES

Rule [X] Operator register of securities and Operator register of members

Introduction

This Rule is made, inter alia, for the purpose of establishing which CREST system records constitute the Operator register of securities in relation to a participating security and the information required by Schedule 3 to the Regulations to be entered in the Operator register of members.

1 Interpretation and definitions

1.1 For the purposes of this Rule the following definitions apply:

Corporate Action a corporate action in respect of the relevant participating security which is recorded in the CREST system KCAP record;

Corporate Action delivery data the Stock Postings Data which records system deliveries to the relevant Receiving Agent of securities which are the subject of a Corporate Action and which identify the Member who initiated such deliveries to the Receiving Agent;

back to the top

Member - a system-member other than a Receiving Agent;

Receiving Agent a system-member who is identified as a participating issuer's receiving agent for a particular Corporate Action in the CREST system KCAP record.

1.2 Terms relating to the CREST system which are used in this Rule, but not defined in this paragraph, have the meanings given to them in the Glossary of the CREST Manual and the CREST Data Exchange Manual.

1.3 Terms defined or used in the Regulations which are used in this Rule have the meanings given to them in the Regulations.

2 Operator register of securities

Paragraph 25(e)(i) of Schedule 1 to the Regulations requires that an Operator's rules and practices must make provision:

as to which of the Operator's records are to constitute an Operator register of securities in relation to a participating security, or a participating security of a particular kind;

Accordingly, the records referred to below comprise the Operator register of securities:

2.1 the stock accounts of all Members to which are credited units of the relevant participating security; and

2.2 Corporate Action delivery data (and for these purposes the securities are treated as remaining in the stock account of the delivering Member).

3.0 Operator register of members

back to the top

Paragraph 4 of Schedule 3 to the Regulations specifies that:

(1) In relation to every participating issuer which is a company, an Operator of a relevant system shall, in respect of any class of shares which is a participating security for the purposes of that system, enter on an Operator register of members?

(a) the names and addresses of the members who hold uncertificated shares in the company;

(b) with those names and addresses a statement of the uncertificated shares held by each member and, where the company has more than one class of issued uncertificated shares, distinguishing each share by its class; and

(c) where the company has converted any of its shares into stock and given notice of the conversion to the registrar of companies, the Operator register of members shall show the amount and class of uncertificated stock held by each member, instead of the amount of shares and the particulars relating to shares specified in subparagraph (b).

back to the top

Accordingly, the records referred to below comprise the Operator register of members for a participating security which is a share:

3.1 the name and address of the member of a company who holds uncertificated shares in the company is determined by reference to the Participant Details relating to the Member ^[26];

3.2 the number of units of a participating security which is a share held by a member of a company is determined by aggregating the balance on the Member's stock account(s) to which are credited units of the relevant participating security and the number of units of the relevant participating security comprised in the relevant Corporate Action delivery data (if any)[^27] ; and

3.3 the means by which each share or class of share is distinguished is determined by reference to the Security Details relating to the participating security^[28] .

4 Issuer's maintenance of the Record of uncertificated shares and Record of uncertificated corporate securities

back to the top

4 Upon the registration by CRESTCo of a transfer of title to units of a participating security on an Operator register of securities and the simultaneous generation by the CREST relevant system of an Operator-instruction ^[29] requiring the issuer to amend the relevant Record of uncertificated shares or Record of uncertificated corporate securities, the issuer (or its CREST registrar) shall, within two hours of the timestamp on the Operator-instruction and save as provided by paragraph 5 of this Rule:

4.1 retrieve the Operator-instruction by means of an RUR Request (message type LRRQ) and amend the relevant Record of uncertificated securities accordingly; and

4.2 confirm to CRESTCo that it has done so by means of an RUR Action Response (message type LRRA).

5 Where the RUR is generated upon a system delivery from a Member to a Receiving Agent, the issuer (or its CREST registrar) shall not make any entry on the relevant Record of uncertificated securities which indicate that the system delivery resulted in a transfer of title to the Receiving Agent.

Explanatory note

The effect of this Rule is to provide that, as a general matter, the stock account balance of a Member in the CREST system equates to the register balance.

The exception to this arrangement arises in the context of:

corporate actions;
the stock accounts of a Receiving Agent; and
deliveries made to and from the stock account of a Receiving Agent, where the Receiving agent is acting as the issuer's agent^[30].

back to the top

This distinction is necessary because, in system terms, a Receiving Agent has the functionality available to a ?normal? CREST member and may have a credit balance on his stock account in relation to the security for which he acts as receiving agent in the CREST system on behalf of the issuer. However, such a credit balance does not form part of the register and does not evidence title to such securities on the part of the Receiving Agent (who in these circumstances is an agent of the issuer). In some circumstances, for example, a Receiving Agent's stock account may, for operational reasons in advance of a corporate action, be credited with units of securities which have not yet been created and issued in accordance with their terms and which therefore have no legal status. Such balances are therefore excluded from the definition of the Operator register of securities and Operator register of members.

For the same reason, although a system delivery from a Member to a Receiving Agent involves the simultaneous debit of securities from the Member's stock account and credit to the Receiving Agent's stock account, these debits and credits do not indicate a transfer of title to the securities from the Member to the Receiving Agent but rather a vesting of control in such securities, title to which remains with the Member. Upon settlement of this system delivery, the credit balance on the Member's stock account is correspondingly reduced and it is therefore necessary to establish which CREST system records determine the Member's title to those particular units of the security. This is established by reference to the audit trail data (the stock postings) which record the debit made from the Member's stock account and the credit to the Receiving Agent's stock account, rather than by reference to the balance on the Member's stock account. Accordingly, an issuer does not amend its Record of uncertificated securities following a system delivery from a Member to a Receiving Agent.

For the avoidance of doubt, no other information maintained within the CREST system (including (a) available, deposit link, escrow and reserve balance data and (b) the stock accounts of any Receiving Agent) is information comprising the Operator register of securities or Operator register of members.

back to the top

Notes on the text

[1] The Uncertificated Securities Regulations 1995: HM Treasury, 15 July 1999.

[2] It should be noted, however, that between settlement and registration a transferee has the benefit of a statutory equitable interest. The substantive risk presented by the delay between settlement and registration is therefore in practice remote.

[3] Securities Settlement Priorities Review: Bank of England, 18 September 1998.

[4] The Future of Money Market Instruments: Progress Towards Dematerialisation and Settlement in CREST - An Interim Report: Bank of England, 25 January 2001

[5] Money Market Instruments in CREST: CRESTCo, 25 January 2001

[6] See paragraphs 44 - 46 below for details.

[7] i.e. signed by Lords Commissioners of HM Treasury. Before the regulations can be made they have to be approved by a resolution of both Houses of Parliament (see section 207(9) of the Companies Act 1989).

[8] Regulation 5(5).

[9] Regulations 17 and 19(3).

[10] i.e the 1995 Regulations, as previously amended: in particular by the Uncertificated Securities (Amendment) Regulations 2000.

[11] In this consultation document, these parts are referred to as the ?issuer register? and the ?operator register?. This is not, however, intended to undermine the basic principle that the issuer register and the operator register together constitute ?the register?.

[12] The issue of liability is discussed more fully in Part III of this consultation document.

[13] Regulation 32(5)(a)

[14] Regulation 32(5)(b)

[15] Regulation 33(8)(a)

[16] Regulation 33(8)(b) and Regulation 33(9)

[17] In due course, these references, and all references in the Regulations to the Financial Services Act 1986 will have to be replaced by references to the Financial Services and Markets Act 2000.

[18] c.f. Part VII of the Companies Act 1989 and legislation made under it

[19] The Operator will continue to have the ability to limit and exclude its civil liabilities, to the extent that this is consistent with the general law.

[20] Pt XI, Ch II, ss352-362.

[21] Uncertificated debentures being an obvious example.

[22] This mirrors the provisions of section 352(7) of the Companies Act 1985 in respect of registers and records kept by virtue of the Regulations. Its effect is also to limit enforceability of any claims against the Operator arising out of its liability under Regulation 36 or its common law liability for fraud or negligence. This is without prejudice to any lesser period of limitation which the Operator provides for in its contractual arrangements, to the extent that these are consistent with the general law.

[23] This is already the case in respect of companies registered in England and Wales.

[24] Section 352A of the 1985 Act sets out the registration requirements of a company that has only one member.

[25] Section 355 of the 1985 Act makes the requirements for entries in the register in relation to share warrants.

[26] As required by paragraph 4(2)(a).

[27] As required by the first part of paragraph 4(2)(b).

[28] As required by the second part of paragraph 4(2)(b).

[29] A Register Update Request

[30] Thus, for example, it does not apply to the receiving agent in a takeover, where the receiving agent is acting as the offeror's agent.

back to the top

Consultations full index