Tuesday, July 27, 2021
CREST for private companies
CREST is the UK’s standard electronic settlement system when trading shares and bonds. When you buy Vodafone through your stockbroker, that trade settles in CREST. But did you know that private companies can also use CREST for their trading?
What is CREST?
In technical terms, CREST is the UK’s central securities depository for equities and gilts. It is owned and operated by Euroclear.
Securities that are traded in CREST are “dematerialised” and held in uncertificated form (i.e. electronically) in a stockbroker’s or custodian’s nominee account on behalf of its owner. When a successful trade occurs, the CREST system organises the transfer of shares to the buyer and the transfer of funds to the seller.
Is CREST only for companies traded on the stock exchange?
No. Any UK registered company that meets the criteria can be settled in CREST – including private limited companies. To quote Peter Sellers doing an impersonation of Michael Caine: “Not a lot of people know that.”
(And they also don’t know that “CREST” is not actually an acronym.)
What is required to be CREST eligible?
The key requirement is that the share class to be submitted to CREST must be freely transferrable. That is, there can be no restrictions on transfers such as board approval, pre-emption rights, ownership thresholds etc.
In addition, the company must adopt the Uncertificated Securities Regulations (the “Regulations”) for that share class. These Regulations confirm that the share class can be held in uncertificated format and that if any rules in the company’s Articles of Association contradict the Regulations, then the Regulations take precedence.
The Regulations can be adopted either by:
1. Incorporating them into the Articles of Association by special resolution requiring 75% shareholder approval; or
2. Board resolution which shareholders can overturn by an ordinary resolution requiring 50% shareholder approval (see article 16 of the Regulations for further details).
Finally, the company must appoint a CREST registrar to look after its CREST and non-CREST registers.
None of these steps are expensive, and our team can assist with the entire process. We can even introduce you to a CREST registrar.
Do companies on Asset Match settle in CREST?
All companies that are admitted to trading on AM Private Market must be CREST eligible. This has big benefits for enabling liquidity in private company shares:
1. All orders are placed via FCA regulated stockbrokers which hold all client assets and funds.
2. By placing orders via stockbrokers, we mitigate “execution risk” in the trades. When the order is placed, we know that the seller has the shares in their account and that the buyer has the funds in their account. There are no delays from missing paperwork, bounced payments etc.
3. When the auctions close and the price and allocations are determined, the results are sent back to the stockbrokers. With CREST, settlement can happen the next day (t+1) rather than taking up to six weeks when settled in certificated form.
The benefits are clear and we pride ourselves in providing straightforward, transparent and safe liquidity.
Would you like to know more?
We have over 50 companies admitted to trading on our platform and benefitting from providing liquidity for their shareholders.