Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 4

Each market must have clear rules assuring investor protection by safeguarding participants from the financial risks of failed settlement and ensuring that listed companies are required to follow sound policies on corporate governance, transfer of economic benefits and shareholder rights.

1.	Does the depository or the market have securities lending and borrowing schemes in place, and are these open to all market participants and their settlement agents?	The market, rather than CRESTCo, operates competitive stock lending and borrowing. The services are offered by specialist stock exchange member firms. CREST does provide facilities to enable easy movement of collateral (the Delivery by Value or DBV process). It also has specialised transaction types to automate the return of borrowed stock and appropriate interim margin calls on loans/repos. Both provide a highly automated approach to servicing such transactions.
2.	Does the settlement system mark fail trades to market and collect margin from the failing counterparty to protect the innocent counterpart's interest?	No. Settlement on due date accounts for 96% on average of all transactions. There is a fining regime (based on an ad valorem penalty) levied on all late settlements and a flat fee fine levied on failures to match in a timely fashion. CREST believes this has incentivised firms to clear up fails, especially high value fails.
3.	Does the market operate a guarantee fund or have an equivalent procedure to protect against the cost of failed transactions; and which sectors of the market does it cover?	There is an investor protection scheme to protect small investors (operated by the UK regulators) for on exchange broker default. There is no guarantee fund or similar arrangement to cover street side players or institutional investors.
4.	Are the stock transfer agents (share registrars) linked electronically to the depository?	Yes. Share registrars are linked electronically to the CREST system and are bound by service level arrangements. Each evening they must reconcile the dematerialised portion of the share register with the CREST record or the impacted stock will not be allowed to settle on the following day. The registrars must accept or refuse a request for register update (a message sent by CREST to a registrar following settlement) within two hours of receipt (but see below for legal changes). In practice, the average time is around 15 minutes. The registrars must also credit any physical stock lodged with them into the CREST system within 36 hours of receipt (or reject the transfer request).
5.	Is there a legal maximum time period to complete ownership transfers in the books of the issuer? If so, does market practice adhere to the deadline?	There is no legal maximum but CREST rules require register updates within two hours of receipt of settlement instructions by the registrar (received effectively contemporaneously with settlement). Physical stock ownership transfers for London Stock Exchange listed securities are required to be evidenced by a new certificate within three days of the deposit. There are fines to penalise breach of these standards, which are monitored and seldom breached.
6.	Are investors entitled to all benefits arising on a security from the point of purchase; and how are any rules enforced?	Under the rules of the stock exchanges (London Stock Exchange and Tradepoint) an investor is entitled to all benefits from the point of execution of a trade (unless a deal is struck excluding such benefits). Non compliance would lead to exchange disciplinary action against the delinquent buying or selling broker.
7.	Is proxy voting permissible in the market and can such proxies be lodged by post or other remote delivery method?	Proxies are permissible and are normally be lodged by post. Electronic voting is not yet permissible. Some companies may discriminate against omnibus nominees by refusing split votes for any single account.
8.	Are there binding rules in the market stating the minimum and maximum lapsed time between the announcement and completion of key events, including registration, the calling of shareholder meetings, the payment of dividends or interest, rights issues, tender offers and other voluntary corporate actions?	The main rules in the market are covered by the Companies Act (notice of at least 14 days is required of a shareholder meeting), listing rules (the timetable for tender offers and new issues including rights issues) and CREST rules (the lapsed time between settlement and registration). A final dividend cannot be paid until approved by an AGM (but this can be overcome by paying a second interim in lieu of a final dividend).
9.	Are all voluntary corporate actions advised through a central mechanism assuring consistent information to all investors?	CREST provides structured electronic messages to drive customer automation relating to all corporate actions, and facilitates elections on voluntary actions. Background information is supplied by the London Stock Exchange in a single consistent format, in paper or electronic form. Definitive information comes from issuers and is not unique or consistent in format.
10.	Is information on corporate actions available electronically, and is the minimum lapsed time for responding to such actions sufficient to enable all domestic and foreign investors to respond in a timely and considered fashion?	Information is available electronically through CREST and also custodians or specialist information providers. The CREST system handles most corporate actions; the big exception is cash dividends (still paid through the banks outside CREST, for historical reasons and for cheapness). Rights are still issued in paper but are expected to move to electronic form as soon as each relevant issuer agrees. The lapsed time to respond is adequate for all investors although the need to lodge acceptances with registrars (who are likely to be located outside London) in paper form means that intermediaries normally require 48 hour deadlines (to enable lodgement and also validation of instructions).