How shares are traded

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11. Settlement

'Settlement' is the process of registering the new owner of shares and deleting the old one, and making sure that the vendor gets paid.

Traditionally, investors receive a share certificate when they buy shares and send them back to their broker when they sell them, and it is still possible to do this with traditional brokers. It is fiddly, and it means a 10-day settlement time, but some clients like to have the certificates.

There is an unstoppable movement, however, towards paperless trading, to reduce administrative costs and bring down settlement times. The launch of CREST in 1996 was the big step forward. Crest is an electronic system which matches trades against payments and tells the company's registrars what names to add to the share register and which ones to delete. It does away with the need for endless shuttling of paper certificates.

If you don't want the hassle of share certificates, you can opt into Crest by having your shares registered in the name of a nominee service offered by your broker. Many of the online brokers will only deal with clients who are willing to adopt the nominee system.

• Your broker sets up a special company called 'XYZ Nominees Ltd'
• Ownership of all client shares is registered to the company, and the company holds the share certificate, but beneficial ownership is recorded in your name.
• The broker sets up internal systems to ensure that you get the dividends, and that your account statement correctly shows your portfolio holdings.
• You do not normally get the other shareholder benefits - e.g. shareholder perks, reports and accounts - but some brokers can make special arrangements so that you do.

To become a member of Crest you have to be sponsored by a broker, who will be charged £20 p.a. by Crest, and who may pass the charge on to you. In April 2002, the London Stock Exchange became the first independent CREST sponsor, allowing investors to have an electronic account with the LSE whilst being able to deal through their own broker.

The key thing about using a nominee account is:

1. It's the way everything is going (all shares in ISAs have to be in nominee accounts)
2. It should lead to lower dealing costs
3. There is a potential for fraud, which makes it important that you use a broker who has appropriate insurance cover (ask!)

Click here for a typical share certificate.

1. The role of brokers 2. What type of broker do you want? 3. Choosing a discretionary or advisory broker 4. Choosing an execution-only broker 5. Opening an account with a broker 6. Placing buy/sell orders by telephone 7. Placing buy/sell orders online 8. Normal market size 9. The spread 10. Contract notes 11. Settlement 12. Conclusion

• First Steps in Shares