Crest is a UK-based central securities depository that holds UK equities and UK gilts as well
as Irish equities and other international securities.
It was named after its securities settlement system, Crest, and has been owned and operated
by Euroclear since 2002.
The name is not an acronym for anything.
Crest allows shareholders and bondholders to hold assets in a dematerialised, i.e. electronic
form, rather than holding physical share certificates.
Crest also serves a number of other important functions, such as assisting in the payments
of dividends to shareholders.
It is also an "electronic trade confirmation system".
When parties to a transaction make a deal, they both electronically confirm their sides
of the transaction via electronic transfer.
Both parties are required to submit confirmation details to Crest.
In the event that transaction details do not match, Crest will highlight the issues and
ensure that the problems are resolved as soon as is practicable.
Stamp duty in the United Kingdom is only payable on physical share certificates therefore no
stamp duty is payable on shares settled via Crest, however to compensate for this the
UK government added a stamp duty reserve tax which is collected by Crest on behalf of Her
Majesty's Revenue and Customs.
History The project was launched in 1993, following
the Taurus fiasco, and the operating company CrestCo was founded in 1996.
Crest was acquired by Euroclear in August 2002.
Members There are two classes of members on Crest:
members and sponsored members.
Members are usually pension funds, inter dealer brokers or other large financial institutions
with significant resources.
Sponsored members have the same rights and responsibilities as members.
However, given that they do not have the financial or technical resources of the full members,
they rely on their sponsoring member to interface with Crest.
Registrars and Crest Depository Interest UK stocks are held by registrars who are members
of Crest and are therefore integrated into the transfer of ownership.
Irish equities and ETF securities are also settled directly through Crest members.
For international stocks, Crest holds a pool of them in a local depository, such as Clearstream
for German stocks and CDS for Canadian stocks.
Crest then issues a CDI to each holder of the security, which can then be transferred
in Crest just like a UK equity.
This is similar to the depositary receipts issued in other countries.
However restrictions apply to CDIs.
Many are not withdrawable or depositable into/out of Crest.
This is because a CDI is an electronic reflection of the underlying security held in the domestic
market.
How does it work?
To take the U.S as an example.
The electronic settlement system in the U.S. is called DTC.
If a shareholder holds electronic stock in the U.S. they will hold their securities electronically
in DTC.
In reality they will hold the securities via a custodian, so the custodian's nominee details
will appear on the DTC register.
This is known as holding stock in the 'domestic' market.
Securities held this way can only be traded domestically i.e. in the market of the country
of origin.
If a shareholder wants to trade his securities outside of the U.S. 'domestic' market he can
instruct his custodian to transfer his securities to the Crest account in DTC.
Restrictions apply, only securities that have a UK quote can be transferred to Crest's DTC
account.
Crest is a member of DTC.
So once the securities have been transferred out of the original custodian's nominee name
and into Crest's account in DTC, the securities have now been 'cross bordered' into the UK
market as CDIs.
They can now be traded in the UK market.
Although not always withdrawn onto certificate or deposited into Crest.
Law Uncertificated Securities Regulations 2001
Supplemented by Crest rules and conditions in the Crest Reference Manual, June 2009
See also London Stock Exchange
SEAQ References
External links CREST official site
Further reading CREST: its Recognition and Approval, by Brian
Smith, The Securities and Investments Board, 1996