CREST

CREST, which stands for Certificateless Registry for Electronic Share Transfer, refers to an electronic system used in the United Kingdom to register, transfer, and settle securities. Its primary purpose is to offer a transparent, secure, and efficient platform for electronic share transfers.

CREST is useful to individual investors, brokers, asset managers, and investment bankers since the platform allows them to electronically maintain, update, and transfer securities held by retail investors. It mainly acts as a central electronic registry to maintain accurate records of securities ownership. CREST has modernized the handling of assets/securities while simplifying processes, increasing security, and ensuring the efficiency of the electronic securities transfer process.

Key Takeaways                                                               

• The Certificateless Registry for Electronic Share Transfer (CREST) is an electronic system used in the United Kingdom to register, transfer, and settle securities.
• Its primary objective is to provide a transparent, secure, and efficient platform for electronic share transfers.
• It ensures secure fund transfer, reduces administrative costs, boosts market integrity and transparency, and enables immediate clearing of securities transactions. However, funds are required to cover the initial setup costs. Euroclear UK/Ireland registration is a must.
• While CREST specializes in electronic registration, transfer, and settlement of securities, primarily in the UK, SwiftNet serves as a global secure messaging network for financial transactions.

CREST is an electronic platform that enables the registration, transfer, and settlement of securities in the United Kingdom. Securities are held in their dematerialized form for parties involved in the purchase and sale of such assets. It acts as a securities depository to facilitate trading without the use of physical documents. In the trading jargon, this function is referred to as 'Paperless Trading.'

CREST is a centralized electronic registry that eliminates the need for maintaining physical share certificates. The platform helps reduce paperwork and streamlines the trading process. It began operating as a securities depository in the UK in 1996. The platform helped replace physical share certificates with electronic ones. It was designed to digitize and modernize the securities trading process, leading to an efficient and transparent system of share transfer.

CREST creates and maintains an electronic register of securities and updates and records any change in shares ownership. It enables the electronic transfer of securities, handles the settlement process end-to-end, and administers the release of funds (against the right corresponding securities) for transactions executed between sellers and buyers.

Let us study a few examples to understand the topic in detail.

Example # 1

Jane, a shareholder, buys shares of Oakshire Pharmaceuticals through Smith & Co. Investments. Smith & Co. Investments is a CREST-registered member in Oakshire (a fictional city), UK. Jane's share ownership is updated in the computerized register, and CREST administers the settlement procedure. This guarantees that the transaction will be executed on time, and Jane and the seller will exchange funds and securities per the agreement. Simply put, CREST reduces the risks involved in securities trading for both parties.

Example # 2

A client named John wishes to sell his Meadowville Energy assets. ABC Brokerage Firm in Meadowvale (a fictional city), UK, helps him execute the sale. The share transfer procedure was started by ABC Brokerage Firm, a registered member of CREST. The firm updated the computerized register to reflect the details of ownership changes. CREST supervises the settlement to ensure a safe exchange of money and transfer of securities between John and the buyer.

CREST ensures secure and efficient funds transfer, decreases administrative costs, and increases market integrity and transparency. Companies can pay dividends to shareholders plus execute rights issues, manage the Electronic Trade Confirmation (ETC) system, and offer transparent and accurate records of share ownership and transfers for every trade. It also offers immediate clearing of securities transactions since it runs a clearing system and retains securities.

As part of digital innovation, CREST revolutionized the market for securities trading in the UK, allowing electronic share purchase, registration, and sale by traders and investors. It simplified administrative processes, provided an accurate and auditable register of share ownership, and reduced settlement risks. Through its quick, safe, and transparent electronic share transfers, CREST improved overall market integrity and decreased administrative costs.

The initial cost of setting up the system and integrating it with existing systems must be borne by participants/users. Those who wish to use this depositories service and access the CREST system must register with Euroclear UK and Ireland as members or have trading accounts with them.

The functions performed by CREST and SwiftNet are similar but the platforms still differ in many aspects. Some notable differences can be seen in their operations and have been discussed in the table below: