COMMONS AMENDMENT (Hansard, 13 November 1989)

§ Lord Strathclyde
My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 314. In moving this Motion, at the same time I shall speak to Amendment No. 528. These amendments are designed to make possible new methods of holding and transferring shares and other securities without the need for paper certificates or transfer forms.
Under present company law, share certificates must be provided by each company's registrar to shareholders as evidence of their title to shares and a company may not register a transfer of shares or debentures unless a completed stock transfer form is produced to it. The movement of certificates and transfer forms necessary during transactions is a significant obstacle to UK equity market efficiency. Though this can be partially overcome by trading instead in equitable interests in shares held in bulk by a nominee, that entails a further series of problems since investors do not acquire rights of company membership as they would if they held legal title to the underlying securities.
The difficulty mentioned above can be overcome only by detailed changes to company law and other enactments. The amendment provides order-making powers, subject to affirmative resolution of both Houses of Parliament. These powers may be used to make the necessary changes to legislation, but only for the purposes specified.
I think that it would be useful for me to explain exactly what these regulations could be used for. Broadly, their purposes are: first to dispense with the need for paper certificates and transfer forms; in that connection, secondly, to make any necessary provision as to the rights and obligations of any persons; finally, to provide for appropriate regulation of paperless shareholding schemes.
In so far as the changes affect the rights and obligations of investors, companies or the general public, their rights and obligations in respect of paperless securities must be broadly equivalent to those they possess in respect of certificated holdings.
It is expected that the powers will be used to make provision for the international stock exchange's Taurus scheme. The enabling power created by the amendment gives flexibility, within its delineated purposes, to take account of further development of that scheme and also, if desired, to make provision for competing schemes not necessarily operating in the same way. I beg to move.

§ Lord Peston
My Lords, I thank the noble Lord for his exposition of this extremely important topic. We wish equity markets to operate as effectively as possible. We want them to be as up-to-date as possible. Certainly we want the international stock 1121 exchange to be able to use the very latest technology. Whatever our other disagreements, we all agree that this particular financial activity is of great benefit to our country and we hope that in future it will be of even more benefit. We cannot possibly allow an old-fashioned view, as it were, to hold back the kind of developments that we want.
Of course one does not want to delay this matter, especially, as the noble Lord reminded us, as the relevant order-making power will be by the affirmative route and therefore when the time comes this House will be able to express further opinions on the matter.
I should like to mention two or three matters at this point. They are mostly but not entirely to do with the small investor. Clearly what is called "dematerialisation" (which sounds like something out of the latest horror movie) can be of concern to the small investor —and when I say "concern" I mean psychological concern. At least if investors have a share certificate it looks as if they have something. If there is simply an entry, particularly on a computer, it worries them, even though in theory hard copy is available in the systems.
I hope that when this provision moves forward some account will be taken not merely of the needs of the small investor in an ordinary financial sense but also of the small investor's psychological needs in this area. In that sense I was reassured by the noble Lord when he said that there would be no loss of rights and equally no loss of obligations resulting from a move in that direction. However, when this goes forward I believe that there will be considerable requirement to let people know what will be happening.
I should like to remind the Minister that questions were raised in the other place concerning the construction of a firm's share register, and about security in connection with not letting it be public knowledge when a firm was scrutinising its register. It is fundamental to the operation of a mixed economy that a firm and any kind of investor is entitled to know who owns a particular commercial enterprise.
When we look at these matters in more detail we shall be pressing the points made in the other place concerning rights to know and, equally, rights to a modicum of secrecy with regard to trying to search the appropriate register, because there could be market sensitive information. Our main response to this matter is that we wish these kinds of development to go forward. I hope that nothing we say will be interpreted to mean otherwise.

§ Lord Strathclyde
My Lords, the noble Lord, Lord Peston, has been very wise in accepting the principle of these amendments. He mentioned the psychological feelings of small shareholders. It is particularly nice to see members of the Labour Party approving of small shareholders.

§ Lord Peston
My Lords, my position was not to approve or disapprove of small shareholders. I have a general interest in the problems of psychiatric medicine and that is why I intervened in that way.

§ Lord Strathclyde
My Lords, that clarification was extremely useful. The Government are very keen that small shareholders do not feel in any way deprived. We are not making a fundamental change as to the rights of ownership; it is simply the point with regard to dematerialisation that the noble Lord spoke about.