HL Deb 25 May 1982 vol 430 cc1075-80

3 p.m.

Lord Cullen of Ashbourne

My Lords, I beg to move that this Bill be now read a second time. This is a technical and, I fear, somewhat complex Bill. Its principal function is to make certain changes to the law in order to allow the Bank of England and the Stock Exchange to introduce a computerised system for the settlement of bargains in gilt-edged securities. The Bill is not in fact needed to set up such a system; nor are the Government themselves involved in the establishment of the computerised system which the bank and the Stock Exchange have in hand. The Bill is necessary because the law as it stands does not provide for computerised transfer. In short, it is an enabling Bill.

The decision to put the settlement of bargains on computer was taken some years ago by the bank and Stock Exchange because of the strain placed on the present manual system of increasing activitity in the gilt-edged market. So that participants in the scheme can proceed with the acquisition of equipment in the knowledge that the legal obstacles to the use of that equipment have been removed, it is necessary to get the enabling legislation on the statute book. These obstacles are lifted by the first three clauses of the Bill, together with the two schedules.

I suspect that most people regard the term "gilts" as synonymous with Government securities, which are indeed the main stocks traded in the gilts market.

There are, however, other types of security traded in that market, and most of these have their own rules, supported by, or enshrined in, legislation. Clause 1 of the Bill therefore lists the existing powers for the Government to make regulations relating to gilt-edged securities, and provides for these existing powers to be used to permit the relevant securities to be transferred through a computerised system.

Clause 1(4) allows the same provision to be made in relation to securities that are not covered by any of the powers listed in Clause 1(3). This new power would, for example, cover securities issued by foreign borrowers on the London market, and any new type of gilt that may be issued in the future. The exercise of this power will be by order subject to the Negative Resolution procedure. As a safeguard, the Treasury will not be able to bring any security on to the computerised system without the consent of the issuer of that security or the person currently liable for that security.

Clause 1 also provides that transfers made under these regulations are valid notwithstanding any existing requirements, whether statutory or contractual, for transfer of the securities in question to be by "instrument in writing". Schedule 1 to the Bill specifies the classes of security that the Government believe will need to be covered, but Clause 2 empowers the Treasury to change this list by order. Clause 3 provides further powers to make regulations. These powers will be used to establish the legal framework for the operation of the computerised system.

Clauses 4 and 5 are concerned with gaps in the existing law relating to gilt-edged securities. They do not deal with computerisation, but the Government think it right to take the opportunity presented by the Bill to remedy these deficiencies. Clause 4 amends the law on two aspects of the redemption of Government stock. First, it gives additional flexibility in the method of payment, so as to authorise block payment of redemption monies to the head office of a bank for distribution via its branches to their customers. Secondly, the Treasury is given power to make regulations to provide statutory backing for the bank's practice of requiring stock certificates to be surrendered before stock is redeemed, and of requiring an indemnity where certificates are claimed to have been lost or destroyed.

Clause 5 permits the Government to make regulations governing the storage and eventual destruction of local authority stock transfers, thus placing local authority stock transfer documents on the same basis as Government stock transfer documents. I have already explained the function of Schedule 1. Schedule 2 contains consequential amendments to a number of Acts. These amendments are necessary to bring those enactments up to date with the computerised transfer system mentioned in Clause 1.

As I said earlier, this is a complex but mercifully a short Bill, and I have accordingly made my speech short; but if I can later help noble Lords on any points I shall be very glad to try to do so. My Lords, I commend the Bill to the House and beg to move that it be now read a second time.

Moved, That the Bill be now read a second time.—(Lord Cullen of Ashbourne.)

3.6 p.m.

Lord Bruce of Donington

My Lords, the House will be indebted to the noble Lord for having given us a good explanation of the Bill, which, indeed, can hardly be said to be one which will have an earth-shattering effect upon the majority of the population of the United Kingdom; so much so that it had a perfunctory Second Reading in another place, and I observed that its Committee stage took exactly four minutes. As a Member of your Lordships' House, I am very often a little suspicious of Bills that go through another place with such alacrity, and I think it is desirable that we have one or two matters clarified a little.

One point arose in Committee in another place, where an assurance was requested that the computer terminal in this regard should be situated in the United Kingdom. The Minister, Mr. Bruce-Gardyne, was good enough to respond by giving that assurance. That being so, there would seem to be no reason why this undertaking should not be incorporated in the Bill itself.

This brings me to another question—one which I would say reflects the expression of what is often termed "judicial ignorance". I observe that in the Bill there is reference to a computer-based system. Although it is very difficult to anticipate any legal action arising out of any breach of the provisions of the Bill itself, I can imagine a learned judge sitting in the Queen's Bench Division or elsewhere saying, on any case being brought before him, "What is a computer-based system? "—because a computer-based system is, of course, nowhere defined in the Bill.

This is not entirely academic. There is always scope within computerised machinery for breakdown, and if a breakdown took place before a purchase was finally complete—and I agree it would he a split second—it would of course leave one party who had sold stock and another party who had not yet bought it. This may be entirely fanciful, but, after all, this is a Bill, and presumably it is anticipated that at some time it might be enforced. Exactly what rights would accrue to the particular parties, unless they went to law? And if they went to law, I can imagine the learned judge saying, "What is a computer-based system? "I am not a lawyer, and I am certainly not an electronics engineer, but it seems to me that, somewhere, some definition is required. I do not want to make a long story about this, but there is another point.

This new system of transfer, even though it operates only over a very limited field, represents a subtle departure again from the whole business of concluding a contract. At one time it was under seal, or under hand, or verbal; and then there was the ordinary transfer system whereby the transferee need not obtain the signature of the transferor before the transfer of shares became effective because that was accomplished on deposit of the instrument. Now we are getting transactions done, in effect, by computer—I agree only over a limited sphere.

What I am anxious about is this. Will this be taken as a precedent? Your Lordships have been through many Bills which have been handled through many competent Ministers from the Benches opposite in which it has been prayed in aid that a particular measure was incorporated in, say, the Local Govern- ment Act 1972, it has lasted all these years, why should we not have it in this Bill? I am anxious to have an undertaking from the Government that, although this is probably perfectly all right, never will it be quoted as a precedent for saying, "Well, you passed it in the Stock Transfer Bill. Why legitimately object to it over a wider field?"

Finally, I am worried, particularly with a complex technical Bill, that it should make provision for regulations. It is an enabling Bill, as the noble Lord himself has said. I do not like enabling Bills, anyway, particularly where the subject is as technical as this.

I must apologise to the House for having raised, possibly in my ignorance, a number of questions which are susceptible to easy answer and which may appear to those skilled in this field to be somewhat inconsequential. Nevertheless, at the risk of somebody correcting me on the various matters that I have raised, I still think they are important and I aver that where the other place gives small scrutiny to a Bill it is up to this House to go into that Bill in rather more detail by way of getting explanations.

3.13 p.m.

Lord Terrington

My Lords, as I had the privilege six years ago of introducing the Stock Exchange (Completion of Bargains) Bill into your Lordships' House, I thought that it might be appropriate to say a few words in support of this new Stock Transfer Bill. The completion of bargains Bill was, in a way, the forerunner of the Bill we are discussing today. It was only concerned with the settling of transactions on the computer of equities and corporate fixed-interest securities by a system known as Talisman, while this Bill seeks to take modernisation of the system a stage further by introducing a new computer for settling and completing Stock Exchange bargains in Government securities through a system called BET, as explained by the noble Lord, Lord Cullen of Ashbourne.

One of the reasons why I wanted to say a few words today about the new Bill—and it is a point which the noble Lord, Lord Bruce, has raised just now—is that, so far as the Talisman system is concerned, I am in a position to confirm that the reliability of the computers has been absolutely first class. I felt that it was important that noble Lords should be aware of this fact when considering a Bill to extend computerisation to Government securities, and I am pleased to be able to make this statement with complete authority. The other reason why I am in favour of this Bill, introduced so clearly by the noble Lord, Lord Cullen of Ashbourne, is that it represents yet another stage in the modernisation of procedures of the central securities market. Having spent most of my working life in the securities industry in the City of London, I have been very aware over the years of the need for modernisation and, in fact, I emphasised this very point when I introduced the Bill to legalise Talisman.

My Lords, this is the third piece of legislation over the last 20 years that we have had towards the modernisation of procedures. The first was in 1963. It was the Stock Transfer Act which simplified the written form of transfer and was introduced by the noble Lord, Lord Clitheroe. The second was the Stock Exchange (Completion of Bargains) Act, which I introduced in 1976 and which enabled the Stock Exchange to bring the Talisman system into operation in April 1979 using computers. Now we have another and most important stock transfer Bill which, I understand, will result in the Stock Exchange and the Bank of England introducing their new computer system by 1984. I welcome this Bill most warmly.

Lord O'Brien of Lothbury

My Lords, although my name does not appear on the list of speakers, I should like to be allowed to add a word of support to this Bill. I am not in any way authorised to speak on behalf of the Bank of England, where I spent so much of my life, in the early part of which I was engaged at the very lowest possible level in dealing with transfers in the gilt-edged market, which, in those days, were relatively few in number and were dealt with by clerks who had only just abandoned their quill pen. Much has happened since then. The gilt-edged market is now of enormous volume, technology has advanced with increasing speed, and it is only right that that technology should be applied to these processes which at one time were so extremely laborious.

I am glad to see a Bill come before your Lordships which takes that process a good step further. On the other hand, I agree very much with the noble Lord, Lord Bruce of Donington, that a Bill of this character, although a highly technical Bill which interests relatively few people, is of immense importance. Everybody who engages in the transfer of securities can be affected by it. I think it is important that his point should be dealt with carefully and that in your Lordships' House we should examine the Bill very closely indeed. Nevertheless, in general terms, I add my commendation of the Bill to your Lordships.

3.18 p.m.

Lord Cullen of Ashbourne

My Lords, I am grateful to noble Lords who supported this Bill, both the noble Lord, Lord Terrington, and the noble Lord, Lord O'Brien. I agree with the noble Lord, Lord Bruce of Donington, and the noble Lord, Lord O'Brien, that it is right that this House, as a revising Chamber, should look carefully at Bills of this kind. I am very glad that my noble kinsman, Lord Clitheroe, is in his place today. He was responsible for bringing forward the forerunner of this Bill many years ago. I know that the noble Lord, Lord Terrington, supported him on that occasion and I, in turn, supported Lord Terrington in the Talisman Bill; so the team is at work, a team which has been going for a long time.

The noble Lord, Lord Bruce, asked me several questions which I shall do my best to answer. His first question was about external terminals. The intention is that the terminals should be internal and that no terminals should be situated abroad. The noble Lord seemed slightly concerned about this. I am not quite sure why and I think it important that at the next stage of the Bill, we should know what that concern is; because the terminals will be used for checking deals and transferring money and securities. They are not used for extracting data except in relation to the terminal user's own accounts. So there is no danger of somebody with a terminal getting hold of information to which he should not be entitled. I do not know whether that was in the noble Lord's mind, but I think he can be reassured on that point.

Lord Bruce of Donington

My Lords, perhaps I could put it back to the noble Lord in this way: if the noble Lord himself does not consider it important, why did his Minister, Mr. Bruce-Gardyne, think it necessary at Committee stage to give the specific assurance? I put it back to the noble Lord.

Lord Cullen of Ashbourne

My Lords, personally I am happy about the situation. If the noble Lord wishes to pursue this matter at another stage in the Bill, of course he may do so.

There was a point about some breakdown in the computer, when somebody says that they bought stock and a split second later somebody says that they have not sold it. I think that was what the noble Lord was suggesting. Again, I do not think that he need worry about this because the computerised system is simply a question of settlement of bargains, and until a bargain is agreed on both sides—either by having gone through the market through jobbers, or if the transaction is negotiated outside the market—it will not enter the system. The system is simply on settlement of the bargain.

The noble Lord is concerned, as always, about this being an enabling Bill. But the purpose of this Bill is to clear away legal obstacles so that regulations can be made to develop what is a very complex system. There is no doubt about it, it is a complex system. The Bill has to get to the statute book so that the hardware can be selected and purchased, thoroughly tested and the participants in the scheme over the next year or so can be collected. The regulations which will follow this are all subject to negative procedure in this House and to the scrutiny of both Houses. It will then be the time to go into the real detail of this Bill. I would have said that this was a case where an enabling Bill was thoroughly justified. Does the noble Lord wish to speak?

Lord Bruce of Donington

My Lords, I do not want to interrupt the noble Lord. However, will he deal with the latter part of my request for assurance? This is a very technical and complex Bill. The instantaneous transmission of information becomes itself the instrument of transfer. This is the nub of it. Will the noble Lord give the House an undertaking that this will not be cited as a precedent when other Bills of this type come up, so that it will be without prejudice to our considering the whole matter anew if any other circumstances arise?

Lord Cullen of Ashbourne

My Lords, I am most grateful to the noble Lord for paying me such a compliment. He must know that I am in no position to make any such statement, either for this Government or for any other. I do not think that I have been asked any other questions. I hope that I have dealt with those few that I have been asked.

On Question, Bill read a second time and committed to a Committee of the Whole House.