I move: "That the Bill be now read a Second Time."
The purpose of this Bill is to enable The Stock Exchange to introduce a new and computerised stock settlement system. Before getting on to the provisions of the Bill itself I would like to put it in context. Deputies will know that stock exchanges in Ireland and the United Kingdom were amalgamated in 1973 into a single stock exchange with the aim of improving standards and giving a better service to investors. The single stock exchange serving Ireland and the UK is called simply The Stock Exchange. Individual stock exchanges existing prior to the amalgamation have become local administrative units of The Stock Exchange. Thus, what was formerly the Irish Stock Exchange and now called The Stock Exchange —Irish, is the administrative unit in Ireland of The Stock Exchange. Of course, under the amalgamation arrangement The Stock Exchange— Irish continues to hold a special position in a number of respects: For example, Irish brokers continue as before to deal in Irish securities on the floor of The Stock Exchange—Irish in Anglesea Street on a broker to broker basis without the intervention of a jobber.
I should also say a few brief words about the operations of The Stock Exchange. The Stock Exchange normally operates on a two-week dealing period during which bargains or deals to buy and sell securities are made but not settled. Settlement takes place during the following settlement period. I do not propose to go into the complexities of the settlement system in practice. I think it is sufficient to say that, although this period runs for seven working days, most of the work is done towards the end of the period. Thus, paper work such as splitting bought shares into bundles of sold shares; instructions for delivery; preparation of transfers and payments are crammed into two or three days at the end. In most cases sellers of securities are obliged to sign open transfers because the ultimate buyers of those securities at the end of the dealing period are not yet known. This has the disadvantage that sellers are reluctant to release their stock under an open transfer until the very last moment because of risk of fraud or misappropriation. This adds to the concentration of paper work at the end of the settlement period. Taking The Stock Exchange as a whole it is understood that during the settlement period more than a half a million pieces of paper in the form of tickets—that is to say instructions for delivery—and transfer forms can pass around the stock market every fortnight in the paper chase necessary to link buyers and sellers.
A system of such extent and complexity must obviously be costly and open to error and the advantages which could accrue from computerising it are obvious. However it did not prove possible to devise a fully satisfactory computerised system which would handle the transactions involved in accordance with Company Law as it stands today and the purpose of this Bill is to make some changes in the intermediate steps, without of course altering in any way the ultimate realities of transfer, so as to permit computerisation.
Two points should be emphasised. The first is that the new system which this Bill will authorise is not concerned with the procedure for dealing or making bargains on The Stock Exchange but with the system of settlement which takes place afterwards, that is to say, the paper work by which sales and purchases of securities are matched up, payments made and transfers completed. The second thing which I wish to emphasise is that the operation of Talisman, which is the name given to the new system of settlement, is a matter for The Stock Exchange itself. The main purpose of the Bill is merely to make technical adaptations of the law to enable the system to operate.
Central to the new settlement system is a nominee company of The Stock Exchange called SEPON Ltd. Under the new system bargains to buy and sell will continue to be made in the usual way, but instead of the seller legally transferring title in the securities to the buyer he will transfer it to SEPON. The seller will however retain beneficial rights attaching to the securities until he is paid. SEPON will hold the securities transferred to it in a central "pool" of stock on behalf of sellers until the settlement period when securities will be transferred out of the pool to the various purchasers to satisfy purchase bargains. The Stock Exchange will also maintain computerised records of all holdings by SEPON of the securities of companies participating in the system. Talisman will eliminate much of the paper work already described and will level out the present peaks in workloads.
The transfer of securities to SEPON as opposed to the present system of a seller executing an open transfer will reduce the scope for mistakes or fraud and will thus encourage the early execution of transfers. In this way transfer work will be spread out rather than being concentrated in the few days at the end of the settlement period. I should add that the new system is not expected to have any effect on the volume of employment in The Stock Exchange—Irish or in stock-brokers' offices in this country.
For investors Talisman should mean less delay in obtaining certificates and also result in fewer mistakes in other areas such as the allocation of dividends in respect of shares in the process of transfer.
There should also be benefits for professional company registrars, that is to say, those people whose profession it is to keep the records of other companies up-to-date and prepare new certificates when existing holders of securities in the company sell them to someone else. Under the present system a registrar can receive notification of transfers from a variety of brokers who have purchased on behalf of clients. Under the new system all communications will be through The Stock Exchange and most of the documentation relating to transfers will be computer produced in a standard format. Notifications to company registrars of transfers will be reduced to notification from The Stock Exchange about transfers into SEPON and transfers out of SEPON. In this way the work of registrars will be simplified.
Before leaving the subject of Talisman I should mention that gilts such as Government and local authority stocks will not be affected by Talisman. These types of security are paid for by cash and do not fall within the complicated machinery of the settlement system which I have already described.
I would like now to pass on to the provisions of the Bill.
SEPON will merely act as a depository for shares in process of transfer and the size of its holdings in companies participating in the system will be constantly changing. Section 2 of the Bill will exempt companies from having to issue certificates in the name of SEPON in respect of transfers of securities into SEPON, as required by the Companies Act, 1963. Obviously it would be a mere waste of time to issue certificates in a transient situation of this kind. Indeed it would be adding to rather than reducing the amount of paper work. Of course, once securities are transferred from SEPON to the buyer certificates in the name of the buyer will be prepared as usual.
It is common for the articles of association of a company to require that share certificates must have the common seal of the company affixed in order for them to be valid. Large companies frequently entrust registration work to an outside firm of professional registrars which, having prepared share certificates, for example, must return them to company headquarters to have them signed and sealed with the common seal. This procedure can cause delays. In keeping with the objective of speeding up the processing of documents relating to securities section 3 will allow a company to have a special "official" seal which can be entrusted to the company registrar for sealing certificates and transfer documents. The consequential amendments of the Companies Act are dealt with in section 5. I feel that the use of the official seal could be a useful improvement generally. For this reason section 3 and 5 have general application and are not confined to the Talisman system.
The new system will involve computerisation of some company records. In particular it is envisaged that records, such as the register of members, will be kept on computer by some of the larger companies. This will further simplify the work of registrars and speed up transfers. There is uncertainty as to whether company law permits the keeping of company records in non-legible form. Section 4 will remove any doubt that computerised records are acceptable provided that they can be reproduced in legible form. Although it was framed with Talisman particularly in mind section 4 has a wider application so that modern methods of storing information, such as on computers, can be applied to the keeping of company records generally.
Section 6 applies these amendments of company law, allowing for any necessary adaptations or modifications, to unregistered companies, that is companies not formed or registered under the Companies Act but to which certain provisions of that Act apply.
Under Talisman sellers of securities will be encouraged to transfer title to SEPON in advance of payment and buyers to pay in advance of receiving title. Strictly speaking, trustees and personal representatives dealing in this manner with securities held in trust could be chargeable with breach of trust. Section 7 will remove this danger for trustees participating in Talisman.
Talisman will involve the use of two transfer forms, one for transferring securities to SEPON and another for transferring securities from SEPON. The Stock Transfer Act, 1963, which is administered by the Minister for Finance, includes provisions which deal with stock transfer forms. An amendment of that Act will be necessary to allow the use of the types of forms which will be required in the case of Talisman. Section 8 provides for this.
It is important that Irish industry and investors should not be denied the facilities of the new Talisman system. Over 100 of the larger Irish companies are listed on the stock exchange and have raised considerable capital on the stock market. Anything which can improve the operation of the stock exchange can have only beneficial consequences for Irish companies and investors.
I recommend the Bill to the House.
