WHI - International Trading

HOW DEALING IN LONDON DIFFERS FROM AUSTRALIA

First of all we are far less streamlined in our settlement systems than you are in Australia – this however does have some advantages and I hope the following helps to explain. I will first describe how we register stock in the UK and then how we deal in the market place(s).

REGISTRATION

There are two ways to register your stock – either in your own name in certificated form or in a nominee, The advantages of own name are typically that you will receive all the corporate information you should through the post and, in some cases, electronically where Registrars are set up to do so. This does enable you to be kept completely up to date with corporate information. It does mean that you have to keep a complete record of all your transaction and dividend and income payments for your tax return – the broking firm you use would not be able to do that. In a nominee name that is all done for you and once a year you get a complete run down of all activity which can be passed to your advisor. The receipt of corporate information though is not part of the service unless specifically requested. Transactions in the market place where securities are in own name are however slightly more complicated than if they are in nominees. In order to settle an own name sale a client needs to send the original certificate and a signed transfer deed ( normally a CREST deed ). Because of delays in receipt and then onward delivery to the market we tend to deal on an extended delivery basis – normally T + 10. In a nominee name, unless requested otherwise, settlement is always T + 3. This is where the UK does have some advantages over Australia. We do not have a mandatory T + 3 settlement system – we do have automatic T + 3 but this can be changed – normally to no more than T + 20 but in extreme circumstances T + 25. There can be costs in purchasing for extended settlement but sales usually avoid that. It should be pointed out here that there is no automatic buy–in of non delivered securities in the UK – the penalty is that you will not get paid until everything is in order.

DEALING

The main market in London is the London Stock Exchange ( LSE ) which, like the ASX, is a public company. There are other regulated markets that one can deal in but the main one is the LSE. As with the ASX the LSE has automatic screen based dealing for the main market stocks but there are also firms known as market makers who will ‘ make a price ‘. The advantage of this is that it enables one to deal on different settlement dates as discussed above. The market maker will take the risk on and his return is the difference between his ‘ bid ‘ and his ‘ offer ‘. For example XYZ plc might be 200 bid – 201 offered and the market maker will hope to buy them from you at 200 and sell them to someone else at 201 – taking a 1p turn for his trouble! In this example I would expect to see his ‘ offer ‘ be at 201.5 if it was for T + 20 as that would be his financing cost. In the vast majority of the leading stocks though it will be the automatic screen based system used. On AIM however the chances of it being a ‘ market maker ‘ deal are higher. Some AIM stocks do have automatic screen trading but a good deal do not. The art of dealing with market makers is something we take seriously. Here it boils down to our skills and our relationships. Gone are the days when one was on the ‘ floor ‘ of the Stock Exchange and one could look into the ‘ whites ‘ of their eyes to get the best deal. Nowadays it is all executed on the telephone and different skills are necessary. Relationships are built up through evening drinks rather than lunchtime binges. A market maker will normally be live in a set number of shares at a set price. If one wants to deal outside his normal limits then negotiations take place. If, for example, the market maker is openly prepared to deal in 100,000 shares either way ( bid or offer ) and you want to deal in 1,000,000 shares then one might be able to increase his size to 250,000 on the basis that you leave him the other 750,000 to work. This is colloquially known as ‘ under the blanket ‘ and it means that you are committed for whatever length of time you agree to leave him the balance. If the shares change in price in the meantime he is under no obligation to go with the change. The ‘ under the blanket ‘ trade will not be published until the final deal is struck – hence the colloquialism. Because market makers are on risk the spreads between bid and offer tend to be larger than in automatic screen dealt stocks but here again is where our skill comes in – the negotiations referred to above. We always try to deal inside a quote and nine times out of ten we will succeed. In any event if you decide to chance your arm on the LSE then rest assured, through DJC and ourselves, we will do all we can to make the transaction as painless as possible.