I’m in the process of establishing a trading account with a broker and have been asked whether I want to utilise a nominee or not; please can you explain?

It used to be the norm that a shareholder in a company had a share certificate as proof of their shareholding. 

The certificate was registered to them and had a monetary value (this being the number of shares on the certificate multiplied by the prevailing price).  All official documentation was posted to the registered holder as were cheques for any dividends paid and corporate action notifications.  As you would imagine, this created a lot of paperwork and administration and increased the chances of delayed trading, missed deadlines and lost certificates; all of which could prove to be very costly.

The norm is now for shareholders to utilise the services of a nominee company.

A stockbroking firm will use a wholly-owned and ring-fenced nominee company to ensure that its client assets are segregated from its own assets.  All client shareholdings will then be registered electronically to the nominee company, via one of several different settlement/depositary systems, and held to the underlying beneficial owner’s order.

The stockbroker will then provide a comprehensive and secure nominee service for the shareholder.  It will coordinate both prompt electronic settlement of all transactions and all administration including dividend reconciliations, corporate actions, provision of valuations and tax vouchers and so on.