Certificated share dealing is one way of buying and selling shares.
When you invest in a company by buying shares, you may be issued with a formal certification of ownership. These certificates are essentially units of ownership in publicly listed companies.
Certificated share dealing is the process of buying and selling paper share certificates. When you buy shares in several companies, you build up an investment portfolio. If the value of the shares in your portfolio goes up, you will make money.
Shareholders with paper share certificates get to have active participation in the companies they invest in. For instance, they are invited to vote on motions, which are put forward at the Annual General Meeting (AGM).
However, the EU has passed legislation to end the use of paper share certificates by 2025. Although the UK government no longer has to stick to this timeline due to Brexit, it has nonetheless created a digitalisation task force to address how existing paper shares can be converted into digital ones while preserving share owner rights. The Chancellor of the Exchequer has asked the taskforce to publish final recommendations and an implementation plan by spring 2024.
Certificated share dealing is an alternative to nominee accounts – used widely by brokers – where shareholders are beneficial owners of companies. With a nominee account, investors receive the economic benefits of buying shares but are not the legal owners and cannot vote in AGMs.
‘Paperback shares’ is simply another name for certificated shares. It refers to the physical copies of shares you get when you buy stocks in a company.
They give you rights in the company, such as receiving dividends, access to company reports and other stockholder information and the ability to vote in AGMs.
Certificated share dealing is when you trade by buying or selling paper share certificates.
Before you can begin, you’ll need to open a share dealing account that lets you buy and sell certificated shares.
Once you’ve done this, you can either add money to your account and purchase paper shares or sell your share certificates online.
As more people have moved towards digital share dealing, the number of platforms available for buying and selling share certificates has shrunk. However, many brokers and platforms will allow you to transfer your share certificates to a nominated account and trade that way.
If you take this approach, the broker or platform will be listed on the shareholder’s register. As a result, you may lose some rights, such as voting in AGMs, and may no longer receive direct communications from the company concerned. The broker or platform will take on all the administration of your shares for you.
It's a good idea to take time to get used to trading stocks with a small investment to get a feel for how it works.”
If you already have shares in a company or companies, you might be unsure what type you have. The good news is that there are only three types, and it should be quite simple to work out which ones you have. The three types are:
Certificated: The shares are in your name, and you get a paper certificate as proof of the number of shares you own
Electronically held: The shares are held electronically in the name of your broker, and you’re the beneficial owner
Personal Crest Accounts: The shares are held electronically in a UK-based central securities depository. This allows you to preserve the rights associated with certificated share dealing while operating electronically
It is cheaper and faster to sell electronically held shares, so most people prefer to do it this way these days. There’s less paperwork to transfer the shares, and there are no delays due to the postal service.
Plus, if you have a nominee account, the stockbroker handles all the administration around buying and selling your shares, which means everything should happen more smoothly and quickly.
If you want to buy or sell paper share certificates, you’ll need to use a certificated share dealing broker, which will give you access to its trading platform.
There are several reasons you might want to sell share certificates. For example:
You want to cash them in and realise their current value
You’re worried paper share certificates will become a thing of the past
Our comparison shows brokers that can sell your share certificates. It can be expensive, so it’s always wise to shop around for the cheapest deal.
This is where you buy and sell shares without advice or guidance. You have full responsibility for the performance of your portfolio, so this is only recommended for highly experienced investors.
This is where you receive advice on which company shares are worth buying and selling, but the actual decisions are down to you.
This is a paid service with which you authorise the broker to take full responsibility for your portfolio. They’ll make the trades they believe to be in your best interests and can do so without your authorisation.
Most brokers charge you for every certificate you sell, but how much depends on the value of your shares. Some will offer discounts for regular traders.
For example, if you sell shares worth £10,000, you may get charged 1% (£100) to sell them. But if you sell another £10,000, the charge may reduce to 0.5% (£50).
Some brokers also charge a fee - usually around £50 - to cover the administrative costs of transferring your certified shares into another name.
In recent years, certificated share dealing has become too expensive for many investors. Many brokers and investment services no longer offer it as an option because commission rates have risen while rates for nominee accounts have fallen.
Dealing in any shares has risks. The value of your investments and the income you may receive can go down as well as up. This could be due to economic factors impacting the market as a whole or specific events at the company in which you own shares.
You could get back more or less than you invested. You’re not always guaranteed to make money.
The EU parliament has started a process known as dematerialisation, which is designed to put an end to paperback share certificates in the EU. This law is expected to come fully into force by 2025.
When the UK left the EU, it was no longer bound by these laws or Europe’s proposed timeline. However, in 2021, the government published a policy paper announcing several reforms designed to dematerialise share dealing.
Since then, it has created a digitisation taskforce to explore the best way to convert paper shares into electronic ones, while maintaining existing shareholder rights. This taskforce is expected to publish its final recommendations and a plan for implementation by spring 2024.
There are several companies that will allow you to transfer your certificated shares into a digital account. However, you’ll typically have to open a nominee account and may lose some of your previous rights when doing this. Follow these steps to convert your paper shares:
Find a company that will allow you to transfer your paper shares. There are plenty of options, including Barclays, Fidelity, and Hargreaves Lansdown
Set up an investment or nominee account. Some providers let you manage your own investments, while others will charge to manage them for you, so make sure you know what you’re signing up for
Check that the provider you’ve chosen will accept your shares. Some companies, such as Fidelity, will only accept transfers for shares they offer
Fill out a stock deposit instruction form. Then, complete a CREST transfer form (you will need a separate form for each company in which you hold share certificates). You’ll usually need to sign a CREST form by hand
Send the completed forms and your share certificates by recorded delivery to your chosen firm
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Blue-chip stocks are the stocks of large, industry-leading companies, typically with good reputations. The term was derived from blue gambling chips, the highest-valued chips in casinos.
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A bull market is the opposite of a bear market and is a market experiencing a prolonged period of increasing stock prices that are at least 20% above a recent low.
Day trading is the practice of buying and selling a stock or security within the same trading day, often with the intention of profiting from small fluctuations in price.
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A collection of assets that makes up a trader or investor’s portfolio. Your portfolio can contain a single stock or an infinite number of stocks and other securities.
A stop-loss order directs a stockbroker or share trader to sell a stock when it reaches a predetermined price. It is usually used by investors who want to limit their potential losses on a particular share.
Volatility can either refer to an individual stock's price movements or the movements of a financial index. Stocks that fluctuate wildly in price over a short period of time are considered highly volatile, while those that move slowly are deemed less volatile.
If the company is still in existence, you can ask them to confirm your shares are still valid. Once validated, you can sell your certificates.
Not always. You may need to pay a broker fee to hold your shares electronically, but it will be cheaper to trade them when you decide to buy new shares or sell your existing ones.
Consider signing up for a frequent trader account if you think you’ll make several trades per month – this could reduce the cost of each individual trade, although you should always check each company’s terms before signing up.
No, the company must be listed on a stock exchange such as the London Stock Exchange (LSE) or Alternative Investment Market (AIM). Do your research to check which exchange is best for you.
Yes, any profits are subject to Capital Gains Tax, and you also must pay 0.5% Stamp Duty (on transactions valued at more than £1,000). Here is more on investment tax.
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