View from City Road: Sid becomes an endangered species

THE NUMBER of shareholders is likely to halve from the peak of 12.75 million within the next three to five years. That is the forecast of Michael Baker, chief executive of the Association of Private Client Brokers. Geoffrey Maddrell, of Proshare, agrees.

At first sight it looks as if Mr Baker is forecasting his own members' demise. If the number of private shareholders falls, so too will the business of private client brokers.

But the reality is slightly different. Mr Baker's member firms do not depend on Sid, who holds shares in one or two privatised companies, for their livelihoods. Most rely on portfolio investors who buy and sell shares regularly.

Since the peak was recorded just before the Government sold the second tranche of shares in BT last year, the number of shareholders has fallen to about 10 million. There are four main reasons for thinking it will fall further.

Sid will continue to sell shares in privatised companies, and few more Sids will be created, as the run of stock market privatisations has dried up. Companies regard private investors as an expensive nuisance. And the introduction of Taurus and rolling settlement will almost certainly frighten off some shareholders.

With Taurus, which will replace share certificates with electronic records, investors will have to remember their personal codes, familiarise themselves with shareholding statements and suffer the confusion of two systems running in parallel, at least initially. Many might decide that it is easier in to put their money in a building society.

Proshare reckons the solution is a consolidated account controller or registrar. But it is probably too late to set one up before Taurus gets going next year. In any case, the real problem is not Taurus but rolling settlement.

Instead of being able to pay for shares in the generous timescales allowed by the fortnightly account system, investors will be required to pay for shares within a fixed period. Initially this will be 10 days, which should not present too great a problem. But how will an investor living in the wilds of Wales get a cheque to his broker in London in time for him to pay for shares once the period comes down to three days?

The association and Proshare are both resigned to seeing a fall in the number of shareholders. But they do not want the obstacles to individual share ownership to become so large that they deter not just Sid but also portfolio investors.