To those who don’t remember the days of T+10, when settlement occurred ten days after a transaction date, it must seem like a system from another world. And there will be millions who don’t – it is now 30 years since the introduction of CREST, the settlement system created by the London Stock Exchange (the Exchange), Bank of England (BoE) and the Treasury, that automated and revolutionised trading.

Former CREST chair Scott Dobbie CBE FCSI(Hon), also a former chair of the CISI, remembers what it was like 30 years ago: “You’d finish trading on a Friday, and ten working days after that, the trade would be settled. But in that time the market could move or the guy could run out of money. It was clearly silly.”

In those two weeks/ten days, thousands of paper transactions, involving millions of physical share certificates, would be processed by people tackling unending backlogs. Now we take for granted a world of millions of transactions a day, settlement in about two days, and there’s often not a single scrap of paper in sight. And it’s all thanks to CREST.

All change for the Exchange

Change had been inevitable for a while. The advent of computers from the 1980s onwards had rendered obsolete the sector’s existing paper system Talisman, a slow, lumbering anachronism which allowed only for trades between two participating firms, and the Exchange set about replacing it with a modern, tech-based alternative. Unfortunately, the solution it created, TAURUS (Transfer and Automated Registration of Unregistered Stock) was so complex that it tried to accommodate 17 different systems, many requiring systematic and legal changes. It required a vast investment from individual firms into overly expensive and complicated software that turned out at best impractical and at worst unworkable. The project was never completed. In March 1993 TAURUS collapsed under the weight of its own ambition and a £400m bill for an unfit-for-purpose product, prompting the resignation of the Exchange’s CEO Peter Rawlings.

The job of finding the solution then passed to the BoE, whose first move was to appoint a multi-agency task force to be chaired by its own director for finance and industry Pendarell ‘Pen’ Kent.

Pen’s Task Force on Securities Settlements, including bankers, investment bankers, Exchange representatives and officials from the Treasury, met through the summer of 1993, eventually producing what was officially called the Report to the governor of the Bank of England but whose yellow cover earned it the nickname The Golden Book. This was presented to the then-new BoE governor Eddie George with a solution funded by the equity sector – 69 firms paid £12m to develop CREST – and based on a vital central tenet: Simplicity. 

The BoE then assembled a small team from a variety of departments in the Bank. One of them was Hugh Simpson, who had previously worked in a wide range of departments at the BoE. “It’s not the role of a central bank to run a settlement system for the equities market,” he says, “but it agreed to at least pull people together to try to find a solution.”

“What had sunk TAURUS was that some people said ‘I need it to do this’ and others ‘I need it to do that’, people wanted different things on different screens,” recalls Hugh. “Its creators tried to meet all those requirements. CREST’s creators said ‘this is what we’re providing, you fit in with us’.”

It worked because he said no

It was this single-mindedness from Pen and CREST’s first CEO, another BoE secondee Iain Saville CBE FCSI(Hon), that made the project a success, according to Gary Wright, CEO of City think tank BISS Research. Quoted in a previous Review article marking CREST's 20th anniversary he says that “they were one of the best double acts the City had ever seen”, with Pen “smoothing over any cracks that appeared, while Iain went marching on to get the project done and ensure it did not lose focus”.

Pen, who died in 2013 and Iain, who died in 2022, knew frequent, respectful, but firm conversations with those who would use the system was the key to getting the sector on board. “Consultation was frequent and rapid,” Iain reveals in the same article. “We wrote to a few companies at the start pointing out that their replies had come after the deadline and thus were not taken into account, just to make the point that we set the rules.”

Hugh, who ultimately succeeded Iain as CEO, believes that was the key. “When it was being created all the usual suspects came forward and said, ‘it has to do this for me’ and Iain said, ‘no it won’t’,” recalls Hugh. “But the failure of TAURUS was an asset because we could point to that and say, ‘if we accommodate every idea, it will fail again’. And they all wanted it to work.”

Even so, Pen and Iain still had to overcome reluctance from brokers understandably sceptical following the failure of TAURUS. Retail brokers were reluctant to invest in electronic systems – and it would be a huge operation to transform paper share certificates into electronic holdings.

A matter of persuasion

“There was a lot of liaison, negotiation and cajoling of member firms to get themselves organised,” recalls Scott Dobbie, who was on CREST’s advisory committee until 1996, when he succeeded Pen as chair.

The ultimate aim was to speed up settlements and get rid of paper certificates. However, the transition meant a huge operation to dematerialise holdings as shareholders sent in vast quantities of share certificates to registrars who had to check them all before replacing them with an electronic share, says Scott.

On July 15 1996, CREST was officially launched in Trinity Tower in London’s Dockland by then Chancellor Ken Clark who, according to a CREST 20th anniversary speech in 2016 by Andrew Hauser, Bank of England executive director for markets, “picked up a computer mouse – then still a relative novelty – and, waving it towards a large computer screen like a wand, declared the CREST settlement system open for business”.

The sheer volume of certificates meant transformation had to happen over weeks and months and as each company came on board they were given specific timeslots to deliver their certificates.

But momentum gathered, especially as the sceptics realised they were being left behind, and the switch from paper to electronic trading was achieved on budget – around £26m, shored up by a short-term and quickly repaid loan from Lloyds. It also completed ahead of the CREST team’s self-imposed deadline.

Knowing the old Exchange system completed around 27,000 trades a day and had a capacity for 40,000, the project leaders were anxious to see it up and running before the demutualisation of the Halifax Building Society, mooted for June 1997, and expected to generate around 120,000 trades.

Reaching out

But another advantage of the new system was its potential to break international borders, something Pen and Iain were adamant it should do from the start. “We recognised that it had to be multi-currency, partly because we had to deal with the Irish Stock Exchange,” Iain recalls in the 20th-anniversary feature. “But we also felt that we should bring in foreign securities so that they would be more readily available than if [investors] had to go into the foreign market directly. They were quite major obstacles. 

“We favoured a ‘spaghetti model’, using common data and process standards across all markets so [central securities depositories] like CREST could inter-operate to serve their clients’ use of stocks from many European markets.”

Speed and other legacies

Thanks to CREST, settlements accelerated from T+10 to T+5, then to T+3 and now the standard is T+2, although many trades are settled on the same day. But it also impacted in other ways. The shorter time frame brought lower risk. It made brokers confident about volume of trades. The automation meant tens, later hundreds of thousands of trades could be overseen by just one or two people, ending a tradition of dozens of clerks being bussed in from Essex every couple of weeks to process all the paper settlements.

And it also changed the registrar industry. “CREST brought a huge consolidation,” says Scott. “Before it, there were lots of registrars, with some companies doing it in-house. But the cost of setting up CREST meant the investment to do all the registrar work wasn’t worthwhile for many firms, so they got consolidated into bigger firms and now only about six remain.”

There was another enduring legacy, too – the development of the CISI. “The Securities Institute, as it was then known, was a training partner for the new CREST system,” says Scott, who chaired CISI from 2000 to 2009. “People needed to be trained and to a consistent standard, with exams, and that was done by the Institute. That major partnership and that work arguably helped developed CISI over the next few years into the respected institution it is today.”

In the intervening years CREST has developed – most notably being acquired by Euroclear in 2003. By the end of its first decade, it had established direct links to major central securities depositories across the world, including the US Depository Trust and Clearing Corporation, Switzerland (SIS Sega InterSettle), Euroclear Sweden, the Netherlands (NECIGEF) and Australia (CHESS – Clearing House Electronic Sub register System).

It now boasts 10,000 members around the world and computer systems have improved exponentially since its launch, but CREST’s capability has only needed to be tweaked, says Scott. “It shows how successful the concept was to begin with. The vision and the pragmatism of Pen, Iain and all those who came up with those first ideas to revolutionise the system has really benefited the UK equities sector. CREST is as effective, as relevant, and as powerful a tool now as it has ever been.”