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How Do Nominee Accounts Work?

When buying or selling shares through a stockbroker on the London Stock Exchange nominee accounts are used by many investors. A nominee company will be run by a stockbroker to own shares on behalf of investors.

Legally the shares belong to the investor as it is the investor who has responsibility for the taxes to be paid on any dividends or capital gains. However, these investments can be transferred into or out of the nominee account or bought and sold by the company. The investor will still receive contract notes to confirm the actions of every trade.

Nominee accounts are used to prevent shareholders from having to deal with the paperwork and share certificates. Many stockbrokers encourage their clients to use nominee services for ease. This process was speeded up by the introduction of CREST and then given extra suupport by the arrival of T+3 settlement. T+3 means that the financial arrangements are settled three working days after the trade. Obviously, it can be very difficult (if not physically impossible) for an investor to settle paper transactions through the post in just three days.

The nominee company can collect dividends on behalf of the investor or they can be paid directly into the investor's bank account. Some stockbrokers will charge for these services.

For investors who trade actively on the London Stock Exchange or are not very organised with their paperwork, the use of a nominee account will prove to be invaluable. However, the additional costs do add to the expense of a trade and so nominee accounts are of most use to larger investors.

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