Nominee

A nominee holds securities on behalf of investors, the latter being the beneficial owners of the securities.

In markets where this is common practice (which includes the UK) holding securities through nominees is cheaper. The main reason is that investors do not need their own membership of the securities depositary used. Instead the nominee

The disadvantage of using a nominee is that shareholders may not have certain rights that shareholders on the register have. The most important of these are:

  • the right to vote at an AGM or EGM
  • the right to combine with other shareholders to force an EGM and to propose AGM or EGM resolutions.

Shareholders will not directly lose financially by holding securities through a nominee - entitlements to dividends, rights issues etc. are unaffected, although these are received or exercised indirectly by instructing the nominee, rather than by dealing directly with the issuer.

There are certain types of nominee relationships that do allow shareholders to vote. Using these is usually more expensive.

The effective disenfranchisement of most small shareholders has been a matter of considerable controversy. The Companies Act of 2006 provides mechanisms for solving this problem, but, these meachanisms are optional and few nominees have implemented them.

The role of a nominee is similar to that of a custodian, however the types and level of services offered by a custodian to large institutional investors are very different from those offered by nominees to small shareholders.