Execution-only dealing plays a significant role in the UK market. Two-thirds of all trades using market brokers are execution-only and the average execution-only trade was less than Â£5,000 in 2002.1
Diane Hay said: " The first key issue here is freedom of choice. We are concerned that the effect of the proposed new ISD would be to stop execution-only dealing and deny many UK shareholders access to low-cost and efficient dealing services. Our experience is that execution-only dealing provides a valuable and efficient way for many investors to trade. "
Many existing small investors have no current relationship with a broker and will use an execution-only service to sell shares on just one, or at most a handful of, occasions. Other than account-opening checks, ProShare does not see the need for a suitability test in these circumstances. Moreover the low price and accessibility of execution-only dealing encourages investors into the market; imposing a suitability test would both increase the costs of trading and impose barriers to new investors coming into the market. Execution-only dealing is also of great benefit to those investors who have done their research carefully and know exactly what they want to do.
Diane Hay continues: " The second key issue is education. ProShare believes strongly in the need for investor education to sit alongside investor protection. We would like to see the European Parliament amend the ISD to require every Member State regulator to have a mandatory objective to educate its private shareholders to understand the risks of investing. There is little evidence from the UK experience of execution-only dealing that investors using these services do not understand that they are fully responsible for their own decisions. They have made a clear choice to use a simple, cheap service and they should not be forced into a more elaborate and costly service."
Diane Hay concludes: "Regulation alone does not help the investor, especially if it creates complexity, potentially less competition among brokers and results in less choice, at a greater cost."
Diane Hay is available for interview. Please contact:
Press & Marketing Co-ordinator
ProShare (UK) Ltd
24 Monument Street
t: 0207 22 0 1753 / 1730