Q & A

Selling shares

I have a small number of First Active shares and decided to sell them on May 24th when the share price was comparatively high - about €4 (£3.15). I contacted Davy's Stockbrokers, which offers a special First Active share-dealing service and was told to post it the share certificate and that they (the shares) would be sold as soon as the certificate arrived which, allowing for normal postal delivery, should have happened on Tuesday, May 25th, or the following day at the latest.

Imagine my surprise when I received a cheque on June 14th to find that the shares had not been sold until 5 p.m. on Friday, June 4th - some 10 days later - by which time the share price had plummeted to €3.33 (£2.62), the lowest I think the share has ever been.

While it is probably some kind of oversight, one would be forgiven for thinking Davy's tried to get the cheapest price for me rather than the best one. Apart from the fact that I am £500 (€634.87) out of pocket, it seems to me to be an appalling way to treat a customer and, while I would imagine there is nothing I can do about it at this stage, is there any forum where I can lodge some kind of official complaint?

Mr G.M., e-mail

While no two flotations are exactly alike, this is a very timely query for that huge number of people who will shortly be the proud owners of Telecom shares and who find the workings of the stock exchange and the mechanics of buying and selling shares very confusing.

Indeed, it can equally apply to those holders of free Irish Permanent and Norwich Union shares.

The first thing to state is that Davy's has not, as I see it, behaved in any way improperly in how it dealt with the sales of Mr G.M.'s shares. What does appear to have happened is that a degree of confusion has arisen over the statement that the shares would be sold as soon as the certificate arrived with Davy's special postal-based share-dealing service in First Active shares.

We will look at precisely how shares are sold in such a situation in a moment; for now, suffice it to say that Mr G.M. understood any such statement to mean that the sale would take place immediately while Davy may well have meant that the sale process would be put in train.

Basically, there are two ways of selling shares, or three if you include sales between friends or family at agreed prices and upon completion of a stock transfer form available from the Revenue Commissioners.

The most common way to sell shares is to contact a stockbroking firm and ask it to sell the shares on your behalf. Given that the Irish Stock Exchange does not allow brokers to buy shares in their own capacity - market-making or making a market of their own in the stock and therefore determining the price - the broker must find a buyer for the shares. This is called a matching-purchase system with the broker matching buyers and sellers and taking a cut - the commission - for his or her services.

The alternative, which does not occur in the Irish market but does in other places including on the London Stock Exchange, is the system of market-making. This is where a number of brokers is allowed by the regulator to make their own market in shares. This means that they can buy the shares on their own account rather than waiting for a buyer. They can then sell them on. In so doing, they set the price at which they buy and sell.

The Irish system of matching can create some delays as brokers wait for buyers to enter the market and try to buy the shares which they are trying to sell for their customers. In normal circumstances, the broker will charge a commission of between 1.5 and 1.65 per cent on the purchase or sale of shares up to a threshold. These thresholds differ. For instance, one Dublin broker charges 1.5 per cent on dealings of up to £5,000 with the percentage dropping to 0.55 per cent on the next £8,000 and 0.5 per cent thereafter. Another charges 1.5 per cent on transactions of less than £15,000, 1 per cent on transactions of between £15,000 and £30,000 and 0.5 per cent on the rest. A third seeks 1.65 per cent on trades of up to £10,000 in value with the commission dropping to 1.25 per cent on the next £10,000 and 0.75 per cent on anything greater. Minimum charges range from £20 to £60.

Cost is not the only determinant. There is also the quality of service. A major advantage for customers dealing with stockbrokers and paying full commission - is that they (the customers) can set limits on the price at which the brokers either sell their shares or buy the stock they are seeking to add to their portfolios. In such a scenario, Mr G.M. might, for instance, have said he wanted the broker to sell his stock for not less than the €4 he anticipated. The broker might feel such a price is unrealistic but he or she is tied by it unless he can persuade the customer to lower expectations.

However, Mr G.M. was using a low-cost share-dealing service provided by Davy in this case of First Active shares. It is certain that a number of brokers will offer such schemes to people wishing to sell Telecom shares. There are also nominee accounts, which essentially offer another low-cost way of selling shares but they tie the customer to one broker.

What happens with such schemes is that the broker undertakes to get "best price" for the shares, once the certificate is sent in to it. Of course, in the case of nominee accounts, the broker already holds the certificate. The difference is that customers cannot dictate limits on prices, outside which they are not prepared to trade. They simply have to take the best price the broker can get.

When the broker gets the certificate, it joins the queue of shares in that company looking for a buyer. When such a buyer is found, the shares are sold at whatever the price may be.

In Mr G.M.'s case, there was a large difference in that price and the one on the day on which he made his decision to sell but that is simply a fact of life.

Given that he says the difference in his case was £500, he might well have benefited from paying a steeper commission and setting a higher price at which the shares would have been sold. As an example, let's say he sold around 1,000 shares at €3.33 with commission of £10. That would give a sale price of €3,330 (£2,622.59) or €3,317.31 (£2,612.59) after the commission.

If, on the other hand, he accepted full broker's rates and shopped around - getting, let's say a commission charge of 1.5 per cent on the deal, he would only have needed to indicate a price of €3.37 per share to make a greater profit on the deal even allowing for the commission cost. In the circumstances, that sounds eminently achievable and there is plenty of scope between that price and the €4 at which he first considered selling. It would appear that Mr G.M. made a false saving by using the low-cost, no-frills sharedealing service. But remember, no matter what option you choose, dealing in shares is always a gamble.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 11-15 D'Olier Street, Dublin 2, or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.