What is CHESS?
Clearing House Electronic Subregister System is known as CHESS. The Australian Securities Exchange (ASX) uses it as its computer system to keep track of shareholdings and coordinate the settlement of share transactions.
You may not be familiar with CHESS as an Australian investor, but you have probably heard of it. Therefore, we thought we’d compile all the data you require to determine whether it’s appropriate for you.
CHESS (Clearing House Electronic Subregister System), which was established more than 25 years ago, is a computer system used by the Australian Securities Exchange (ASX) for share settlements and registrations.
Benefits of CHESS sponsorship with CommSec
When CommSec sponsors your CHESS shares, you can:
- automatically monitor your online portfolio’s market value
- promptly place online sell orders (because we have all the required information to place your order)
- order a purchase without making a deposit (if you have sufficient CHESS holdings already sponsored by CommSec)
- Instead of updating your personal information with several sharing registries multiple times, update it once using CommSec.
What does it mean to be CHESS sponsored?
If you purchase shares that are “CHESS sponsored,” the ASX will note that you directly possess such shares.
This is how it goes:
- A Holder Identification Number will be provided to you by the broker you select if the broker’s shares are sponsored by CHESS (HIN).
- Your HIN will be used to allocate the shares you purchase to you, and a statement will be delivered to your registered address.
- You are allowed to use numerous HINs with different online brokers and to transfer your HIN (together with the shares allotted to it) from one broker to another.
There are two ways to hold shares.
CHESS sponsored shares –
registered shares with a stock broker (like CommSec or another broker). The broker assigns a Holding Identification Number (HIN) to each share of CHESS sponsored stock.
Issuer sponsored shares –
shares that are controlled by the share register of the issuer. Any broker may be used to trade issuer-sponsored shares as long as certain requirements are met. A Securityholder Reference Number is assigned to Issuer Sponsored Shares (SRN).
Shares must be moved from the share registry to CommSec if you want to convert issuer sponsored shares into CHESS sponsored shares.
How Do I become CHESS Sponsored?
All freshly created CommSec Share Trading Accounts automatically receive CHESS sponsorship. Your account will have a special HIN number if CHESS is sponsoring it.
If CHESS is not already sponsoring your account, you can apply by filling out a “CHESS sponsorship request form.” (This form can be used to apply for CHESS sponsorship even if you aren’t transferring any shares; it is primarily used to move broker sponsored shares to CHESS.)
Section A (CommSec account details) and Section E must be completed (CHESS agreement). When finished, send your form by email to [email protected]
Within two business days, we will attempt to process your request. ASX Settlement Pty Ltd (ASX Settlement) will send you a note to confirm that CommSec is your CHESS sponsor. All upcoming trades will settle with CommSec under your CHESS sponsorship.
Advantages to having CHESS sponsored shares
There are a number of advantages to having CHESS sponsored shares, including:
As a result of the connection between your shares and your HIN (and, by extension, your name and Tax File Number), CHESS serves as a third-party confirmation that you actually are the only owner of the shares, as opposed to someone else owning them on your behalf (more on that below).
Your whole portfolio can be registered under a single HIN rather of being spread out across many subregisters for shares in various firms. This enables you to locate every one of your holdings (especially if you don’t already do so in a portfolio tracker like Sharesight).
At the conclusion of the financial year, CHESS issues a single statement in place of actual share certificates (although you will typically continue to get buy/sell statements from the share registries).
You only need to inform your CHESS sponsor (your broker) once if you need to alter any personal information, such as your name, address, or Tax File Number. Otherwise, you will need to inform several subregisters.
Can you own non-CHESS sponsored shares?
Australian investors love CHESS sponsored shares since the majority of the country’s top brokers offer them. Despite this, it is still possible to trade non-CHESS sponsored shares, such as:
Shares purchased via a custodial broker
Some brokers work on a custodial model, which means they hold the shares on your behalf. These brokers include several robo-advisers and micro-investing apps. Despite the fact that a lot of these brokers have been in business for a while and are regarded as trustworthy by investors all over the world, it is crucial for investors to conduct due diligence and comprehend what would happen if the broker went out of business. Additionally, if you own shares through a custodial broker, you can lose out on benefits like dividend reinvestment plans and voting rights.
Issuer Sponsored Shares
These are often the outcome of an IPO, SPP, or ESP and are administered by the company that issued the shares through the issuer’s share registry (Employee Share Plan). These are assigned a Security Reference Number rather than an HIN (SRN).
The future of CHESS
Distributed ledger technology (DLT) will take the place of CHESS in early 2021, according to an announcement by ASX. While CHESS’s average monthly service availability over the last five years has been 99.99%, ASX states that the new DLT system (commonly referred to as ‘blockchain’) will improve upon CHESS and “provide a broader range of benefits to a wider cross section of the market”. The project’s primary guiding concepts include giving issuers and end investors more flexibility, considering future demands, and making sure the new system is easily accessible, readily available, and dependable.
We are eagerly awaiting the implementation of CHESS (or its replacement) and are closely monitoring Australia’s Consumer Data Right law on open banking.