What is CHESS?

Submitted by Sharemarket News on 27 May, 2011 - 13:27

Everything about CHESS (Clearing House Electronic Subregister System).

When share trading, legal ownership of your share allotment must also change hands. Along with the title to the shares, the seller gets paid and the buyer gets the product in an exchange called a settlement.

In the Australian Securities Exchange (ASX), settlement is facilitated by a computer system called CHESS or Clearing House Electronic Subregister System. CHESS is operated by the ASX Settlement and Transfer Corporation (ASTC). CHESS registers the share title or ownership electronically.

Since the participants need to be authorised by the ASTC (or sponsored by a participant), ordinary investors rely on the services of their stockbrokers to access CHESS. The settlement date is usually T + 3 or three business days after the trade. The settlement, called Delivery versus Payment (DvP), is irrevocable.

CHESS does not apply to shares alone, but also to financial products like stapled securities, warrants and company-issued options. If you are wondering if it is mandatory to register through CHESS, it is not. An Issue Sponsored subregister can be used. This particular subregister is operated by the company who issued the shares.

How to Register on the CHESS Subregister?

You register through your CHESS sponsor, i.e. your stockbroker. You will be asked to sign an agreement that basically says that you authorise your stockbroker to register on your behalf.

A Holder Identification Number is issued to shareholders after registration. Think of the HIN as a bank account number. Your HIN identifies you as the holder of a particular share. If you have more than one sponsor, you are assigned a different HIN for a different sponsor.

CHESS vs Issue Sponsored Subregister

On CHESS, you only have Holder Identification Number (HIN) for all of your holdings (because most shareholders only have one CHESS sponsor). CHESS also requires that you have a formal agreement with this sponsor. Change of name or notification of tax file number needs to go through the CHESS sponsor.

On the Issue Sponsored Subregister, you have multiple Security Reference Numbers (SRN), one for each company you have invested in. A formal agreement with your sponsor is not required. If you need to change your registration details, you will need to notify the registry for each company.

Which Register to Use?

So how do you decide which register to use? Consider that it may be inconvenient for Issue Sponsored shareholders to communicate every detail of their holdings to their stockbrokers. Shareholders are also exposed to the risk of late settlement fees, which is not an issue with CHESS. Investors with multiple stockbrokers may also experience settlement delays.