What is CHESS?
Stake is proud to be a CHESS-sponsored broker, allowing investors to own ASX shares under their own Holder Identification number (HIN). Learn more about the CHESS system.
- CHESS is an acronym for Clearing House Electronic Subregister System.
- Developed and maintained by the ASX, the CHESS system gives Australian investors ownership of their stocks under their name and Holder Identification Number, or HIN.
- Stake is a low cost, CHESS-sponsored broker.
Perhaps the two most important acronyms in the Australian market, CHESS and HIN keep your portfolio completely secure and accessible. Here’s everything you need to know about the CHESS system.
What does CHESS sponsored mean?
CHESS sponsored means the ASX ensures accurate record-keeping of share ownership, enabling direct ownership when buying or selling shares. When you buy and sell shares that are 'CHESS sponsored', it means the ASX has a record of you owning those shares directly.
Developed and maintained by the ASX, the Clearing House Electronic Subregister System (CHESS) is responsible for processing all your ASX transactions. At its core, the CHESS system has two functions:
- To securely exchange cash and shares between buyers and sellers after every trade.
- To create a sub register of owners for every share.
That’s where your Holder Identification Number (HIN) comes in. Every time you make an investment, the security is assigned to your HIN, ensuring it is held under your own name.
How does the CHESS system work?
Travelling through the pipes of the ASX, we will dive into how the CHESS system works.
Transactions settle on a T+2 system. That is, within two days of the transactions, shares and cash have been fully exchanged and settled. This process is known as delivery versus payment (DvP) and is guaranteed. Since shares and cash are registered with CHESS, settlement is all within the system.
For more information, the ASX has provided their framework for clearing and settlement of cash equities in Australia.
How can shareholdings be registered?
There are two ways for your shares to be registered:
- CHESS-sponsored shares: When you opt for CHESS-sponsored shares through a broker, such as Stake, it signifies that the ASX acknowledges your ownership of the shares under your name and HIN (Holding Identification Number). This arrangement ensures a direct record of your share ownership with the ASX.
- Issuer-sponsored shares: These will be held under the company’s share registry and a security holder reference number (SRN) will be assigned to those shareholdings. The SRN can be found on holding statements sent to you by the issuing company.
You can do an issuer sponsored to CHESS transfer if you want your holdings to become CHESS-sponsored shares.
How do I become CHESS sponsored?
When you sign up for a Stake AUS share trading account, ASX CHESS sponsorship automatically applies to your account and you'll have a unique HIN.
To start placing CHESS-sponsored trades with Stake, sign up here.
Getting a Holder Identification Number (HIN)
Stake ensures that when you buy ASX shares you will own them in your own name. Each investor is given their own Holder Identification Number (HIN) by our sponsoring broker Finclear. Every position in your portfolio is then attributed to this HIN.
What are the advantages of having your shares registered under CHESS sponsorship?
There are several advantages of trading with a CHESS sponsored broker, including:
- Full legal ownership: Since the shares you purchase are owned under your HIN (including your name and tax file number), CHESS gives you direct access to your shares – as opposed to someone else holding them on your behalf, like in the custodian model (more on this below, including the risk involved).
- Less paperwork: CHESS-sponsored traders will be issued a single statement at the end of the financial year (in some circumstances you will still receive statements from share registries).
- Easy to update personal information: If you need to update personal information such as your name, address or tax file number, you can easily update this through your CHESS-sponsored broker. You would only need to do this once instead of having to notify several sub registers.
- Access to DRPs and BSPs: CHESS gives investors the ability to elect or cancel dividend and distribution reinvestment plan (DRP) and bonus share plan (BSP) for their CHESS holdings.
What are the main difference between the CHESS subregister and the custodian model?
The main difference of the CHESS-sponsored system is security, giving you direct access to your shares. Other brokers may hold shares on their own balance sheet and only attribute rights to a position, rather than full ownership. This is known as a custodian model, where shares are held under one broker HIN and customers are assigned beneficial ownership of their shares. Customers can still buy, sell, transfer and withdraw just as easily, but they do not own the shares in their own name.
Should custodian brokers face the risk of a shutdown, there may be delays before shares are returned to customers. In fact, the custodian model has left investors out-of-pocket on numerous occasions throughout history, locking them out of their portfolios in instances where a broker goes under.
For example, Halifax Investment Services was an Australian broker which operated using a custodian model with 12,000 customers and over $200m on its books. Following its collapse and liquidation in 2018, customers were locked out of their investments and the funds only started being returned three years later, in 2021.
Under a CHESS-sponsored model, those investors would have been able to access and transfer their Australian shares to new brokers as soon as the collapse occurred.
While Stake does not suggest that custodian-based brokers are more prone to collapse, when investing, it’s important to consider all risks involved.
Why does the ASX send letters to me?
The ASX has been known to send a letter or two, usually a CHESS holding statement or other types of notification about your shares. But Stake investors now have an alternative.
Stake has opted into the ASX CHESS Statements Portal, which means customers can opt in to receive electronic statements and notifications (via email) instead of letters.
To opt into email correspondence from the ASX, follow these steps:
- Click on the 'User' icon in the bottom right corner of the Stake app
- Choose 'Settings' then 'ASX letters'
- Select 'Email' and finalise by clicking 'DONE'
Megan is a markets analyst at Stake, with 7 years of experience in the world of investing and a Master’s degree in Business and Economics from The University of Sydney Business School. Megan has extensive knowledge of the UK markets, working as an analyst at ARCH Emerging Markets - a UK investment advisory platform focused on private equity. Previously she also worked as an analyst at Australian robo advisor Stockspot, where she researched ASX listed equities and helped construct the company's portfolios.