What is CHESS sponsorship?
C.H.E.S.S stands for Cleaning House Electronic Sub-Register System.
It’s the clearing and settlement system used by the ASX (Australia Stock Exchange)
HIN (Holder Identification Number) is another term that you’ll see often as well, which is a unique number assigned to you when shares are purchased through a CHESS sponsored brokerage (This identifies you as the direct shareholder)
What does this mean for me?
Well, when you purchase shares through a CHESS sponsored brokerage, the ASX will have an offical record of your owning those shares. You will also have the benefit of:
- Dividend Reinvesting Plans (DRP),
- Voting rights
- Quick access to your details in the share registry
Non-CHESS sponsored shares aren’t ‘unsafe’ or ‘bad’, it simply means your investments are held on your behalf by a custodian. (If you own shares, check with your brokerage to see if they are CHESS sponsored or not, it’s good to know)
The CHESS system has been around while, around 25 years, so while it’s served us well, it’s time for an upgrade! The ASX has decided it’s time to retire the current system and began looking for a replacement in 2016.
The replacement will be known as the Distributed Ledge Technology (DLT), a type of technology that underpins blockchain (blockchain isn’t cypto for for wondering, cypto is built on the blockchain technology, but blockchain is essential a secure digital transaction system). This should improve efficiency, reliability and enable better integrations!
The ASX chairman has said the planned implementation is on track for the year 2023 (source)
Anything else I should know about CHESS?
Kinda. It’s really important to know that when you buy shares with a CHESS sponsored brokerage, you’ll need to sign up to a share registry.
The share register works for the company you’re buying shares for and manages all your details for them, such:
- as your communication preferences
- postal address
- nominated bank details (for divididends)
- DRP management
- Transaction history of all distributions
- Current balance of share ownership etc etc
There’s three registeries that are used (Computershare, Boardroom, & Link Market Services). So once you buy a share, find out which of the three register companies they use (or register to them all)
Also.. be prepared for a crap tonne of wasted paper straight to your letterbox, these companies hate trees, like seriously.
This post was inspired by @investwithmax, his content is awesome so I highly recommend checking him out.
Hope that helps!