What is the difference between CHESS sponsored registering a HIN or SRN?
Starting out in investing can be a confusing minefield of new terms including CHESS, HIN, and SRN. You will need to know the difference before you start buying and selling shares on the share market. In this article, these terms will be explored to help navigate your way through investing in the share market.
CHESS Sponsored
The Clearing House Electronic Sub register System (CHESS) is the system that processes settlement on the Australian Stock Exchange (ASX). CHESS facilitates the exchange of legal ownership and money between market participants recording the transactions on a subregister. Verifying the transfer of ownership can take up to 3 days to process. CHESS allows for a secure and cost-effective approach to investing in the share market. Chess sponsored shares can be registered and traded through a range of different brokers for example Commsec or Bell Direct. Some brokers can choose not to be CHESS sponsored under their broker structure. Instead, they hold the shares in a custodian structure such as IB brokers or Super Hero.
One of the main reasons that brokers opt out of CHESS is to reduce brokerage fees. This is achieved by reducing the compliance costs trading on the ASX. Instead of issuing a HIN number to each investor like the other share brokers, they operate under the one HIN number. Whilst they save on fees they also run the risk of more complex record keeping. For instance, if the broker goes into liquidation they must try to decipher who owns what parcel of shares. This process is complex as brokers must review their registry records prior to the transfer of shares from a custodian ownership structure.
National Guarantee Fund
There is also the cover of the National Guarantee Fund (NGF). This fund is a fund that covers the losses of ASX Market Participants. These are cases include when a transaction isn’t executed, there is an unauthorised transfer or when there is a failure to deal with property entrusted due to insolvency. For more information on the details of CHESS sponsored shares please refer to the Australian Stock Exchange website that outlines the function of CHESS sponsored shares in greater detail.
Holder Identification Number (HIN)
CHESS shareholders are provided with a Holder Identification Number (HIN). This is a unique number that identifies you as the holder of the shares. This would be similar to a bank account number used to secure your account. You can have more than one HIN number if you acquire shares through multiple brokers. When choosing a broker, you may question whether to use your existing HIN or set up a new one. Either option is available, although having one HIN simplifies your share portfolio. This reduces the need to search for your investments across different broker numbers.
Security Reference Number (SRN)
A Security holder Reference Number (SRN) is a unique number identifying you on the issuer sponsored subregister. For instance, if there is no CHESS or broker agreement then the shares will be registered with an SRN. A separate SRN is provided for each holding and is not registered as a CHESS holding.
You may be wondering whether it is better to hold a HIN or SRN? One of the main differences is the time to execute a trade. An SRN is managed through a share register such as Computershare or Link Market Services. Shares traded with an SRN must first be converted to CHESS sponsored shares. This requires your stockbroker to be notified to convert the holding to a HIN holding before being traded. The reason being that the individual company cannot sell the parcel of shares. Therefore it is quicker and more efficient for the shares to be held on the CHESS system.
Whether your shares are held under any of the three methods discussed it’s important to know their differences. For more information on learning to invest in the stock market have a read of the article How to invest in the share market to build passive income.
