Last updated: 03rd Mar 2025
That old chestnut among Aussie investors — should you use a CHESS sponsored broker or opt for one with a custodial model?
It’s often a heated debate in online investing forums, but you can’t really make an informed decision if you’re unclear about ‘what exactly is CHESS sponsorship?’
(Related: 14 Best Share Trading Platforms In Australia).
CHESS: What Does It Mean?
CHESS is an acronym that stands for Clearing House Electronic Subregister System — it’s the system the Australian Securities Exchange (ASX) uses to do two very important things:
- Record who holds what shares; and
- Manage the settlement of share transactions.
Despite the somewhat confusing terminology, ‘CHESS sponsored’ essentially means your broker ‘sponsors’ your use of CHESS.
The broker provides you with your own unique identifier in the system, and grants you direct legal ownership of any Australian shares you’ve purchased.
Did you know?
The CHESS system is unique to Australia. Very few other countries around the world have comparable systems, with custodial models being the norm globally.
The system is owned and operated by ASX Settlement Pty. Limited (ASX Settlement), which is a wholly owned subsidiary of the ASX.
Several securities exchanges in Australia use CHESS, including the ASX, CBOE Australia and the National Stock Exchange (NSE).
When And Why Was CHESS Sponsorship Introduced?
CHESS was first introduced in 1994, so the system is now 30 years old.
At the time of its introduction, it was considered world-leading, because it allowed Australia to:
- Eliminate the need for paper-based settlement.
- Shorten settlement times — initially to 5 days, and then just 2 days in 2016.
Almost all other countries continue to use custodial systems.
And we’re no longer looked upon as a leading example.
In fact, CHESS is considered somewhat outdated today compared to systems used in some other countries.
However, the project was riddled with problems and was eventually, and controversially, abandoned by the ASX in 2022, with the company writing off around $250 million in costs related to its failure.
(Related: Ultimate Guide To Investing In Shares For Beginners.)
How Does CHESS Impact Buying Shares?
When investing on the ASX, to access the benefits of CHESS sponsorship you’ll need to create an account with a broker that uses the model.
Most brokers make it clear on their website whether they offer CHESS sponsorship or not, but if in doubt you can always reach out directly to ask.
Important!
Shares are a common asset type CHESS records, but ASX’s system is also used to record ownership of assets “including warrants, stapled securities, company issued options and units in trusts.”
When you sign-up with a CHESS sponsored broker you will:
- Automatically enter into an agreement providing you with CHESS sponsorship.
- Get a holder identification number (HIN), which is unique to you with that particular broker.
Your HIN is what links you to your assets within CHESS and grants you direct ownership of those assets.
When you buy stock using a CHESS sponsored broker, after about two days the system will finalise settlement of that trade by transferring legal ownership of the shares to you.
It also simultaneously sends the payment from your bank account to the seller’s account.
Note that international shares are always held by a custodian, even if your broker offers CHESS sponsorship.
The Purpose Of HINs.
Each HIN is a unique 10-digit identifier, generally they start with an X.
Each account you open with a CHESS sponsored broker will have its own HIN, so you can accumulate multiple HINs if you maintain multiple brokerage accounts. Any shares bought through a particular account will be linked with the associated HIN.
Let’s say you want to switch accounts to access lower fees, HINs help make the transition of all your assets smooth, and you can retain the same HIN.
Important!
Not sure where to find your HIN? You should have received some mail (physical or email) from the ASX within weeks of creating a CHESS sponsored account that lists your HIN — if not, contact your broker.
You’ll receive CHESS holding statements for each HIN you hold, which notify you of any changes to your holdings.
That helps you keep track of what you own and the performance of assets in each account easily — as they’re all linked to a single identifier.
Pros And Cons Of CHESS Sponsorship.
CHESS sponsored brokers aren’t unequivocally better than a platform with a custodial model, as every system has upsides and downsides.
The main advantages of CHESS Sponsorship include:
- Direct legal ownership of your assets, giving you full control of your assets including full shareholder voting rights.
- All your shares (with each broker) are linked to a single HIN, simplifying tracking, record-keeping and portability of ownership between different brokers.
- Your have greater control, compared to some custodial brokers, over whether to opt for automatic dividend reinvestment or take dividends in cash.
- Correspondence comes to you, giving you enhanced transparency, and the ability to check your ownership records outside of your brokerage account using share registries.
The potential negatives of a CHESS sponsored broker could include:
- Higher brokerage fees, generally.
- Restricted markets or trade types.
- Bigger admin burden on you.
For instance, a custodial broker may be more likely to enable trading across multiple international exchanges (where CHESS doesn’t apply) and offer fractional share ownership so you can spend what you can afford to buy expensive stocks.
How Does CHESS Sponsorship Differ From Custodial Models?
The key difference between CHESS sponsored brokers and custodial brokers is that a custodial model typically operates under a single ‘omnibus’ HIN.
So, your assets can’t be held by you directly, instead they’re held in trust by a third-party custodian appointed by the broker under the supervision of a trustee.
What really gets people riled up in online forums is the idea that under a custodial broker the investor does not have legal ownership of the shares they’ve purchased:
- The custodian maintains legal ownership.
- You retain beneficial ownership, e.g., rights to trade and earn dividends and profits.
What are the implications of this?:
- You might lose out on things like voting rights.
- If the broker’s business goes under, you could lose your shares.
- You’ll find it harder to move your assets to another broker.
Is The Custodial Model Really Less Safe?
A custodial broker going bust has happened in Australia before, and it proved difficult for investors to claw back the money they were owed.
If you use a CHESS-sponsored broker, there is zero risk of losing your Australian-listed shares, because you always have legal ownership.
The insolvency risk sounds bad, but it shouldn’t be seen as an instant deal breaker. Brokers failing is rare in Australia due to our strong financial regulation so the risk is relatively small.
On the plus side, the custodial model often results in lower trading fees for investors, making it popular with investors who trade frequently.
Also, many micro-trading apps that help you get into an investing habit based on spending smaller amounts use the custodial model for precisely this reason.
Some of the more popular custodial brokers in the Australian market include:
- IG Markets
- Interactive Brokers
- Superhero
- eToro
- Sharesies
(Related: eToro vs Stake – Which is Best for Australian Investors?)
What Protection Measures Actually Matter In A Broker?
CHESS sponsorship is definitely a nice-to-have, but you should evaluate potential brokers on their overall stability and security. It pays to double-check they’re registered with ASIC, and briefly look into their history and where they operate from.
Other signs of a well-run broker include:
- Clear information on their website about how they segregate client funds from their operational funds and where deposits are held.
- Robust ‘know your customer’ onboarding processes including identity verification.
- Modern platform with security protocols and technologies applied to protect your account credentials, such as multi-factor authentication.
- Timely and accessible fund withdrawal processes that ensure you can access money held in your trading account when you need it.
- Positive reviews from current and former users including a focus on prompt customer support and resolving disputes fairly.
Top 10 CHESS-Sponsored Broker Platforms In Australia.
Thinking you’d prefer a CHESS sponsored broker? Here are 10 prominent platforms worth investigating:
- CommSec
- SelfWealth
- CMC Markets
- Pearler
- Webull
Choose A Broker That Ticks Your Boxes.
Counterparty risk is avoided through CHESS sponsorship, but as long as you use a reputable broker — issues arising from a custodial model are unlikely.
Millions of people around the globe safely invest and trade with custodial brokers every day.
Whether a broker offers CHESS sponsorship should be just one of many considerations (alongside cost, security, usability and market access) in choosing the best broker for you, even if you only ever plan on investing in ASX-listed shares.
Jody
Nelson says:
I attempted to use the “hack” to dodge conversion fees, but sadly after converting AUD to USD on a Wise account, there doesn’t seem to be a way to deposit that money into eToro; i.e. eToro recently disabled Wire transfers and Wise doesn’t support SWIFT transfers for sending USD to a bank in the US?
John Keys says:
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Over 1 month to setup up an account with an investment trust, and still waiting. I was promised 5 business days.
Reg Watson says:
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