CHESS stands for Clearing House Electronic Subregister System and is the computer system used by the ASX to manage the settlement of share transactions and to record shareholdings. In practical terms, it allows brokers and other market participants to settle trades via CHESS by themselves or on behalf of their clients.
One of the main functions of CHESS is to facilitate share trade settlements. CHESS will usually settle a trade two business days after a buyer and seller agree to trade by arranging the transfer of money between the buyer and seller as well as facilitating the transfer of legal ownership of the shares.
The other function of CHESS is registering the ownership (or title) of shares on its subregister. The alternative to having shares registered with CHESS (maintained by ASX) is to use an Issuer Sponsored subregister which is maintained by the company that issued the shares.
Before being able to register ownership of shares on CHESS an investor first needs a Holder Identification Number (HIN). In order to be issued with a HIN an investor will need an authorised participant (usually a broker, such as Westpac Share Trading) to sponsor them.
One of the advantages of having shares registered on the CHESS subregister is the ability to have your entire portfolio registered under the one HIN rather than having shares in different companies spread across several subregisters.
Another advantage of CHESS is cutting down on paper work. That means rather than needing to manage printed share certificates, CHESS holding statements can accumulate over a financial year resulting in just a single statement being issued for the financial year.
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