How Holdings Are Held (CHESS vs Custodial) and Why It Matters

Two people can buy the same ASX-listed ETF, pay the same market price, and receive the same distribution. Yet their experience of ownership can differ in quiet but important ways.

The difference is not what they bought. It is how the holding is recorded and administered.

In Australia, many investors encounter two broad models:

• CHESS sponsorship, where holdings are recorded in CHESS and linked to a Holder Identification Number (HIN)^¹
• Custodial (or nominee) holding, where the provider or its custodian is the registered holder, and the investor is recorded as the beneficial owner in an internal system^²

This article explains the mechanics and trade-offs without treating either model as universally superior.

This is general educational information, not personal financial advice.

The basic question: where is ownership recorded?#

Ownership has layers.

• Legal title (registered holder): whose name appears on the share registry or depository record.
• Beneficial ownership: who is entitled to the economic benefits (price movements, distributions, corporate actions), even if their name is not on the external register.

Both models aim to ensure the investor receives economic benefits. The difference is the chain between the investor and the registry.

A small “soul” line that tends to be true is that people only notice plumbing after a leak.

CHESS sponsorship (in plain language)#

What CHESS is#

CHESS (Clearing House Electronic Subregister System) is ASX’s system for clearing and settlement and for maintaining subregister records for certain holdings.^¹ When a broker is a CHESS participant, it can sponsor client holdings in CHESS.

What a HIN is#

A Holder Identification Number (HIN) is an identifier attached to a CHESS holding. It is used to track holdings and transactions linked to that sponsorship arrangement.^¹

In a typical CHESS-sponsored arrangement:

• The investor’s name is linked to the HIN in CHESS.
• Holdings are recorded against that HIN.
• The broker acts as the sponsoring participant.

Portability and transfer#

Because the holding exists in CHESS under a HIN, it is generally possible to transfer the sponsorship of that HIN between brokers (subject to process and eligibility). This portability is often seen as a practical advantage.

Custodial (nominee) holding (in plain language)#

What “custodial” usually means#

In a custodial model, the broker or platform typically uses a custodian or nominee company as the registered holder. The investor’s interest is recorded in the platform’s system.^²

This is common in:

• International investing platforms
• Some Australian “micro-investing” services
• Platforms designed around fractional holdings or pooled settlement

Custody is a common institutional arrangement. It is not inherently suspicious. It is simply a different holding chain.

Omnibus accounts and internal ledgers#

Custodial models often use omnibus accounts, where many clients’ holdings are recorded together under the custodian’s name externally, and separated internally by the provider’s records.^²

The investor’s economic exposure depends on the integrity of:

• The custodian arrangements
• Reconciliation and audit processes
• The platform’s internal recordkeeping

Why the holding model can matter#

1) Provider failure and operational disruption#

If a broker or platform fails, the path to recovering holdings and continuing to transact can differ depending on the custody model.

• With CHESS sponsorship, the external holding record sits in CHESS linked to the HIN.^¹
• With custodial holding, the external record sits under the custodian or nominee, and the investor’s entitlement relies on internal records and the custody structure.^²

Australian regulation and market infrastructure include frameworks for client asset protection, but operational friction can still appear during failures. The point is not that one model is “safe” and the other is “unsafe”. The point is that the failure-mode looks different.

2) Moving platforms (portability)#

Portability is the ability to move holdings without selling them. In practice, transferring CHESS-sponsored holdings can be more straightforward because the HIN can be re-sponsored.^¹

In custodial models, transfers may still be possible, but they can involve different processes, and some platforms may require selling and rebuying, especially where fractional holdings or pooled structures are involved.

This can create tax and timing consequences. The consequences depend on the product and the investor’s circumstances.

3) Corporate actions, DRPs, and registry interactions#

For direct shares, corporate actions (rights issues, takeovers, dividend elections, DRPs) often interact with share registries.

In a CHESS-sponsored model, registry communication can be closer to the investor, depending on how details are recorded.

In a custodial model, communications and elections may be mediated by the platform, because the registered holder is the nominee.

The practical effect is not always negative or positive. It is about where decisions and information flow.

4) Reporting and tax documents#

In CHESS-sponsored holdings, registry statements, transaction confirmations, and holding statements can have a direct trail.

In custodial models, reporting is usually consolidated through the platform. This can be convenient, but it can also make recordkeeping dependent on the platform’s reporting quality and continuity.

A comparison table (high level)#

This table is intentionally simplified. Real-world arrangements can be hybrids.

CHESS is not the only Australian holding type#

Some ASX holdings can be “issuer-sponsored” rather than broker-sponsored. This is common when shares are held directly on an issuer-sponsored subregister, often identified by a Securityholder Reference Number (SRN).

Issuer sponsorship is a separate topic. The important point here is that Australian holdings can be recorded through different systems, and each has different operational characteristics.

What documents describe the holding model#

Holding models are usually described in platform documentation and product disclosure.

Places where this information commonly appears include:

• Terms and conditions of the broker or platform
• Custody disclosures and client asset information
• Product Disclosure Statements (where a financial product wrapper is involved)^³

The language is often dense. Key words that tend to signal custody structure include “custodian”, “nominee”, “beneficial owner”, “trust”, “client assets”, and “omnibus”.

Closing#

How an investment is held affects the ownership record, the ability to move holdings between providers, and the operational experience if something goes wrong. CHESS sponsorship links holdings to a HIN in the ASX’s CHESS system.^¹ Custodial models typically record the investor as a beneficial owner while a nominee or custodian is the registered holder.^²

Neither model is automatically right or wrong. The difference is the chain of reliance.

Summary#

CHESS sponsorship and custodial holding are two common ways Australian investors hold securities. CHESS sponsorship records holdings against a HIN in market infrastructure, while custodial models typically hold securities in a nominee’s name and track client entitlements internally. The holding model affects portability, corporate actions handling, reporting, and how provider failure risk shows up in practice.

Sources#

1. ASX. (n.d.). CHESS (Clearing House Electronic Subregister System). https://www.asx.com.au/about/clearing-and-settlement/chess
2. Australian Securities and Investments Commission. (2021). Custody or deposit of client assets (regulatory resources). https://asic.gov.au/regulatory-resources/financial-services/financial-services-regulation/
3. Australian Securities and Investments Commission. (n.d.). Disclosure: Product Disclosure Statements (PDS). https://asic.gov.au/regulatory-resources/financial-services/disclosure/
4. Australian Securities Exchange. (n.d.). CHESS sponsorship explained (education resources). https://www.asx.com.au/investors