What Is the Clearing House Electronic Subregister System (CHESS)?
The Clearing House Electronic Subregister System (CHESS) is a computer system operated by the Australian Stock Exchange (ASX) that facilitates the transfer of a security's legal ownership from a seller to a buyer and also any monetary transactions between the two parties. In the ASX, CHESS serves to facilitate the exchange and registration of securities. CHESS is an electronic book entry register; no certificates of ownership are given to securities holders.
Understanding the Clearing House Electronic Subregister System (CHESS)
In the ASX you are required to register the titles of your securities. The Clearing House Electronic Subregister System (CHESS) handles the simultaneous transfer of the securities' titles as well as money. The ASX Settlement and Transfer Corporation (ASTC) operates CHESS to increase efficiency within the ASX.
How the Clearing House Electronic Subregister System Works
Participants are allowed to access CHESS and need to be authorized by the ASTC or sponsored by a participant to access CHESS. For this reason, the average investor will rely on a stockbroker to access CHESS and register his or her securities.
Each participant in CHESS receives a participant code. Anyone who holds securities on CHESS must be either a participant or the client of a participant – for example, the client of a registered broker. Sponsored securities holders receive a holder identifying code, a unique code that, when used in combination with the participant code of the holder’s participant representative, can provide the authority necessary to transfer ownership of securities in CHESS.
Settlement of Trades
When a trade is made on CHESS, settlement takes place two days later. ASX Settlement uses the Society for Worldwide Interbank Financial Telecommunication’s SWIFT FIN service. SWIFT FIN sends a request to the Reserve Bank Information and Transfer System (RITS), which initiates settlement via the simultaneous debiting and crediting of the relevant Exchange Settlement Accounts (ESAs) held in the Reserve Bank. Once completed, settlement is irrevocable.
In order to buy or sell securities on CHESS, one must be a controlling participant. Unauthorized transactions are considered a criminal offense, whether or not the client loses money on the deal. If the client does lose money as the result of an unauthorized transaction, he or she may be entitled to compensation. If he or she doesn’t receive that compensation from the broker, he or she may be able to receive it from the National Guarantee Fund, which covers losses that occur as a result of unauthorized transactions on CHESS.