Ever heard the saying, "old is gold"? Well, in the world of long-term investing, it's the tried-and-tested that keeps your wealth protected.

Take the Australian Securities Exchange’s (ASX) system of beneficial ownership, for example. The Clearing House Electronic Subregister System (CHESS) has been around for a while. But why is it getting interest lately?

Pearler’s co-founder and CEO Nick Nicolaides sheds light on an essential truth. For every trader looking for quick profits out, there’s a cautious, long-term investor. The FTX collapse was a wake-up call, and investors are now looking for comparative stability and security.

Investment platforms like Pearler have seen an increase in investors as more people flock to the ASX CHESS model. It’s a story of investors understanding the real value of a long-term mindset, safety, trust, and direct ownership.

In this article, we journey back to the basics of ASX CHESS in Australia: what it is and how it works. We also outline potential perks and drawbacks of CHESS-sponsored investing, and how to get started.

What is CHESS-sponsored investing?

Think of the ASX (Australian Securities Exchange) as a meticulous librarian. Every time you borrow or return a book (in this case, shares), the librarian notes it down. So, if the ASX were a librarian, its book register would be the Clearing House Electronic Subregister System, or CHESS.

‘CHESS sponsored’ or ‘CHESS sponsorship’ is simply the way the ASX keeps tabs on share ownership. When you buy or sell shares, CHESS ensures there's a record of you owning those shares directly.

Bought a share? CHESS notes it down. Sold one? CHESS updates it. This way, there's no confusion about whose asset is whose.

How the Clearing House Electronic Subregister System (CHESS) works

At its heart, CHESS is the invisible hand that manages and records the settlement of share transactions. But let’s strip away the jargon.

Getting your Holder Identification Number (HIN)

But wait—how does the ASX know you're you? Enter the Holder Identification Number, or HIN (because we investors love a good acronym). Every time you join a broker that offers CHESS sponsored shares, you're given Holder Identification Number (HIN). This HIN is like your unique key, linking shares to you directly.

This number, which typically starts with an ‘X’, identifies you as an ASX CHESS holder. You can have more than one HIN, across multiple online brokers. And if you ever want a change of scenery, you can move your HIN (and all those shares tied to it) from one broker to another.

Settlement and ownership

When you buy shares, for example, CHESS ensures the exchange of money and assigns the shares to your HIN. Shortly after, a statement arrives at your address, letting you know the good news.

Likewise, if you sell your shares, CHESS arranges the transfer of money and legal ownership of the shares. The actual exchange of funds and transfer of legal ownership usually happens two business days after the transaction.

Registering and recording

As mentioned before, CHESS plays the role of a librarian. It records your holdings, ensuring everyone knows who owns what. In essence, if your shares are CHESS sponsored, the ASX knows you own those shares directly.

How are your shareholdings registered?

Not all shares are registered with the ASX CHESS. Some companies directly ‘sponsor’ the shares issued to the owners. The way your shares are registered can greatly influence their accessibility, transferability, and management.

CHESS-sponsored shares

Got an account with a shares broker or a share trading platform? Chances are you already own CHESS sponsored shares.

• The Australian Securities Exchange (ASX) manages the CHESS.
• To have your shares registered on CHESS, investors need an ASX CHESS sponsor (a broker or an online share trading platform). Once you enter into an agreement with your broker, they'll manage your holdings on CHESS.
• If you’re unable to provide your HIN, your shares are automatically under the issuer-sponsored system. The same thing happens if your shares are not CHESS sponsored.
• To find out if your shares are CHESS sponsored, you can check the status of your holdings on your brokerage account. Alternatively, you can talk directly to your broker about it.

Issuer-sponsored shares

This is the one where companies themselves remember that you bought their shares. They might get some third party help from a share registry to do the admin work on their behalf. Still, issuer sponsored shares remain in the company’s share registry.

• The company (the issuer) directly 'sponsors' your shares. They hire a share registry company (like Computershare or Link Market Services) to track who owns their issuer sponsored shares.
• Issuer sponsored shares are given a unique ID called the Security Reference Number or SRN. If you own parcels of shares in multiple companies, you'll receive a different SRN for each.
• Each SRN starts with an 'I' and is typically followed by 10 or 11 digits. Remember, an SRN is unique for each company you invest in. You might find this number on holding statements or other letters from the company.
• Misplaced your SRN? You can contact the share registry to help you retrieve it.

In some cases, shares can be issuer-sponsored without you even realising. For instance:

• Your employer's generosity shines through, and you earn an Employee Share Scheme.
• You receive shares as a result of an off market transfer. One example is when your parent transfers their shares to you without using a broker.
• You dive into a fresh opportunity with shares issued in a float or an Initial Public Offering (IPO).
  

What are the potential benefits of CHESS sponsored investing?

What if your mate Dave tells you he owns a slice of the Sydney Harbour Bridge? Impressive, right? But how do you know he isn't pulling your leg? You'd want some concrete proof.

Similarly, with CHESS sponsored shares, you get that concrete proof. It's your assurance that you, the investor, own those shares directly. It’s a stark contrast to the custodian model where an intermediary is holding them for you (we’ll discuss that later).

Yet, there are more benefits to investing in CHESS sponsored shares that you may not be aware of already:

Selling simplified

While non-CHESS holdings demand conversions between registers, CHESS keeps it simple. You can sell them seamlessly and fast when you spot a selling opportunity in the sharemarket.

All under one roof (or HIN!)

CHESS sponsored shares bring all your pieces together under a single Holder Identification Number (HIN). One HIN, one portfolio. Simple as that.

Less paperwork

Remember the days when you would be buried under heaps of paperwork? With CHESS, that's history. Instead of juggling several share certificates, you'll receive only one statement at the end of the financial year. It's a refreshing breather, especially for the trees.

Update once, reflect everywhere

Moving houses? Got a new phone number? With CHESS, you do it once, and it’s applied everywhere. No need for a Groundhog Day (or Edge of Tomorrow for you sci-fi/Emily Blunt fans) of filling forms for each company you've invested in.

A blue tick verification of ownership

CHESS sponsorship acts like that mutual friend vouching for you at a party. It confirms: “Yes, these shares genuinely belong to this person.” Your HIN links your shares to your name and tax file number, providing undeniable proof.

Making your voice count

There's a satisfying feeling in having direct ownership and access to your shares. And as a direct owner, you can have the power to vote on company matters. Democracy in action, right?

Switching brokers is a breeze

Fancy a change of broker scenery? All your shares are under your HIN, simplifying the transfer process to another broker.

Dive deep into dividends

With CHESS sponsored shares, you can elect or cancel dividend payment straight to your bank account. Plus, you can jump on dividend reinvestment plans (DRP) and bonus share plans (BSP) for your holdings.

What are the potential drawbacks of CHESS sponsored investing

Imagine if Monopoly let you purchase properties in Australia only and made you pay a premium each time you did. You'd start to wonder if there's a better way to play, right? Well, when it comes to investing, CHESS-sponsored trading can sometimes feel a little like that.

Limited exposure to investment opportunities

While CHESS sponsorship works a treat for local shares, it doesn’t give you access to the big international playgrounds like the US markets. Why? Because most of these global giants operate on a custodial model.

A little more out of your pocket

CHESS-sponsored investing can sometimes come with higher brokerage fees. Sure, the benefits might be worth the price for some, but it's always good to know where your money's going.

Not for investors on a shoestring budget

Sometimes, in the investing world, you wish to test the waters first. Or perhaps you want to own only a tiny piece of a share that went sky-high in value. With CHESS, however, trading in fractional shares is not part of the deal.

What are the alternatives to CHESS-sponsored investing

We're not here to play favourites. Each brokerage model, including CHESS sponsorship, has its own sets of advantages and risks. In this situation, knowledge is your best investment. Our article on CHESS-sponsored vs custodial vs micro-investing can help you decide which one’s right for your investment needs.

Custodial investing / custodian model shares

Some brokers use a custodian model , holding shares on behalf of investors.

The custodian model is like a warehouse box. A third party (the custodian or custodial broker) keeps track of what's inside and whose it is.

Instead of your name boldly etched on the door, it's the custodian's name. Inside, there’s a little note saying which jewels are yours. All the valuables are stored together under one identifier.

You can still trade, transfer, and withdraw your shares. You just don't hold them in your own name. You're simply tagged as their beneficial owner.

Micro-investing

Micro-investing is, at its heart, a cheaper and beginner-friendly way to build an investment portfolio. Think of it as the modern-day equivalent of saving coins in a jar. But instead of letting them sitting idle, it’s growing.

Remember shares like Meta and Microsoft that have sky-high prices? With micro-investing, you don’t have to wait until you save up $200 to buy a single share. Using certain digital brokerage platforms, you can micro-invest as little as $5 into funds that track individual shares or Exchange Traded Funds (ETFs).

This is because micro-investing allows buying fractional shares. Instead of owning an entire share that might cost a weekend getaway, you own, say, 1/10th of it. As a result, micro-investing doesn't fall under the CHESS-sponsored umbrella. However, it can be a more efficient way to diversify your asset allocation if you're looking to invest smaller amounts.

How to get started with CHESS-sponsored investing

When we talk about long-term investing, we mean the long-haul . And Pearler was built just for that. Providing low-cost CHESS sponsored investing, Pearler’s approach offers:

• Autoinvest features: Just set it and forget it. Pearler does the rest.
• Prepay & save: A little in advance can save you quite a bit in the long run.
• Rewards for investing : You earn points towards weekly and monthly prizes from your healthy money habits.

When you join Pearler, you get two choices: create a new CHESS HIN or transfer an existing one. And those shares you buy? They're yours—Pearler is just the friendly neighbour executing the investing for you.

While Pearler has its charm, it might not suit your investing rhythm, and no platform is perfect for everyone. So, if you're on the fence, it's wise to explore a few other platforms before settling down.