What is a Clearing House Electronic Subregister System (CHESS)?

The Clearing House Electronic Subregister System (CHESS) refers to an electronic means through which the entry or registration of approved securities is done, as well as the transfer of the holdings of such securities from the seller to the buyer. CHESS is a form of electronic book entry that aids securities transaction between two parties. The Australian Securities Exchange (ASX) developed the Clearing House Electronic Subregister System, and it is being managed by them. ASX CHESS facilitates the transfer of the ownership of securities between participants. Stockbrokers can engage in CHESS transactions on behalf of their clients while large investors might not need to hire stockbrokers, rather, they participate directly.

How Does the Clearing House Electronic Subregister System Work?

Securities owners or holders are expected to register their securities (names of the securities and values) with the Australian Securities Exchange (ASX). The ASX CHESS allows the transfer of the ownership of registered securities between two parties. Before individuals can make use of CHESS, they must be registered members of ASX Settlement Transfer Corporation (ASTC) this is why many investors use stockbrokers who are already members of ASTC. Registered members who access CHESS have unique member codes. When stockbrokers or large institutional investors make transactions on CHESS, they receive invoices of the transactions in not more than two days of the transaction. Unauthorized sale or purchase of securities on CHESS are illegal and treated as a criminal offense. Transactions carried out by individuals who are not controlling shareholders of CHESS are unauthorized. When people lose money in these transactions, they may be eligible for a compensation paid by either the broker or from the National Security Fund.