Clearing House Electronic Subregister System (CHESS) – Definition

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Clearing House Electronic Subregister System (CHESS) Definition

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.

A Little More on What Is the Clearing House Electronic Subregister System – CHESS

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.

References for Clearing House Electronic Subregister System (CHESS)

http://www.businessdictionary.com/definition/Clearing-House-Electronic-Subregister-System-CHESS.html

https://www.investopedia.com/terms/c/chess.asp

https://en.wikipedia.org/wiki/Clearing_House_Electronic_Subregister_System

https://www.nasdaq.com/investing/glossary/c/clearing-house-electronic-subregister-system

Academic Research on Clearing House Electronic Subregister System (CHESS)

The value of dividends: Evidence from cum‐dividend trading in the ex‐dividend period, Walker, S., & Partington, G. (1999). Accounting & Finance, 39(3), 275-296. The authors present a new state of shares cum dividend trading in the Australian Capital Market during the period of ex-dividend. It relatively allows a clean measure of dividends’ combined value, the attached tax effects and the transaction costs. The authors provide evidence using the theoretical model that $1 of fully franked dividends, transaction costs and after-tax effects keeps, significantly, a value of more than $1. They also state that the conventional measure of the ex-dividend price-fall has a lower value on average, on the basis of close-close prices. It shows cross-sectional variation significantly more.

An integrated service architecture for managing capital market systems, Rabhi, F. A., & Benatallah, B. (2002). IEEE network, 16(1), 15-19. This paper discusses the recent trends and developments of capital market systems. Particularly, it states the trading lifecycle and related activities. It investigates the integration of communication protocols and legacy systems using distributed integrated services. These services link to registry service, settlement and exchange, etc. Lastly, the authors present a methodology for software development on the basis of design patterns which manage the important aspects of integrated services, including service composition, service discovery, service wrapping, service execution and service contracting. The purpose is to facilitate faster development of integrated services.

IPO flipping in Australia: cross-sectional explanations, Bayley, L., Lee, P. J., & Walter, T. S. (2006). Pacific-Basin Finance Journal, 14(4), 327-348. The authors access settlement records of e-share in Australia for every aftermarket investor and subscriber in 419 IPOs to assess whether the allocations are flipped by the initial subscribers. This flipping behaviour relates to the shareholder, issuer, underwriter and market features. The major determinants underprice, means release benefits before losses. They flip the most overpriced IPOs more as compared to the less overpriced IPOs. This is because of the institutional investors, instead of the individuals. The authors also link flipping activity to the long run returns of the firm. The findings are that flipping behaviour of the informed investors is not related to long term returns.

Real-time gross settlement in Australia, Gallagher, P., Gauntlett, J., & Sunner, D. (2010). RBA Bulletin, September, 61-69. In this paper, the authors state that in Australia, the RTGS (Real-Time Gross Settlement) was the main reform in 1998 in order to minimize risk in the payments system of Australia. The RTGS payments value has increased by around 70% since it has been introduced. The no. of RTGS payments has doubled and tripped. In providing facilitation to the organized settlement of payment obligations, the infrastructure absolutely important in Australia. During the latest international financial crisis, it worked smoothly.

Effect of Investor Category Trading Imbalances on Stock Returns*, Colwell, D., Henker, J., & Walter, T. (2008). International Review of Finance, 8(34), 179-206. Trading is a mechanism of the invisible hand of an economist through which price discovery happens. The authors use shareholdings information daily from the equities clearing house in Australia to investigate the effect of investor categories trading imbalances on shock returns. Their evidence is not against the assumption of the behavioural finance that the individual investors’ trading adds to price discovery. The findings are that when the all investor categories trading Granger-causes returns, returns it only for the category of the individual investor, i.e. in the short period of approximately one month, only the individual investors get involved in feedback trading.

Financial services reform in Australia, Ramsay, I. (2001). Financial services reform in Australia. Sing. J. Int’l & Comp. L., 5, 485. This paper analyses the changes experienced by the Australian financial services industry in the last decade. The authors evaluate links between financial services and e-commerce. They review the growing requirement to reform the regulation of this industry. The article elaborates its Final Report presented by the Financial System Inquiry that suggests a shift from institutional regulation to the functional one. Finally, the paper examines the main changes caused by the FSRA 2001 (Financial Services Reform Act) including financial markets licensing and clearing & settlement houses, licensing of products & services providers, liability provisions in the act and financial products disclosure.

Fool’s mate: What does CHESS tell us about individual investor trading performance?, Bradrania, R., Grant, A., Westerholm, P. J., & Wu, W. (2017). Accounting & Finance, 57(4), 981-1017.  The authors examine the short time relation in trading of the individual investors and the stock returns on the ASE (Australian Securities Exchange). Stocks heavily purchased by individual investors underperform than the stocks heavily sold in the next 3 days, with the returns on to a long-short portfolio of -12, -67 and -93 basis points on the 3rd, 2nd and 1st day. In small and medium-sized stocks, individuals underperform when they use limit orders and trade passively waiting for the favourable movement in the market price. In big stocks, individuals underperform when they use marketable orders and trade aggressively. The foreign institutions benefit from taking the cross side of individual trading. The authors propose a data asymmetry based detail for the findings.

The Future of Clearing and Settlement in Australia: A Discussion Paper, Exchange, A. S., & House, S. F. E. C. (2000).  This paper makes a detailed discussion on the Clearing and Settlement Future in Australia. It lays stress on the functional differences between the two. This difference can be blurred easily because the exchanges, mostly, own the clearing and settlement and overseas systems in Australia. The authors set out the major costs attached to the clearing and settlement and outline the pressures faced by the existing systems before they explore the options and specify a few questions that the industry should address.

Local Embeddedness in Global Financial Services: Australian Evidence on ‘The End of Geography’, Agnes, P. (2017). In Embedded Enterprise and Social Capital (pp. 127-150). Routledge. Some financial services restructuring accounts argue that globalization causes the end of geography that showing the decreasing importance of spatial processes in the financial production patterns. The financial services industry contains many sectors having different geographies. The author conducts qualitative interviews in Australia with finance professionals to find various local embedded patterns in 3 international financial services, i.e. master custody, swaps dealing and future brokering. Financial services contain several informational contents for local integration with implications. The significance of data acquisition also adds to the swap banks’ local embeddedness.

Technology and structure-explaining the consequences of infusion of the Information Systems in the Stockbroking Sector, Gharavi, H., Love, P., & Sor, R. (2005). ACIS 2005 Proceedings, 86. Rogers proposed the present dominant theory about the DOI (Diffusion of Innovation). Ontologically, it is based on SC (Social Constructivism). The adoption of a CR (Critical Realist Ontology can overcome these limitations. The research finds that regulatory and professional bodies have a great effect on the technological needs of stockbrokers. The regulatory bodies influenced the firms in using the internet to transform the business. The article opposes the condition mentioned by Rogers that we can examine the technology adoption independently. So, as an underlying philosophy, the authors employ a critical realist lens to help in providing an explanation of the technology adoptions.

Unbundling Processes in On Line Trading: Economic and Technical Drivers., Bauer, C., Colgan, J., & Wreford, J. (2000). In ECIS (pp. 812-818). The internet provides opportunities in information-intensive industries and stockbroking for micro-level unbundling. This paper offers a framework that records the unbundling impacts on value chains. It highlights the opportunities for the case of ASM (Australian Securities Market). The models of data flow and inter-organizational work are employed to explain the steps of online trading and examine the present and future models that leverage the unbundling order. Lastly, the authors specify the main technical and socio-economic drivers for the unbundling orders within e-markets.

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