Holder Identification Number (HIN) is a unique 15-character identifier that is assigned to each security account if the broker is CHESS Sponsored.
Individual HIN is issued by the Australian Securities Exchange (ASX) to the account holder when the broker creates an account that supports individual HIN for the account holder. HIN is used to identify the holdings of shares, bonds, and other securities of that account holder.
What makes the HIN unique is that it is specific to the trading account of the account holder and not to the securities themselves. This means that even if the account holder buys or sells different securities through that trading account, the HIN will remain the same. It allows the account holder to manage their securities holdings and track their transactions using a single identifier.
The account holder can be any of the account types the broker supports, such as individual, joint, SMSF, trust or company.
The HIN differs from other securities identifiers, such as the International Securities Identification Number (ISIN) or the ticker symbol. While these other identifiers are used to track specific securities, the HIN is used to identify the account holder and their holdings, regardless of which securities they hold.
CHESS system
CHESS is a system offered by ASX that allows account holders to hold their securities electronically under a Holder Identification Number (HIN). Here, the electronic register of the securities and the ownership of those securities is recorded in a central database maintained by the ASX Clearing House Electronic Sub-register System (CHESS).
In this arrangement, the CHESS Sponsored broker acts as an intermediary between the investor and the CHESS system, which is the computerised system used by ASX to manage the clearing, settlement, and transfer of securities. A CHESS Sponsored broker is a broker who offers the HIN structure to his account holders.
The CHESS Sponsored broker is responsible for maintaining the account holder’s HIN and managing their securities holdings and transactions on the CHESS system. The account holder is the legal owner and beneficial owner of their securities, and they can trade their holdings through their CHESS Sponsored broker. The CHESS Sponsored system also enables the management of the account holder’s cash transactions related to their securities holdings, such as distributions, dividends, interest payments, and corporate actions.
CHESS is a popular option for investors who want direct control over their securities holdings and transactions.
CHESS Sponsor
A CHESS Sponsor is an entity authorised by the ASX to “sponsor” the investor on CHESS. That means the CHESS Sponsor gets your approval to operate your security holdings on the CHESS subregister on your behalf. Usually, the investor’s broker or the settlement agent of the broker tends to be a CHESS Sponsor.
Investor with multiple HINs
An investor can have multiple HINs. This can happen if the investor holds securities through different CHESS Sponsored brokers or in different accounts requiring separate HINs.
This can be useful for separating different investments or managing different tax implications.
We must observe that an investor cannot have the same HIN at different CHESS Sponsored brokers. Therefore, if the investor wishes to hold securities with multiple CHESS Sponsored brokers, they would need to open separate accounts and receive separate HINs from each broker.
CHESS holding statement
A CHESS holding statement is a report generated by the CHESS system to provide an investor with the details of the changes to a security’s units they hold. The reporting period is one month. A separate CHESS holding statement is issued for each security.
These statements help the investors track the units bought and sold of the securities the investor holds.
Difference between HIN structure and custodial structure
The HIN structure and custodial structure are two different models of holding securities and identifying securities ownership.
Custodial Structure: Under the custodial structure, the securities are held by a custodian on behalf of the account holder. The custodian is responsible for managing the account holder’s securities holdings, including buying, selling, and holding securities. The account holder does not own the securities directly. The custodian may provide other services such as the safekeeping of the securities, settlement of transactions, and collection of dividends.
Some of the key differences between the HIN structure and custodial structure are:
- Ownership: Under HIN structure, the account holder owns the securities directly, while under custodial, the investor owns the securities indirectly only. Under HIN, the account holder is the legal owner and beneficial owner of their securities. Under custodial structure, the account holder is not the legal owner but only a beneficial owner of the securities.
- Control: Under HIN structure, the account holder has control over their securities holdings, while under custodial structure, the custodian is responsible for managing the account holder’s securities.
- Broker ceases to conduct business: Under HIN structure, if the broker ceases to conduct business, the account holder can move all the securities to another broker immediately without facing hurdles. Under custodial structure, the account holder might lose access to their securities for a period, even extending for a few years, before the account holder regains access.
- Transparency: Under HIN structure, the account holder can access the details of securities, distributions and other information about the securities they hold. ASX states that the CHESS holding statements are a “source of truth”. Under custodial structure, the transparency practices of some custodians might not be as good.
- Voting rights: Under HIN structure, the account holder is entitled to voting rights and other benefits associated with ownership of the securities. The reason is the account holder is the legal owner of the securities. Under custodial structure, the account holder may not be able to exercise voting rights or other ownership rights, depending on the terms of the custodial agreement, and this might depend on the broker or custodian.
- Fractional shares: Under HIN structure, the account holder cannot hold fractional shares. In contrast, the custodial structure allows investors to hold fractional shares.
Fractional shares and individual HIN
Fractional units of securities (commonly referred to as ‘fractional shares’) are not possible under individual HIN because this structure is based on direct ownership of shares. Under the individual HIN structure, a unique HIN is assigned to each security account that holds one or more whole units of securities. So all the securities in that account are identified by that unique HIN. This technicality means each whole share is considered a discrete unit, and fractional shares cannot be created out of that whole share.
In contrast, under the custodial or indirect ownership structure, account holders own shares indirectly through a custodian that holds the securities on their behalf. Here, the custodian can create fractional shares out of a whole unit of a specific security and assign each of these fractional shares to different security accounts.
Why do some brokers offer custodial instead of HIN in Australia?
In spite of many advantages of HIN for the account holder, some brokers offer custodial service for various reasons, including:
- Cost: It might cost more for some brokers to maintain a trading account under the HIN structure and manage the security trades executed under that account.
- Fractional shares: Some brokers might want to offer the facility of fractional shares.
Difference between individual HIN and pooled HIN
Individual HIN and Pooled HIN are two ways of holding securities under the HIN structure. The main differences between them are:
- Individual HIN: In this type of HIN, each account holder is assigned a unique HIN. The account holder has complete control over the securities held in the trading account, and can trade, transfer or sell them as they wish. Individual HINs are typically used by retail investors who want direct control over their securities.
- Pooled HIN: In a pooled HIN, all the securities of multiple account holders are held together in a single pooled HIN. The account holders do not have direct ownership of the securities they hold. That is, the account holder is not the legal owner but only a beneficial owner of the securities.
If a person says “HIN structure”, the usual thought among investors is that the mention refers to the individual HIN structure. So, if that person intends to refer to the pooled HIN, it will be helpful if she explicitly says “Pooled HIN structure”.
History of HIN
The HIN system was introduced in Australia in the 1990s to modernise and streamline the identification of securities ownership on the Australian Securities Exchange (ASX).
The HIN system allowed for the electronic registration of securities and the identification of securities ownership through a unique 15-character HIN. This streamlined the process of trading and transferring securities.
The HIN system was developed in collaboration with the ASX, the Australian Securities Commission (now the Australian Securities and Investments Commission, or ASIC), and the securities industry. In 1996, CHESS became fully operational. The new system was introduced gradually over several years, with all securities on the ASX being registered electronically by the end of 1999.
Since its introduction, the HIN system has become the primary means of identifying securities ownership on the ASX and is used by millions of investors across Australia. Other securities exchanges have also adopted the system in the Asia-Pacific region, including the Singapore Exchange and the Stock Exchange of Hong Kong.
Overall, the HIN system has been a significant development in modernising the Australian securities industry.
Support for HIN in Australia
Some of the biggest supporters of the HIN system include the following:
- ASX: The ASX was instrumental in developing and implementing the HIN system, and it continues to support and promote the use of HIN as a secure and efficient way to identify securities ownership.
- Securities Registrars: Securities registrars are also strong supporters of the HIN system. The HIN system allows registrars to easily track and manage securities ownership, reducing their administrative burden and improving the efficiency of their operations.
- CHESS Sponsored Brokers: Brokers have also been strong supporters of the HIN system, as it allows them to provide a more streamlined service to their clients. By using the HIN system, brokers can avoid the administrative burden of maintaining custody of their clients’ securities. It also allows them to cater to the expectation of some clients who wish to be the legal owner as well as the beneficial owner of their security holdings.
- Investors: Finally, investors have also strongly supported the HIN system. This is because HIN allows them to be the legal owner as well as the beneficial owner of their security holdings and to have direct access to their securities registry. This can give investors greater control over their securities and more transparency and security in their dealings with the market.
Our view at QuietGrowth
QuietGrowth recommends the individual HIN structure over the custodial structure for our Managed Discretionary Account (MDA) service. To know about our view at QuietGrowth regarding HIN, refer to our answer to a related question in FAQs: Where are my securities held?
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