Defaulting Participant Information for Clients

The conduct of a Participant is governed by the applicable Rules, which have legal effect as a contract between the relevant market or clearing or settlement facility and the Participant.

The Rules set out the circumstances in which ASX may declare an event of default in respect of the Participant. The circumstances which may constitute an event of default can include, but are not limited to:

• the Participant becomes externally administered (e.g. a voluntary administrator has been appointed to the Participant or a receiver and manager has been appointed to its property);
• the Participant fails to pay any amount due and payable under the relevant Rules; or
• the Participant does not have the level of capital required or otherwise no longer satisfies the requirements for admission as a Participant.

The Rules provide ASX with the power to take a variety of steps if it declares an event of default in relation to a Participant which may include, but is not limited to:

• suspend its participation in the ASX market or clearing or settlement facility; or
• impose conditions and restrictions on its participation in the ASX market or clearing or settlement facility.

In invoking these powers, ASX’s priority will be to minimise the impact of the default on the market as a whole, in a manner consistent with its licence obligations.

For additional information in respect of the default management process for Clearing Participants and Settlement Participants, please follow the below links:

• Clearing Participants
• Settlement Participants

ASX has also prepared a fact sheet specifically for insolvency practitioners who may be appointed as external administrator to a Participant of an ASX market or clearing or settlement facility:

• Insolvency practitioners

ASX is unable to provide any information in relation to accounts, positions or monies with the defaulting broker.

This includes for unsettled equity cash market transactions, the standard settlement cycle for which is two business days.

Queries in relation to these matters should be directed to:

• Where your broker has become externally administered, the relevant external administrator (e.g. the voluntary administrator appointed to it or the receiver and manager appointed to its property); or
• Where your broker has not become externally administered, your broker.

There are two ways to hold legal title (or ownership) to shares. This can be either:

• on the CHESS subregister maintained by ASX Settlement (CHESS holding); or
• on the issuer sponsored subregister maintained by the company that issued the shares (most companies use a share registry to administer the issuer sponsored subregister on their behalf) (issuer sponsored holding).

When you have a CHESS holding, you are allocated a Holder Identification Number (or HIN) which is used to identify you as the legal owner of securities in CHESS. A HIN is similar to an account number. You can use the same HIN for all your holdings. You can easily identify if you have a CHESS holding as you would have received CHESS holding statements to your registered address, example statements can be found here.

When you have an issuer sponsored holding, you are allocated a unique Securityholder Reference Number (or SRN) by the company that issued the shares. Unlike a HIN, you will have a different SRN for each holding. Where you have an issuer sponsored holding, instead of receiving a CHESS holding statement you would receive a holding statement from the relevant issuer share registry.

Further information on holding shares on the CHESS subregister or the issuer sponsored subregister can be found here.

As an alternative to holding legal title (or ownership) to shares, you may have a beneficial interest in shares e.g. where the legal title (or ownership) to shares is held by a custodian on your behalf. This may be referred to as an omnibus structure.

Clients of the defaulting broker holding securities through a custodian should direct all queries regarding their holding to the relevant custodian.

If you are unsure who has ownership of your shares, please direct all queries to the company through which you place your orders.

CHESS is an electronic system that registers legal title (or ownership) of shares and other securities, and facilitates the settlement of trades in those securities. It does this by transferring the legal title to securities while simultaneously facilitating the transfer of money paid for those securities.

To hold shares on the CHESS subregister (i.e. as a CHESS holding), you will need to have entered into a Sponsorship Agreement with a sponsoring broker. As a sponsored holder of securities in CHESS, you continue to be the person who is registered as the legal owner of those securities.

Ownership of these securities is unchanged as a direct result of a default event.

However, your sponsoring broker may have contractual or other rights that it may exercise in relation to your property, for instance, to secure any outstanding amounts that you owe. You should refer to your client documentation to confirm this.

Where at the time of the default event, your securities had been moved to a nominee holding maintained by your defaulting broker, as part of the settlement process, and your securities are not used in settlement, these are returnable to you (subject to any contractual or other rights asserted by your sponsoring broker as referred to above).

In addition, if you have an options account and you have pledged securities held on your HIN with the ASX clearing house as collateral then the ASX clearing house has rights over these securities.

If you have sponsored holdings with the defaulting broker, you should contact your sponsoring broker, or where your broker has become externally administered, the relevant external administrator (e.g. the voluntary administrator appointed to it or the receiver and manager appointed to its property) for further information about the status of your sponsorship agreement. They will be able to explain to you the process to transfer your sponsored holdings (and the related HINs) to an alternative Settlement Participant.

Clients of the defaulting broker with issuer sponsored holdings who wish to sell their holdings will need to engage a new broker.

See - How can I sell my current holdings, or continue to trade on the ASX Market?

ASX is unable to provide any information in relation to positions or funds. The ASX Group does not hold or manage the equity market positions of clients. Queries in relation to these matters should be directed to your sponsoring broker, or where your broker has become externally administered, the relevant external administrator (e.g. the voluntary administrator appointed to it or the receiver and manager appointed to its property).

Holders sponsored by the defaulting broker have a choice to:

1. Maintain the registration of their financial products on the CHESS subregister by appointing a new sponsoring broker for their CHESS holdings; or
2. Converting their CHESS holdings to issuer sponsored holdings.

For further information on holdings on the CHESS subregister and issuer sponsored subregister please refer to the fact sheet here.

ASX is unable to provide recommendations on alterative sponsoring brokers or the progress of any in flight transfers.

Scenario 1 (Settlement Participant not suspended)

This scenario applies if your sponsoring broker has not been suspended as a Settlement Participant in the facility operated by ASX Settlement.

If you have sponsored holdings in CHESS then your sponsoring broker controls the transfer of securities to and from your CHESS Holdings. However, it may only do so on your instructions and under the terms of the sponsorship agreement you have entered into with them.

If you have sponsored holdings with the defaulting broker, you should contact your sponsoring broker, or where your broker has become externally administered, the relevant external administrator (e.g. the voluntary administrator appointed to it or the receiver and manager appointed to its property) for further information about the status of your sponsorship agreement. They will be able to explain to you the process to transfer your sponsored holdings (and the related HINs) to an alternative sponsoring broker or converting holdings to issuer sponsored.

Scenario 2 (Settlement Participant suspended)

This scenario applies if your sponsoring broker has been suspended as a Settlement Participant in the facility operated by ASX Settlement.

How do I transfer my sponsored holdings to another broker?

If you would like to continue to maintain the registration of your shares on the CHESS subregister, you will need to appoint a new sponsoring broker for your CHESS Holdings. To do this you should follow the steps below:

STEP 1    If you haven’t already done so, you should contact a broker who can act as your new sponsoring broker for your CHESS Holdings.

STEP 2    If you haven’t already done so, you should establish an account with a new sponsoring broker, including entering into a Sponsorship Agreement. Your new account must be set up to exactly match the current registration details of your existing HIN e.g. name, address and account designation must be identical to your existing details.

STEP 3    Provide your new sponsoring broker with written instructions to authorise transfer of control of your holding in CHESS to your new sponsoring broker. Your written instructions must be dated and signed by you as the registered account holder(s) (joint account holders must all sign) and must include your HIN, registration name and address details as well as your telephone contact details.

If ASX Settlement receives a valid transfer request from your new sponsoring broker, ASX Settlement will affect the change of your sponsoring broker for those CHESS Holdings. Prior to doing so, ASX Settlement is required to give notice to your existing sponsoring broker of its intention to do so. Where your existing sponsoring broker asserts contractual or other rights in relation to your CHESS Holdings, the transfer may be subject to resolution of such aspects.

If you would like to obtain information about the status of your new account set up or your transfer request you will need to speak directly with your new sponsoring broker.

How do I convert my sponsored holdings to issuer sponsored?

If the defaulting broker has had their participation in the ASX Settlement facility suspended and you wish to have your CHESS Holdings converted to issuer sponsored holdings, you will need to provide the following information to ASX Settlement .

a)           HIN (Holder Identification Number);

b)           Name of Registered Holder(s);

c)            Registered Address; and

d)           Account Designation (if applicable) e.g. <A/C 1>.

(The details must match exactly with the registration details in CHESS.)

Prior to effecting the conversion of your CHESS Holdings to issuer sponsored holdings, ASX Settlement is required to give notice to your existing sponsoring broker of its intention to do so. Where your existing sponsoring broker asserts contractual or other rights in relation to your CHESS Holdings, the conversion may be subject to resolution of such aspects.

There is no change to the eligibility or distribution of dividends as a direct result of a default event.

If your CHESS Holdings are subject to a takeover or buyback, the defaulting broker will not be able to process in CHESS any instructions from you to accept that takeover or buyback. Until you have appointed a new sponsoring broker for your CHESS Holdings, or they have been converted to issuer sponsored holdings, you will need to contact the relevant company registry to accept any takeover or buyback relating to those CHESS holdings. The company share registry details will be contained in any notice you have received regarding the takeover or buy-back.

The standard settlement cycle for cash market trades is two days following the trade date.

As part of its default management processes in relation to unsettled cash market trades of a defaulting broker, ASX will consider whether outstanding settlements in respect of such transactions can proceed or whether such transaction will be closed out, including whether the Participant, or if it has become externally administered, the relevant external administrator, has the required funds and financial products to meet its settlement obligations and the ongoing capacity to perform its functions as a Participant during batch settlement. 

ASX does not have visibility into client cash market trades, with the responsibility for establishing the status of unsettled client transactions resting with your broker.

Queries in relation to these matters should be directed to your broker, or where your broker has become externally administered, the relevant external administrator (e.g. the voluntary administrator appointed to it or the receiver and manager appointed to its property).

In the event that the defaulting broker’s participation in the ASX market has been suspended, it cannot place any orders for its clients on the ASX market. If you want to place an order on the ASX market, you will need to instruct another ASX broker.

If you don’t already have a relationship with another ASX broker, you will need to enter into a new client agreement with an alternative ASX broker.

Contact details for ASX brokers are listed on the ASX website here.

Holdings with the defaulting broker cannot be sold on the ASX Market until they have been transferred to a new sponsoring broker or converted to issuer sponsored holdings, see - What is the process of transferring my holdings to another broker or to issuer sponsored?.

If your holdings have been converted to issuer sponsored holdings then you should also check with your new broker as to any additional requirements they may have before trading that issuer sponsored holding. 

Claims against the NGF can only be made in certain circumstances. Clients should refer to the National Guarantee Fund client information booklet, found here, for details on eligible claims and how to apply.

Claims against the NGF are determined by the Securities Exchanges Guarantee Corporation (SEGC), and not by ASX.

Participant

Complaints regarding Participant service quality under a service agreement you have signed with them should be directed to the Participant via their complaints management process. If this does not lead to an acceptable resolution, you retain the right to have your complaint adjudicated by an external independent complaint handling service, such as the Australian Financial Complaints Authority (AFCA).

ASX

Complaints regarding Participant conduct under the relevant Rules should be directed to ASX here for investigation.

Complaints regarding ASX’s handling of these events should be directed here.

ASIC

Complaints regarding Participant conduct under ASIC’s Market Integrity Rules and the Corporations Act should be directed to ASIC here for investigation.

Complaints regarding ASIC’s handling of these events should be directed here.

ASIC has published fact sheets on the process of liquidation for creditors and receivership for creditors and maintains a website for the publication of insolvency and external administration-related notices, including details of creditor meetings here.