Let’s combine the benefits of the broker custody model and the seamless experience of the CDP 

AS SINGTEL embarks on the exercise to transfer Singtel special discounted shares from the Central Provident Fund (CPF) Board to The Central Depository (CDP), shareholders will find that the CDP offers a smooth investing experience.  

It is also free of charge to investors, an advantage especially if they have several counters.

While the CDP model of holding shares is one that many Singapore retail investors have grown accustomed to, the broker custody model is increasingly being used, including by investors who have ventured into overseas stock markets and hold foreign securities.  

In fact, the broker custody model is the prevalent securities custody model in most major markets, noted the Singapore Exchange Regulation (SGX Regco) in its January consultation paper on modernising the post-trade custody model. 

SGX Regco, in its push for a more vibrant market, was seeking feedback to facilitate the broader use of broker custody accounts. It noted that two-thirds of retail accounts are with the CDP, with the remainder in broker custody accounts.

It also pointed out that if investors adopt the same broker custody model for both SGX-listed and foreign-listed securities, they can view and manage all their holdings together through the same broker.

And brokers would be able to offer investors more value-added services, including fractional trading and portfolio management.  

It is indeed the case that the broker custody model can offer the investor better access to investing advice. For example, when a real estate investment trust (Reit) conducts fundraising, the trading representative has sight of the investor’s portfolio with the brokerage, and can support the investor in deciding whether to subscribe to the rights issue.

Under the CDP model, the shareholder is in full control of his shareholdings, but the trading representative is unable to guide on the decision without knowledge of the other stocks held by the shareholder.

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SGX moves to encourage more investors to use broker custody accounts for their holdings

For me, some of the drawbacks of the broker custody model surface during the annual general meeting (AGM) season. 

When a shareholder directly holds the shares via the CDP, attending AGMs and other shareholder meetings and engaging the management is a more straightforward process, undertaken without intermediaries. Documents are sent directly to the shareholder.

With broker custody, the experience is less seamless. Investment specialist at PhillipCapital Dan Chang said the account holder who wants to attend the AGM will need to inform the broker ahead of time to arrange for proxy forms; the lead time needed could even be weeks. This is because the shares are not held directly in the shareholder’s personal name.

Clearly, a significant additional layer of planning is involved for a shareholder who wishes to exercise his rights and take part in meetings. This cumbersome process could be why some investors skip those meetings.

Investors are free to adopt either model or use a combination of both. However, the ease of exercising shareholder rights under the CDP model is an important feature that should not be overlooked.

As the industry mulls possible changes to broaden the use of the broker custody model, it should also see how some of the seamless aspects of managing shares via the CDP can be incorporated.