CCASS urges plan to improve investor safety

PUBLISHED : Wednesday, 01 January, 1997, 12:00am
UPDATED : Wednesday, 01 January, 1997, 12:00am

In a bid to increase protection for investors, the Central Clearing and Settlement System (CCASS) will issue a consultation paper tomorrow recommending they be allowed independent accounts in the clearing system.

A source involved in preparing the paper said it would also propose investors be able to confirm the movement of their shares by phone to prevent the possibility of a broker selling their clients' stock without consent.

At present, the clearing system does not allow investors to use the clearing system directly, meaning they can only put their shares under their broker's account in the clearing house.

Thus, under the current system, if a broker illegally sells a client's shares, the investor cannot easily trace their movement since they are in the broker's account.

Another disadvantage to the present system is that if the brokerage firm defaults, client shares in the broker's account can be frozen in the clearing system.

The system's problems were highlighted last year when cash clients of collapsed securities houses, including Wei Xin Securities, Cheong Woon Securities and C. K. Securities, could only get their shares back after liquidators were appointed several months later.

In such an occurrence, investors may suffer losses because they are unable to sell their shares.

Under the new proposal, even if the broker defaulted, investors could get their shares out of their own accounts.

Another new proposal is to let investors confirm their authorisation of stock movement from their account.

Under the proposal, a broker could still get shares from the clients' account for settlement procedures.

But it would require the clients to confirm their authorisation for the brokers to move the stocks out of their account by telephone or sign the form at the CCASS counter, helping to prevent brokers move or sell their clients stocks without consent.

Brokers said investors would like to hold their shares in independent clearing system accounts since it would increase their protection.

However, they also said it would be an inconvenience for investors, especially those who initiate many trades daily, to confirm all share transactions.

Consultation on the paper begins tomorrow and market participants can give their opinions to the CCASS until 17 February.

PROPOSED Independent clearing accounts Share transactions confirmed by phone No penalty if the brokerage defaults