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SCMP Reporter

HONGKONG Securities and Clearing Co (HKSCC) will tomorrow announce moves to make its depository bank facilities available to the individual investor.

  Officials at the clearing company have been tight-lipped about the changes to the depository which has under its custody only about 10 per cent of all stocks already admitted to the Central Clearing and Settlement System (CCASS).

  As the depository is only available to custodians and brokers looking after the CCASS listed stock, individual shareholders have to look elsewhere to store their certificates.

  But recent court cases have highlighted the possible risks of leaving shares in the hands of solicitors and brokers.

  For the individual investor only two main options for safekeeping currently exist: the broker or a safe. Both have drawbacks.

  Some brokers act as a type of custodian to their clients' shares, overseeing dividend payouts, keeping tabs on corporate announcements and updating the investor on the value of those shares.

  But not all brokers provide the service and some require the shareholder to open an account of a certain minimum size. Similarly, some charge fees, while others may not.

  Also, there is always the risk of leaving one's shares with a fraudulent broker or with one which goes bust.

  Safeguards do exist, however. Fraudulent brokers can be tried in court and there is also protection under the investors' compensation fund if a broker defaults.

  But, with over 12,000 registered security dealers and a greater number of unregistered brokers, the Securities and Futures Commission (SFC) advises caution while choosing a broker.

  On the other hand, if one is using a safe deposit box, the shareholder may find buying and selling shares more difficult as constant access to the share certificates is necessary.

  In addition, stored items are easily forgotten. Should the shareholder lose touch with the company which has issued the stocks, the certificate becomes yet another piece of paper in a safe deposit box.

 Another option open to investors is the custodian bank.

  Custodian service protects small investors  Most of the large international corporate investors see advantages in using a big bank's regional or global custodian to look after their shares.

  For the large fund manager too a custodian bank offers the advantage of ensuring the best returns on their investments. It ensures that their back office safekeeping is handled efficiently, allowing time for the manager to concentrate on strategy rather than the management of shareholding costs.

  Some of the basic services provided by a custodian include notification of corporate actions, the collection of dividend and income payments, security safekeeping, and consolidated reporting.

  However, for the smaller investor, the benefit of these services is debatable when one takes the cost involved into account.

  ''They've got to look at cost, risk and service,'' said Bank of Bermuda managing director, Mr Paul O'Neill.

 Bank of Bermuda, for example, asks an annual maintenance fee of US$250 plus custodian fees based on the amount of the actual holding.

  The smaller investor may find this cost too high.

  But, some of the more peripatetic of investors who use more than one broker, are willing to pay the extra fee for a custodian bank's services.

  Changes of address, and a resulting loss of contact with the company in which the investor has purchased shares, can mean the investor quickly loses track of his shares. Here, a custodian will keep the investor informed of all the relevant details.

  ''From my point of view, if I am not in Hongkong all the time, it's worth it,'' said a large investor referring to the services offered by a custodian bank.

  A third party, such as a custodian, also provides objectivity and distance with which some investors are more comfortable.

  But the investor has to pay a high price, something which is not viable for most small investors.



HKSCC to offer depository service