Me & My Money Series (Sunday Times)

[CityFarmer]

If my understanding is right, CDP under SGX is also a nominee company. It can also fail. IIRC, there are investor protection schemes available, but not clear on detail. I assume in US, similar schemes available.

CDP is a wholly-owned subsidiary of SGX. It is not a nominee because it does not own any of the shares of the listed companies. All it does is keep a spreadsheet (share register) for each company showing who owns how many shares. That spreadsheet is not an asset in any sense of the word because it cannot be pledged or sold.

If CDP fails, its successor can rebuild the spreadsheets by contacting each company's corporate secretary, who would have the same spreadsheet showing the list of shareholders and their holdings. That spreadsheet (the share register) must always tally with CDP's.

Holding your stocks via CDP means your name appears on the company's own share register. Nobody can take your ownership away from you without your permission.

Holding your stocks via a nominee means the nominee appears on the share register, the nominee in turn keeps its own internal register that marks you as a beneficial owner. If the nominee fails your dispute is with the nominee and its creditors.

There is some sort of investor protection scheme in Singapore with regards to broker failure. But clearly it didn't work in the case of MF Global, so I don't see why anyone should assume it will work for him in future. For all practical purposes investors should assume that there is no protection at all.

In the US there is US$250k of protection against broker fraud, but the scheme is operated by the brokers themselves so it is not that easy to get paid. The Madoff victims tried to get compensation from this fund (operated by the SIPC) but were not successful. The explanation was that since the Madoff brokerage never did any trades for the Madoff victims, no fraud was committed! The fraud was a Ponzi, not a boiler-room pump-and-dump operation. So again, best to assume that there is no protection.

Thanks d.o.g. Learn new knowledge today.

For those interested on investor compensation scheme by SGX, refer to link below

http://www.sgx.com/wps/wcm/connect/sgx_e...t_Friendly

The compensation is for investors who suffer monetary loss arising from broker's defalcation or broker’s insolvency.