(20-12-2018, 09:07 AM)Bibi Wrote: (19-12-2018, 09:36 PM)karlmarx Wrote: Custody of the shares you bought will be held in the name of CIMB, under an overseas custodian. I believe the bigger risk is with CIMB, perhaps in not ensuring the proper execution of trade, and not the broker which CIMB uses to purchases shares overseas.
Please correct me if I'm mistaken.
Alternatively, you can try to open a trading and custody account, directly. Maybe during your next holiday?
Thanks for the info. I didn't know I can open a custodian acc directly. I read in Philips Securities website that once I opened a custodian acc, then all my shares including local ones bought from them will be held under Philips name in my custodian acc. So I should buy only overseas shares using Philips and other brokerage firms for my local purchases.
I think I may not have been clear. Allow me to try again.
When you use Singapore brokers to buy overseas shares, the shares are held by the Singapore brokers on your behalf, through a foreign custodian. This foreign custodian could be the country's central depository, or it could be the foreign broker which your Singapore broker uses.
For example, if you use CIMB to buy HK shares, CIMB will instruct its broker in HK to buy the shares. The shares that CIMB have bought for you -- through the HK broker -- will then be placed in HK's securities depository (Singapore's CDP equivalent), or in the HK broker's custodian. CIMB then records, in its own database, that it is holding ABC shares in custody for XYZ customer (you). There are three possible risks in this arrangement:
1) Perhaps due to a sever crash, CIMB lost its records of its transaction, or its holding of shares you have bought. When you try to sell the shares you thought you have bought and paid for, CIMB says, "No sorry, you do not own these shares."
This is the risk of using brokers who also act as your custodian, whether for purchase of local or overseas shares, instead of using CDP as the custodian. But if you buy overseas shares through a Singapore broker, CDP cannot be the custodian, so you will have to rely on your Singapore brokers to act as one. Even so, the Singapore brokers are not the real custodians, since the HK shares you bought are held by a HK entity; either HK's central depository or the HK broker.
2) CIMB did not ensure that its HK broker executed the buy trade successfully, but think that they did. So on CIMB's books, they have on record your shares. When you instruct CIMB to sell the shares you thought you have bought and paid for, CIMB sends the instruction to its HK broker. The HK broker receives the instruction, but because the previous buy trade was in factnot successfully executed, the HK broker (immediately or during settlement) informs CIMB that there are no such shares to sell. At this point, CIMB can either use the clause you cited to defend itself, by presenting evidence that they indeed have sent the purchase instructions (even though for some reason the trade wasn't completed), or CIMB can honour your purchase of the shares and absorb any losses (or take any gains, which if this were to be the case, they wouldn't tell you that their HK broker screwed up) that may arise from the two transactions.
To defend against such situations -- where the broker may not be diligent in its operations, or where the broker hides its tardiness behind clauses -- the investor's best course of action would be to choose a broker that is
reputable.
3) The shares bought by the HK broker, through instruction from CIMB, may be held either in the HK broker's custody, or the jurisdiction's central depository. If it is the former, then the shares you have bought may be lost if, for some reason, the HK broker is unable to deliver the shares when required (such as when you wish to sell the shares). This could happen if the HK broker was tardy in its record keeping, did not ring fence its assets under custody, becomes insolvent, or a combination of some/all. If such were to happen, CIMB will again invoke the clause you cited to defend itself; it is not my fault, the HK broker failed. Such are also the risk of using a Singapore broker as custodian, to buy Singapore shares.
Since the investor does not know whether CIMB holds its foreign shares under the country's central depository, or if in the case a broker is used, whether a trustworthy and/or reputable broker is used, the investor is relying on CIMB to make a good judgement for its clients.
Although it is not likely that a broker-custodian will fail in its duty as a custodian -- since if such an event were to occur, the damage to trust and reputation will mean they can close shop for good -- there has been cases where it has happened. MF Global is a recent example.
This is why I suggest the alternative of you going overseas to open a central depository account under your own name. But in most jurisdictions, there are many restrictions for foreigners to do so. So most go with using the services of a Singapore broker like CIMB. Since this is the most likely course of action -- being the least troublesome -- the investor is at the mercy of CIMB to perform the necessary to protect them. As such, the investor's best course of action is to choose a broker that he can is
trustworthy and reputable. Cost should not be the top priority.
Those with more experience in offshore operations may wish to correct/add whatever was mentioned here.
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