So I’ve recently started looking into equities investing and there are a whole bunch of options where you can get started but I decided to go with SCB’s platform.
One thing to note that stocks purchased via SCB would be held in custodian account instead of your own personal Central Depository (CDP) account. Having a custodian account means that the custodian (the brokerage firm) will hold the shares you bought under their name, rather than to deposit the shares into your CDP account.
Stocks bought under custodian accounts are charged a lower commission rate because the brokerage firms can lower their expenses. CDP charges a fee to the brokerage firms for keeping the stocks under them. Hence, by holding stocks under their own name, they can strip off the expenses paid to the CDP.
There are a number of concerns when choosing to go with this option. As the stocks are bought under the name of the brokerage firm, you will not be invited to attend the Annual General Meeting (AGM) of the companies you have invested in, meaning you will not have to the opportunity to vote during the AGM or to interact with management. Secondly, companies that you have invested in will not notify you directly about their corporate action, which includes rights issue and dividend reinvestment plans. Your brokerage firm will have to be the one informing you regarding any corporate actions.
…but what happens if SCB closes down?
In the very unlikely case that the bank ceases operations, SCB would return the stocks back to the investors, or transfer it to another agent of the client’s choice.
With that said, however, there is always a risk that your holdings might not be entirely safe, particularlly in a place with poor financial jurisdiction and/or compliance. So as with all investments, at the end of the day, it is very much a case of caveat emptor. Never invest money that you can’t afford to lose.
26 March 2018