Different between Direct account and Nominee account

Ever wonder whether your CDS account is Direct or Nominee?

When you open a trading account directly with a Participating Organisation(Broker or Investment Banks,in short,PO and IB) or through a commercial bank,you will also be required to open a CDS account at the same time.

By opening a CDS account,you are creating an account with Bursa Depositories Sdn Bhd through the PO. Bursa Depositories Sdn Bhd is a subsidiary of Bursa Malaysia Bhd which does all the share debiting and crediting in respect of shares listed in Malaysia.

To illustrate,when you buy 100 units of Public bank from the open market,on T+2,Bursa Depositories Sdn Bhd will do the debiting of the 100 units of Public Bank shares from the seller's CDS and credit it to your CDS account.Henceforth,there will be 100 units PBB shares in your CDS account until it is debited from your CDS account for whatever reasons.

If there is any corporate exercise such as bonus issue,share split etc,the crediting of the new shares arising from the exercise is also done by Bursa Depositories Sdn Bhd in collaboration with the company's share registrar.

A monthly statement will be posted to all depositors who did transactions during the month.If there is no transaction,then a half yearly statement will be sent to you.

When a trading account is opened with a PO,the CDS account that is opened at the same time consists of two types,either a Direct CDS or a Nominee CDS.A Direct CDS is under your own name and address,whereas a Nominee CDS is under the PO's name and address with specific description that you are the beneficial owner(eg. HLG Nominees (Tempatan)Sdn Bhd for account Lee Ah Kaw).The exact description of the name and address will be used in the Share Registrar's record of share holders.

Now you understand why so many investors complained that they are not receiving annual reports,dividends ,rights issue form etc from the investee companies.It is because the CDS account opened is a Nominee CDS account and all letters are sent to the PO's office.PO charged a service fee for handling the rights issue,dividend etc.

Why then some PO want their clients to open Nominee CDS?
The simple answer is for collateral purpose.Shares in Direct CDS account is under your direct control and you can request to transfer out the shares to another CDS account of your name, or to your family members' CDS account with proper documentary evidence,without any hindrance.But if you ever wish to transfer out the shares in the Nominees CDS account,the consent of the PO is required although it's your shares.

Typically,most online broking that offers cheap brokerage requires your share to be kept under Nominee CDS account.

CASH / DIRECT ACCOUNT
1. Direct individual account
2. CDS (stock) is held under client’s name
3. Entitle apply for IPO
4. Entitle for dividend and any voucher issue by company
5. Annual Report received

There are four distinct disadvantages of using a Nominee CDS:
1. CDS (stock) is held under company’s name.
2. Not entitle to apply for IPO. You can't use a Nominee CDS to apply for IPO(initial public offers);
3. Entitle for dividend but not any voucher issue by company.
4. No Annual Report received.
5. if you wished to attend the AGM of the investee company,you must get the PO to appoint you as a proxy;
6. if you wished to transfer out shares from your Nominee CDS to your relative's CDS ,you must first transfer the share from Nominee CDS to your Direct CDS ,then proceed to transfer the share to your relative's CDS .Whereas for shares in Direct CDS,there is only one step where you transfer direct from your CDS to your relative's CDS;.This apply to transfers that entail change of beneficial ownership.(edited on 27/02/09 to correct an earlier fundamental error.)
7. POs charge you a service fee for all dividends received and paper works done such as accepting rights issue or other corporate exercise that involve filling up of forms.

If you have a choice,opt for Direct CDS since Nominee CDS is of no benefit to you at all.