If you wish to purchase your shares listed on the Singapore Exchange (SGX: S68), it is necessary to apply for a Central Depository (Pte) Limited (CDP) securities account.
This raises the question: What exactly is a CDP account and why is it necessary for investors?
First established in 1987, CDP is a wholly-owned subsidiary of the Singapore Exchange (SGX).
CDP is a platform for retail investors to safekeep the securities traded on the exchange that they own, and this is not limited to just shares and exchange trust funds (ETFs).
CDP also provides services for other forms of securities, such as bonds, unit trusts, and Singapore Depository Receipts.
To register for a CDP account, one must be at least 18 years old and not be an undischarged bankrupt.
Additional information will be required, which can be retrieved from MyInfo using your Singpass, facilitating a straightforward application process through SGX’s online application form.
Now that we have established the purpose of a CDP account, is such an account necessary for new investors?
CDP vs custodian
Some readers might be wondering why they did not register for a CDP account when performing their first online trade.
This brings us to the difference between custodian accounts and CDP accounts.
Online brokerage platforms, such as Moomoo from Futu Holdings (NASDAQ: FUTU) or Interactive Brokers under the Interactive Broker Group (NASDAQ: IBKR), offer custodian accounts only.
A custodian account means that the broker holds the shares you own on your behalf.
However, you can be assured that your shares are isolated from the broker’s own assets, a regulation enforced by the Monetary Authority of Singapore.
This arrangement means that you do not directly own the shares you purchase; consequently, you might miss out on certain benefits typically associated with direct share ownership.
For example, investors are unable to exercise their voting rights when shares are held in a custodian account, unlike those who have shares maintained with a CDP account.
Other benefits for CDP account holders include notices for corporate announcements and access to annual general meetings.
If you are an investor who values having direct control over such rights, a CDP account is necessary and is the better option for you.
Additionally, if you aim to exclusively invest in companies listed overseas, like on the New York Exchange or the NASDAQ, a CDP account is not required.
In these cases, overseas shares are held in custody by the broker’s nominee.
Varying fees
Investors considering opening a CDP account should also take into account the fees associated with trading.
While the account itself is free to open, various fees apply when conducting transactions.
Let’s unpack it with an example from DBS Vickers Securities, the trading platform operated by DBS Group (SGX: D05) that integrates with a CDP account.
When executing a trade through DBS Vickers, investors will incur an additional 0.0325% clearing fee alongside a 0.0075% fee from SGX (see below), as well as the broker’s respective commission and GST.
Take note that DBS has a commission fee of 0.28%.
While 0.28% seems small, this additional cost can accumulate, especially with large orders, particularly for investors who engage in high-frequency trading.
Furthermore, if an investor chooses to execute a small order, a commission fee of S$25 might be charged instead of 0.28% of its contract value.
However, commission fees and minimum orders vary from broker to broker.
This can become a significant expense over time, potentially acting as a deterrent to some individuals.
Additionally, CDP will charge a processing fee of S$75.00 (subjected to prevailing GST) for each failed contract.
Compared with a platform like Moomoo, which only offers custodian services, the commission fee is much cheaper.
Moomoo only charges 0.03% commission fee, with a minimum of S$0.99.
This is because Moomoo does not incur additional expenses related to maintaining CDP accounts for its users.
Is it always cheaper to use a custodian account?
It may seem that custodian accounts are a lot cheaper compared with maintaining a CDP account.
Well, this may not always be the case.
Since the CDP account is owned by SGX, it is not directly tied to any brokers.
This means that investors can easily link their CDP accounts to different brokers, allowing them to switch brokers if necessary.
Changing brokers can be very expensive for custodian account holders, especially when it comes to transferring shares.
To illustrate, Moomoo charges a handling fee of S$100 per transfer per Singapore stock to other brokerages or financial institutions.
As you can see, a CDP account and a custodian account each comes with pros and cons.
Get Smart: The option of getting a CDP account
Overall, whether to have a CDP account really depends on your investment style.
If you wish to have direct control of your shares and enjoy the benefits that come along with being a shareholder, a CDP account might be the choice for you, despite potentially higher costs.
On the other hand, if you are budget-conscious, a platform offering custodian services would be more optimal.
Singapore boasts a wide variety of brokers, each offering different fees and benefits.
Choosing the right one can be challenging.
That is why we have compiled a list of some of the most recognised brokers for you to consider.
If you are interested or need help identifying one, this link here will assist you in finding the right broker for your needs.
If you’re nervous, confused, or worried about buying your first stock, then our latest beginner’s guide to investing can help. It’s easy to read yet packed with valuable insights. Download it for free today, and buy your first stock in the next few hours. Click here to get started.
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Disclosure: Aw Kai Rui does not own any of the stocks mentioned in this article.
