TECHNICAL NOTE 2 USE OF CDI DATA
INTRODUCTION
1 The June quarter 2008 of this publication sees the introduction of adjustments to portfolio equity investment abroad to reconcile data from the survey of international investment with CHESS holdings of CHESS Depository Interests and other securities issued by foreign incorporated entities. Adjustments of $1855m and $155m have been made to the level of portfolio equity investment in New Zealand and the British Virgin Islands respectively. This note explains the adjustment methodology.
WHAT ARE CHESS DEPOSITORY INTERESTS?
2 The Clearing House Electronic Subregister System (CHESS) is the system that manages the settlement of transactions executed on the Australian Stock Exchange (ASX), and the electronic transfer of legal title to ASX-quoted securities. Besides Australia, only New Zealand, Papua New Guinea and Bermuda recognise uncertificated holdings and electronic transfer of legal title using CHESS and may have their securities quoted directly on the ASX.
3 In order to enable trading in foreign equity securities issued in other countries, the ASX has developed CHESS Depository Interests (CDIs). CDIs are units of beneficial ownership of the underlying securities that can be traded on the ASX, with legal title to the underlying securities held by a nominee company on behalf of the CDI owners.
INCORPORATION OF CDI DATA IN THE SURVEY OF INTERNATIONAL INVESTMENT
4 Since CHESS also serves as a register of current ownership of CDIs, CHESS holdings of CDIs by resident Australian investors represent an additional source of information on Australian investment abroad in portfolio equity securities. Where CHESS holdings by resident Australian investors exceed holdings reported in the survey of international investment, an adjustment has been made to bring published estimates into line with CHESS holdings.
5 For all but the British Virgin Islands, CHESS holdings of CDIs are less than reported portfolio equity holdings. In the case of the British Virgin Islands, the discrepancy is due in part to non-resident holdings of CDIs. This has been estimated from the ABS survey of domestic nominee companies to provide a residual estimate of $155m for resident holdings of CDIs that have not been captured in the survey of international investment.
6 The adjustment has been introduced into the existing series over 14 quarters up to and including the December quarter 2007. CDI levels will be monitored on an ongoing basis to ensure that these levels are appropriately incorporated in portfolio equity investment abroad.
OTHER FOREIGN INCORPORATED COMPANIES
7 A limited number of countries recognise uncertificated holdings and electronic transfer of legal title using CHESS, and securities issued by companies incorporated in these countries may be traded on the ASX directly without using CDIs.
8 In the case of New Zealand, CHESS holdings are greater than amounts reported in the survey of international investment. The discrepancy is due in part to non-resident holdings of New Zealand securities in the CHESS register. This has been estimated from the ABS survey of domestic nominee companies to provide a residual estimate of $1855m for resident holdings of New Zealand equity securities that have not been captured in the survey of international investment.
LIMITATIONS
9 CHESS is a broker-sponsored register that records holdings acquired in trades using brokers authorised to trade on the ASX. However securities may be acquired other than via broker-sponsored trades. In such cases issuing companies may maintain their own registers. ABS does do not currently have access to these issuer-sponsored registries.
FURTHER INVESTIGATIONS
10 There are a number of reasons why CHESS holdings of securities may exceed those reported in the SII. The most obvious is undercoverage in the survey of international investment, possibly because the relevant investors are households or small enterprises that are not included in the survey coverage. A further possibility is that some survey providers report CDIs and other shares of foreign incorporated companies as domestic investments on the basis they are transacted on the ASX. Further investigations are being undertaken.
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