What are fail fees? And how can you avoid them?

Fail fees are charges levied by the ASX when a stock that has been sold fails to be delivered within T + 3 (trade day plus three business days). As from 1 September 2008, fees will be charged at a $100 minimum, up to a maximum of $5,000 per day.

Fail fees are used to make sure that buyers receive their shares three business days after they are purchased. They also provide certainty in the market and reduce settlement risk by encouraging on-time settlement of trades.

Fail fees are levied by ASX directly on the broker or non-broker participant. The ASX does not levy fail fees on broker’s clients.

For a client, the most common way a stock fails to be delivered is by the client:

• Being unable to locate their shareholding statement within the required time frame;
• Providing incorrect registration details; (Bell Potter can submit a request to the registry for your SRN at a fee of $27.50 (GST inclusive) provided the client can provide exact registration details);
• Selling more stock than they own and having to buy back the stock after the trade date;
• Experiencing delays with stock transfer from another broker

The simplest way to reduce the risk of fail fees is to become broker sponsored.

Broker sponsorship results in the clients receiving one unique Holder Identification Number (HIN) for all their shareholdings. This simplifies settlement as there is no need for clients to locate issuer statements every time shares are sold.

Other benefits of broker sponsorship include:

Less administration

• Each time you purchase shares your TFN is automatically forwarded to the appropriate share registry.
• When you change address you only need to advise your broker, in writing, instead of contacting each share registry individually.
• Corporate action paperwork – such as takeovers and buybacks is sent to the broker for checking and your instructions can be forwarded electronically to companies.

More accurate portfolio updates

• Our system automatically reconciles with CHESS holdings for accurate portfolio statements via our website or mail.