In order to start trading on Bursa Malaysia, our Malaysian stock exchange, you would first need to have a CDS account. To most first time traders and first time investors, the concept of having a CDS account might sound foreign.
The following information will give you a better understanding with regards to CDS accounts and the purpose of having them.
The Purpose Of A CDS Account
CDS stands for Central Depository System. Just like savings accounts that keep our cash, CDS accounts are bank accounts that keep our share holdings. Whenever we buy shares in a public listed company, the shares will be transferred and held in our CDS accounts. Whenever we sell the shares we own, the shares will then be transferred out of our CDS accounts to their new owners.
Read Also: What Is A Diversified Investment Portfolio?
The Requirements To Set Up A CDS Account
To be able to set up a CDS account, you would need to be at least 18 years of age. You will also need to fill up and sign form FMN01, which will allow you to open a CDS account. Besides that, you will also have to provide two signed copies of your Identification Card and a RM10 fee for the opening of your account.
Buying And Selling Stocks With A CDS Account
Whenever you purchase stocks from the stock market either through an online platform or your broker, your stocks will be credited into your CDS account at 9am, T + 3 days. T + 3 refers to 3 full working days after the transaction was made. Weekends and public holidays are not counted towards the 3 days.
Similarly, whenever you decide to sell your stock holdings; your stock will be transferred out of your CDS account accordingly.
Transaction And Settlement
As stocks are transferred to your CDS account at 9am, T + 3 days; you would also need to settle the payment for the stocks that you have purchased by 12.30pm, T + 3 days. Otherwise, your stocks would be forcefully sold at the price at that time, which might translate into a loss or gain, depending on whether the stock price has fallen or risen by then.
Direct Accounts vs Pledge Accounts
There are generally two types of CDS accounts, namely, Direct Accounts and Pledge Accounts. With Direct Accounts, dividend cheques and prospectuses will be mailed to the account holder directly.
On the other hand, with Pledge Accounts, dividend payouts and prospectus will be handled by the account holder’s stockbroker, who will then bank in the corresponding amount into the account holder’s bank account.
More Than One CDS Account
If you have more than one trading account (different accounts with different stockbrokers), you will also have to have the corresponding amount of CDS accounts because sharing of a CDS account is not allowed.
How Can You Set Up A CDS Account?
Usually, you will set up your CDS account along with your trading account at a brokerage firm. Just visit the brokerage firm of your choice and they would guide you on the procedure of setting up a CDS account along with your trading account.
Read Also: How And When Should I Start Investing?
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