What is an IDPS? An IDPS is a service offered by a service provider (called an operator) to an investor, wherein the operator arranges execution of buy and sell orders from the investor, custody of assets held, and provides reporting services to the investor.
The IDPS provides a selection of investment options to the investor. The key distinguishing feature of this service is that the investor is responsible for making investment decisions. The IDPS provider does not provide investment advise.
An example of an IDPS is www.schwab.com where individuals can buy and trade shares and are charged a commission on trades.
Member discretionary master funds and wrap accounts are also examples of IDPSs.
In Australia, only public companies who hold a securities dealers licence may operate an IDPS.
The IDPS is a vehicle for allowing investors access to investment opportunities. An IDPS operator must ensure that investors using their IDPS have access to the same information available to those investing directly in an investment. For example, if a public company or a fund issues notices to shareholders, the operator must ensure that any investor in their database who have invested in that company or fund through that IDPS receive the same information.
Due to this requirement, an IDPS operator must have an arrangement with securities issuers to ensure they (the operator) receive the disclosures.
An IDPS operator must also provide their customer with quarterly reports of transactions and holdings of those customers. Besides the quarterly reports, customer must also have access to such information on a continuing basis.
Investments made through an IDPS will be put in custody by a party other than the investor. The operator of the IDPS does not have to be the same entity keeping the securities under custody.
Because an IDPS offers savings to the investor through economies of scale, it is considered an investment scheme. The economies of scale include pooling of funds from other investors for transaction netting (this is a mechanism by the volume and size of transactions are reduced by identifying transactions which ‘cancel’ out each other)
