Hong Kong is seeking industry feedback on plans to introduce new systems for a paperless securities market to enhance global competitiveness and increase market efficiency.
Hong Kong’s SFC (Securities and Futures Commission), HKEX (Hong Kong Exchanges and Clearing), and the FSR (Federation of Share Registrars) have issued a joint consultation paper soliciting views on a plan to introduce a paperless securities market.
The implementation of the proposed uncertificated securities market, which will allow investors to hold securities in their own name and without paper documents, will provide better legal protection and transparency, increase efficiency, and enhance financial market structure.
Currently, Hong Kong law requires the use of paper documents for evidence of and transfer of legal title to certain securities, in particular, company shares. This requirement results, however, in securities not being held in the name of the investor concerned, but under the name of a single nominee, for instance that of the HKSCC Nominees Limited, the consultation paper reads.
Under the revised model, the nominee structure will be retained, which means investors who hold securities through CCASS (the Central Clearing and Settlement System) will continue to do so. But investors will also have the option to hold securities in their own name and in uncertificated (paperless) form. These securities, however, will not be managed and administered through any of the existing CCASS account types.
The digitisation of securities holdings and subsequent elimination of manual processes will also enhance post-trade settlement and servicing, said the consultation paper, making Hong Kong’s securities markets more efficient and globally competitive.
The proposed changes also seek an amendment to the split register role, where currently the register of members or register of securities holders are kept in two parts – one maintained by the HKSCC and the other by the issuer’s share registrar. Instead, the regulators want the entire register of members to be kept and maintained by the issuer’s share registrar.
The costs of new systems to support the revised model will largely be covered by HKEX and share registrars.
The consultation, available here, is open for comment before 27 April 2019.