The implementation of the uncertificated securities market (USM) proposed operational model conclusions in Hong Kong has been arrived at by the joint consultation between the Securities and Futures Commission, HKEX and the Federation of Share Registrars Limited.
The consultation was triggered by market concerns that the operational model proposed would compromise some of the settlement efficiencies enjoyed by the market and have a significant impact on participants’ funding needs.
The model put forward in the consultation seeks to address these concerns while still offering investors an option to hold securities in their own names and without paper.
Uncertificated Securities Market in Hong Kong Revised Model
Investors will have the following options under the Revised Model:
- To hold uncertificated securities through a CP account, an SSA or an IP account. The securities will be registered in the name of HKSCC-NOMS and investors will have a beneficial interest in, but not legal title to, the securities;
- To hold uncertificated securities in their own name and manage them directly by communicating directly with the issuer or the issuer’s share registrar (USI feature); or
- To hold uncertificated securities in their own name and manage the securities indirectly via a clearing or custodian participant and the HKEX System (USS feature).
Feedback on the consultation indicated strong support for the proposals. The proposed operational model will:
- Enable securities to be moved into and out of the clearing and settlement system much more efficiently and cost effectively than today;
- Address concerns about settlement efficiencies being compromised, and the potential impact on market participants’ funding needs; and
- Result in less market disruption and costs as it builds on existing processes, operational flows and infrastructure.
The SFC, HKEX and FSR will further develop the model and the regulatory framework to support it with a view to implementing the USM regime from 2022
Key Benefits of the Uncertificated Securities Market
It secures an improved level of investor choice and protection for investors since the investors have the option to hold their securities in uncertificated form
There is now full dematerialization and digitisation of securities holding through the elimination of paper form and removal of manual processes hence enhancing efficiency in the securities market. For instance, the IPO settlement timetable could be shortened by removing current options of submitting IPO applications in paper form and paying and paying subscription monies by cheque or cashier order
For issuers, shareholder transparency is enhanced, besides achieving direct corporate communications to the shareholders.