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SFC sets clear timeline for implementing an uncertificated securities market in Hong Kong

The Securities and Futures Commission (SFC) today released consultation conclusions on its proposed subsidiary legislation, code and guidelines for implementing an uncertificated securities market (USM) in Hong Kong (Note 1).

In response to market feedback, the SFC now proposes a 5-year timeline as follows:

  • Subject to completing the legislative process, the USM regime will be implemented towards the end of 2025 (Note 2).

  • Companies whose laws are compatible with the regime will have to transition to the new regime in batches by the end of 2030 (Note 3). 

  • A more detailed timeline will be set to ensure an orderly transition (Note 4).

In terms of next steps:

  • The SFC will conduct a separate consultation on the maximum levels of certain USM-related fees (Note 5).

  • The SFC, together with Hong Kong Exchanges and Clearing Limited and the Federation of Share Registrars Limited, will engage with issuers, investors and other market participants to facilitate their understanding of the new regime, its impact, and the steps needed to participate.

  • The SFC is also working on Guidelines for issuers which will highlight the preparatory steps needed for issuers to participate in USM, and their subsequent ongoing obligations. As companies may need to amend their articles or bye-laws to ensure USM-compatibility, sample provisions will also be included in the Guidelines for issuers’ reference.

The USM initiative will remove the need for manual and paper-based processes and thus enhance operational efficiencies within Hong Kong’s financial market infrastructure. Investors will be able to hold securities in uncertificated form and have direct legal ownership of their securities electronically, instead of only holding a beneficial interest through the existing nominee structure in CCASS (Note 6). Investors will thus enjoy better shareholder protection as well as the convenience of being able to manage their portfolio electronically. Other market participants including issuers and intermediaries will also benefit from enhanced efficiencies through streamlined and automated processes.

End

Notes:

  1. In March 2023, the SFC issued a consultation paper on proposed subsidiary legislation, including the Securities and Futures (Uncertificated Securities Market) Rules and the Securities and Futures (Approved Securities Registrars) Rules for implementing USM in Hong Kong. Subsequently, in October 2023, the SFC issued another consultation paperon proposed Code of Conduct for Approved Securities Registrars and Guidelines for Electronic Public Offers.

  2. The SFC is working with the Government which targets to submit the related legislation to the Legislative Council towards the end of the year.

  3. This will include shares of Hong Kong companies. Shares of companies incorporated in Mainland China, Bermuda and the Cayman Islands are also targeted to be included.

  4. Securities will be queued for participation. Issuers’ share registrars will work with Hong Kong Securities Clearing Company Limited and the Stock Exchange of Hong Kong Limited to agree on a specific deadline for each issuer.

  5. The SFC aims to set upper limits in respect of three fees charged by share registrars, ie, transfer fees, dematerialisation fees and fees charged for setting up a new facility which allows a registered holder to manage any securities held in uncertificated form. Upper limits are necessary because these fees may be payable by investors and the amount charged may influence investors’ participation in USM.

  6. CCASS refers to the Central Clearing and Settlement System. Securities held through this system are registered in the name of a single central nominee. Investors who hold securities through CCASS therefore are not the registered owner of the securities and have no direct relationship with the issuer. They do however have beneficial interest in the securities which must be exercised through their brokers and CCASS’ central nominee.

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