HKEX mulls paperless securities market

Business | Tereza Cai 29 Jan 2019

Hong Kong Exchanges and Clearing (0388), the Securities and Futures Commission, and the Federation of Share Registrars have jointly issued a consultation paper proposing a revised operational model for implementing an uncertificated securities market here, with a date to be set for full implementation.

The consultation period will run for three months until April 27.

"In an uncertificated, or paperless, securities market, investors could hold and transfer securities in their own name without share certificates or other paper documents," the consultation paper said. "The digitization of securities holdings and the elimination of manual processes would enhance post-trade settlement and servicing, making our markets more efficient and globally competitive."

Costs of new systems to support the revised model will largely be borne by the Hong Kong Stock Exchange and share registrars as part of their commitment to the ongoing technological development of the SAR's markets. Many existing processes can also be retained. The cost implications for market participants will therefore be low.

The proposed model strikes a balance between preserving existing efficiencies in the clearing and settlement process and providing options for investors to hold securities in uncertificated form. Implementation would be conducted in phases.

The SFC aims to issue a conclusions paper by July. Then, regulators have to continue working with the government on the drafting of the further primary law amendments needed.

They will work on developing the systems needed to support the uncertificated securities market environments, which is anticipated to take about 18 months.

The current assessment suggests the uncertificated securities market regime may start to be implemented in early 2022.

Meanwhile, HKEx chief executive Charles Li Xiaojia expects the coverage of the stock connects to be expanded in the future, and the engagement of foreign investment in A shares to consequently increase.

When asked by mainland media about the outlook, Li said the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect have huge potential in the future, especially given the fact they currently don't include small stocks and bonds.

He believes after the trading and settlement system becomes safer and more smooth and efficient, it will corporate more products, and the magnitude and depth of foreign investors' engagement in the market will be enhanced.

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