Hong Kong closes in on scripless securities market

Hong Kong edged closer to a scripless securities market yesterday in a move welcomed as a major step forward for the city in terms of efficiency and competitiveness. 

The new regime, which is expected to be implemented in phases starting in 2013, will enable investors to hold and transfer securities electronically in their own name. 

The government says gradual implementation will allow investors to switch from physical certificates to paperless securities at their own pace. 

Issuers of initial public offerings will also be able to offer a scripless option. Several years later another public consultation will take place on whether to make the regime compulsory.  

The chief executive of Hong Kong’s Securities and Futures Commission (SFC), Martin Wheatley, welcomed the move, saying it would provide investors with improved choice and protection. 

The SFC, along with Hong Kong Exchanges and Clearing and the Federation of Share Registrars, jointly released a set of consultation conclusions yesterday announcing the plan. 

A working group had been set up last year, with government support, to develop a model for Hong Kong that was acceptable to the market while providing adequate investor choice and sharpening shareholder transparency. 

The new paperless option will enable investors to hold securities in their own name as registered holders, offering more opportunities for straight-through-processing to enhance market efficiency.  

The SFC says that while the paper-based option will be removed eventually, the public will be consulted again before this happens.  

The regulator will also consult the public early next year on subsidiary legislation that will set out in more detail how the scripless environment and those in it will be regulated. 

According to an SFC statement, the working group received 44 written responses to the consultation paper. It noted that respondents – namely banks, brokers, individual investors, law firms, listed companies, share registrars and various professional bodies – were generally supportive of the initiative. 

It added that some made comments and suggestions on specific proposals and sought clarification on the proposed operational model. 

The SFC revealed that further details on the system’s operation will be released to the public closer to implementation. A programme of investor education will also be rolled out.