SFC consults on proposed subsidiary legislation for implementing an uncertificated securities market in Hong Kong

In view of the upcoming introduction of an Uncertificated Securities Market (USM) regime under which investors will be able to hold securities in their own names (legal title), but yet without paper, the Securities and Futures Commission of Hong Kong, SFC, has launched a new consultation in this context. Specifically, the Commission seeks feedback on necessary amendments to subsidiary regulations and the implementation of new rules to facilitate the new regime which was ratified in 2021 following a previous consultation on the issue in 2019.
To recall, currently, companies must issue paper certificates as evidence of legal title and investors must use the paper instruments to transfer the legal title. Most investors choose not to hold the legal title of securities but rather the beneficial interest in such „through the Central Clearing and Settlement System (CCASS) which is the securities settlement system operated by the Hong Kong Securities Clearing Company Limited. All securities held within CCASS are registered in the name of a single nominee, i.e. HKSCC Nominees Limited. The transfer of securities within CCASS can be paperless because it only involves a change in beneficial interest but not legal title“. The new regime will now create a digital framework within companies‘ registries and the Hong Kong Stock Exchange System to permit the holding of legal titles in a paperless form.
In this new consultation, the SFC seeks to make corresponding revisions to the following rules and regulations:
– Securities and Futures (Stock Market Listing) Rules (SML Rules)
– Securities and Futures (Open-ended Fund Companies) Rules
– Securities and Futures Ordinance
– Companies (Winding-up) Rules
Additionally, the Commission would introduce two entirely new set of rules, namely the
– Securities and Futures (Uncertificated Securities Market) Rules (USM Rules) and
– the Securities and Futures (Approved Securities Registrar) Rules (ASR Rules),
to include provisions as regards technical and operational matters under the USM regime (e.g. the technical provisions for transferring a legal title or the technical provisions for the conversion of certificated to uncertificated securities) and as regards the scope of services that would fall within the responsibility of persons providing securities registrar services for purposes of maintaining and updating the register of members or securities holders (ROM).