17 June, 2015
Currently, the securities market in Hong Kong is largely paper-based. For instance, the Companies Ordinance (CO) (Cap. 622) requires the issue of paper certificates and the use of paper instruments of transfer in respect of shares and debentures. However, investors can hold and transfer securities in listed companies in electronic form through the Central Clearing and Settlement System (CCASS). The existing immobilized securities system has its shortcomings. First, it is not completely electronic. Some transactions still require the use of paper — such as, to some extent, the IPO process. In addition, the paper securities deposited into the CCASS depository are registered in the name of HKSCC Nominees Limited (HKSCC) and legal title to them remains vested in HKSCC, meaning that investors only hold a beneficial interest and must exercise their voting rights by submitting instructions indirectly via their broker/bank/custodian.
On 27 March 2015, the government published the Securities and Futures and Companies Legislation (Uncertificated Securities Market Amendment) Ordinance 2015 (Amendment Ordinance), which provides for a legal framework to enable the introduction of an uncertificated (i.e., paperless) securities market regime and is mainly based on practice in the U.K. and Australian stock markets. Under the Amendment Ordinance, investors will be able to hold and transfer securities without paper documents and register the securities in their own names, thus enjoying the full benefits of legal ownership. The Amendment Ordinance mainly amends the SFO and the CO to stipulate the broad framework for the regulation of the uncertificated securities market. Its main provisions will commence operation on a date to be determined by the secretary for Financial Services and the Treasury
The initial stage of the uncertificated securities market regime will cover only shares of Hong Kong companies that are listed or to be listed on the HKEx. The government and SFC are initiating discussions on this with the relevant jurisdictions and studying their laws, so that companies from more jurisdictions may be covered by the uncertificated securities market regime.
For further information, please contact:
Christopher Betts, Partner, Skadden
christopher.betts@skadden.com
Edward Lam, Partner, Skadden
edward.lam@skadden.com
Alec Tracy, Partner, Skadden
alec.tracy@skadden.com
Will Cai, Partner, Skadden
will.cai@skadden.com
