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Hong Kong Gazettes Bill For Paperless Securities Market

by Mary Swire, Lowtax.net, Hong Kong
13 June, 2014

The Securities and Futures and Companies Legislation (Uncertificated Securities Market Amendment) Bill 2014, which provides a legal framework to enable the introduction of an uncertificated (i.e. paperless) securities market regime in Hong Kong, has been gazetted by the Government.

The Secretary for Financial Services and the Treasury, Professor K C Chan, said that "it marks an important step forward, moving towards an uncertificated securities market regime which will increase overall market efficiency, improve investor protection and enhance Hong Kong's competitiveness."

Currently, the law requires the issue of paper certificates and the use of paper instruments of transfer for certain securities. In addition, for those securities that are listed on the Stock Exchange of Hong Kong (SEHK) and kept in the Central Clearing and Settlement System operated by the Hong Kong Securities Clearing Company Limited (HKSCC), legal title to the securities remains vested in HKSCC Nominees Limited, and investors are not registered holders, holding only a beneficial interest in the securities.

Under the proposed uncertificated securities regime, investors will be able to choose 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 initial stage of the proposed regime will cover shares that are listed, or to be listed, on the SEHK. Other securities, such as debentures and unit trusts that are listed, or to be listed, on the SEHK, will be covered at a later stage.

It is also envisaged that there will be a transitional period during which the current paper-based system will operate in parallel with the proposed uncertificated securities system.

The Securities and Futures Commission (SFC) will oversee regulatory and operational matters relating to the new uncertificated securities market and, therefore, while the Bill will provide for the regulation of the new market, it will also foresee the making of related subsidiary legislation by the SFC.

The Government has confirmed that it will continue to work closely with stakeholders on the initiative. Together with the continued efforts of the SFC, it will work out the technical details of the operational model with those stakeholders and prepare the related subsidiary legislation.

A comprehensive report in our Intelligence Report series giving a country-by-country analysis of offshore investment funds, stock exchanges and trusts, with an analysis of the US QI regime, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp
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