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Consultation Conclusions on a Proposed Operational Model for a Scripless Securities Market

This document summarizes HKEx's responses and proposed way forward following a consultation paper on the scripless initiative in Hong Kong. It discusses feedback received, modifications to the proposed model, implications for the market, and key features of the Issuer Register Model.

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Consultation Conclusions on a Proposed Operational Model for a Scripless Securities Market

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  1. Consultation Conclusions on a Proposed Operational Model for a Scripless Securities Market Mr. Stewart Shing Executive Vice President and Head of Clearing Division Hong Kong Exchanges and Clearing Limited 31 May 2004

  2. Contents • Purpose of Consultation Conclusions • Consultation Results • HKEx Responses • The Issuer Register Model • Progressive Approach on Implementation • Implications for the Market • Conclusions and Proposed Way Forward

  3. Purpose of the Consultation Conclusions • HKEx published a Consultation Paper on 24 October 2003 • The Consultation Conclusions summarised • Comments received • HKEx responses • HKEx recommendation • Way forward for scripless initiative in Hong Kong

  4. Consultation Results (1/3) Others are an individual and an anonymous respondents Total: 26 Submissions

  5. Consultation Results (2/3) • Supportive of the scripless initiative in principle • Nearly half of the respondents • Concerns over certain features of the originally proposed model • Fragmentation of the Register Of Members (“ROM”) • Removal of the immediate credit policy • Registrar Participantship • Shareholder Reference Number (“SRN”)

  6. Consultation Results (3/3) • Other concerns • Cost implications • Timing of implementation

  7. HKEx Responses (1/3) • The Split Register Model originally proposed • Feasible and generally sound • Modifications desirable in response to market concerns

  8. HKEx Responses (2/3) • On fragmentation of ROM/removal of immediate credit • CCASS not as a “sub-register” and maintained on a nominee basis • Issuer Register Model

  9. HKEx Responses (3/3) • On Registrar Participantship • Coordination in form of agreement • Open to other suggestions • On SRN • Currently under review by Federation of Share Registrars • On cost and timing • Progressive Approach

  10. The Issuer Register Model HKSCC Registrars ROM (Issuer Register) HKSCC Nominees* Uncertificated Shareholders Certificated Shareholders CCASS Participants# Investor Participants * HKSCC Nominees will dematerialise part of its shareholdings and also become an uncertificated shareholder, in addition to being a certificated shareholder, on the Issuer Register # Excluding Investor Participants ## Details of the beneficiary owners are kept by CCASS Participants Omnibus Client Account## Stock Segregated Accounts with Statements - Person/institution/account - Boundary ofROM - Register of Members (“ROM”) - Names on ROM

  11. Key Features (1/3) • Dematerialisation • Optional • Investors may continue to hold certificates

  12. Key Features (2/3) • Share Registrars • Roles and functions largely the same • The Issuer Register maintained • ROM • One for each listed company • Shareholdings • certificated shareholdings • uncertificated shareholdings

  13. Key Features (3/3) • CCASS • Clearing and settlement operations largely the same • Immediate credit maintained • Not as a “sub-register”

  14. Progressive Approach on Implementation • Initial Phase • Dematerialisation programme • Starting with CCASS Depository • Further Development • Electronic linkage between CCASS and individual share registrars • For deposits and withdrawals of uncertificated shares

  15. Initial Phase (1/5) • CCASS Depository (1/4) • Dematerialisation (i) • Locally incorporated Hong Kong-listed companies • 1.6 million certificates (16% of market cap.) • Jumbo and odd lots • 550,000 certificates (15% of market cap.)

  16. Initial Phase (2/5) • CCASS Depository (2/4) • Dematerialisation (ii) • Overseas incorporated Hong Kong-listed companies • 4.4 million certificates (18% of market cap.) • Depending on overseas jurisdictions

  17. Initial Phase (3/5) • CCASS Depository (3/4) • Share deposits and withdrawals by Participants • Physical scrip accepted

  18. Initial Phase (4/5) • CCASS Depository (4/4) • HKSCC Nominees • Shareholding information of CCASS Participants (except for Investor Participants) • Available to public subject to a fee

  19. Initial Phase (5/5) • Market intermediaries and investing public • As an option when share registrars ready

  20. Further Development • Main enhancement • Electronic linkage • Between CCASS and individual share registrars • Other enhancements • Depending on market needs

  21. Implications for the Market (1/2) • Minimal impact on operations for market intermediaries • Limited changes to market structure • Minimal up-front development costs • Share registrars/CCASS • System changes • Electronic linkage

  22. Implications for the Market (2/2) • Dematerialisation fee • To be determined by share registrars in consultation with SFC • CCASS fees • To be reviewed in consultation with SFC

  23. Conclusions and Proposed way Forward (1/8) • Conclusions (1/4) • Removal of scrip is an important and unavoidable development • Higher efficiency • Lower costs • More shareholder transparency

  24. Conclusions and Proposed way Forward (2/8) • Conclusions (2/4) • Issuer Register Model largely the same as currently • One ROM for each listed company • Immediate credit policy maintained • Certificated and uncertificated shareholdings

  25. Conclusions and Proposed way Forward (3/8) • Conclusions (3/4) • A progressive approach allowing • Investing public and market participants • Time to get used to the scripless environment • Market forces to determine pace for further development

  26. Conclusions and Proposed way Forward (4/8) • Conclusions (4/4) • Market perception • Issuer Register Model workable and acceptable • Federation of Share registrars • Consumer Council • Brokers associations • CCASS Custodian Participants • Support to take the proposal forward • SFC

  27. Conclusions and Proposed way Forward (5/8) • Proposed Way Forward (1/4) • Enabling legislation • Introduction to legislature in the next legislative session • Dematerialisation of CCASS Depository • 550,000 jumbo and odd lots certificates • 12 to 18 months after legislation

  28. Conclusions and Proposed way Forward (6/8) • Proposed Way Forward (2/4) • Continue discussions with SFC and Federation of Share Registrars • Electronic linkage • Handling of overseas incorporated Hong Kong-listed shares • Dematerialisation fee • CCASS fee review

  29. Conclusions and Proposed way Forward (7/8) • Proposed Way Forward (3/4) • Working closely with SFC and other stakeholders • Investor education

  30. Conclusions and Proposed way Forward (8/8) • Proposed Way Forward (4/4) • Goals with the scripless initiative • To gain general market support • To serve as basis for Hong Kong to move forward

  31. COMPLIMENTS • Respondents to the HKEx Consultation Paper • The following groups which gave comments in the discussion of the Issuer Register Model and the implementation approach • SFC • Federation of Share Registrars, • Consumer Council • Brokerage community • CCASS Participants

  32. THANK YOU

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