[Paperless Securities] CSRC: Target implementation on November 16; market participant testing to be conducted in the coming months, with submission to the Legislative Council expected in the second quarter.

The Hong Kong Securities and Futures Commission announced that it aims to gradually implement a paperless securities system (USM) starting from November 16 this year. To ensure the legal effectiveness of the paperless securities market, it is expected that an announcement regarding the effective date will be submitted to the Legislative Council in the second quarter of 2026.

The Executive Director of the Market Surveillance Division of the Commission, Liang Zhongxian, stated that the implementation of the paperless securities market system will further enhance the infrastructure of Hong Kong’s financial market, providing investors with more choices, streamlined processes, and more opportunities for straight-through processing. A clear timeline has now been established for this important measure. In the coming months and beyond, the Commission will continue to collaborate with the Hong Kong Stock Exchange (00388) and the Securities Registration Companies Association to ensure the smooth launch of the new system and to enhance public awareness and understanding of the new system.

The Commission stated that, with broad market support and close cooperation with the Hong Kong Stock Exchange and the Securities Registration Companies Association, significant progress has been made over the past year in implementing the paperless securities market, and it has now entered the later stages. The relevant systems and processes for the paperless securities market of the Hong Kong Stock Exchange and the related share transfer offices have entered the late stages of development and testing. Market participants will be invited to participate in testing in the coming months; the Commission has reviewed and approved the amendments made by the Hong Kong Stock Exchange regarding multiple rules and operational procedures required for the implementation of the paperless securities market; the Hong Kong Stock Exchange and the Securities Registration Companies Association have also updated relevant information documents, including adjustments to key fees under the new system. Additionally, the Commission is reviewing applications from six members of the Securities Registration Companies Association seeking to become Approved Securities Registrars (ASR).

The USM will start with new shares, which must be issued in paperless form on the day of listing. For companies that are already listed before the implementation date, they will gradually be incorporated into the paperless securities market system within five years, and issuers and the market will receive advance notification regarding these arrangements.

After the implementation of paperlessness, shareholders holding physical shares (i.e., paper stocks) of a company can open a paperless securities investor (USI) account at the transfer office to hold paperless stocks in their own name, enjoying legal title to the stocks as if they were physical stocks, and will be listed on the shareholder register. They may also choose not to make any changes.

The current structure of nominal holders in the Central Clearing System will be retained, with only limited modifications to the procedures, the most notable being the process for depositing and withdrawing securities from the Central Clearing System. These changes, along with the revised fees, may require intermediaries to make certain adjustments to their own business models and operational processes, as well as to their clients and other documents. Intermediaries should promptly advance relevant preparatory work to ensure that the new system is ready to go live in November.

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