[Paperless Securities Analysis] What Are the Benefits of USM Physical Stock Digitization? Reduces Loss Risks, Like Storing Money in a Bank. New Settlement Fees Draw Attention

Hong Kong plans to gradually roll out the securities paperless system (USM) starting November 16. To ensure the paperless securities market laws take effect, a notice on the effective date is expected to be submitted to the Legislative Council in the second quarter of 2026.

Transfer office: like depositing money into a bank

The managing director of Vistra Tricor’s transfers, and the IPO and transfer office director, Zhong Jinghong, once described the paperless securities as “depositing cash (stocks) into a bank (transfer office).” After that, the operation becomes as convenient as “online banking.”

Xiong Ruilv, chairman of the securities registrar, said the industry generally has broad consensus on the USM and everyone is ready. Over the coming months, the company will work closely with the industry and all stakeholders to help ensure that the paperless securities process is carried out smoothly and in an orderly manner. The USM will promote the digitalization, automation, and streamlining of procedures. Paperlessness allows investors to hold shares in their own names and transfer shares electronically, helping to shorten transaction time while strengthening corporate governance, significantly improving market operating efficiency, and further enhancing Hong Kong’s financial infrastructure, solidifying Hong Kong’s position as a financial hub.

Financial industry: Paperlessness is an irreversible trend; the association helps paperless the investment in physical-share investors

Ye Hand, deputy chairman of the Association of Securities and Futures Professionals, said that paperless securities are an irreversible trend. Not only does it make trading more convenient and reduce costs, it also helps with supervision and data compilation, and can align with the overall market’s development.

He admitted that investors holding physical shares mainly use them for long-term income distribution and seldom proactively convert their physical shares to paperless. However, physical shares carry risks such as loss, theft, or damage from fire or water. Paperlessness can eliminate these risk factors. If investors holding physical shares wish to open a paperless securities investor (USI) account, the firm will do its utmost to provide assistance.

Lawmaker: New settlement fees are unfair; hope the government pays more attention and supports the industry

Li Weihong, a Legislative Council member in the financial services sector, agreed that implementing the relevant arrangements would help improve market settlement efficiency and reduce risks in processing physical shares, bringing some benefits to the modernization of the overall financial market.

In response to the implementation of the paperless securities system, HKEX adjusted the share withdrawal fee, share custody fee, and registration and transfer fee, and introduced a brand-new Central Clearing and Settlement System membership fee.

He pointed out that under the new fee model, although the costs for some settlement participants will decrease, many settlement participants will also need to pay more fees. Among them, the share custody fee will be charged at different rates depending on the value of different share portfolios, ranging from the highest 0.00625% to the lowest 0.000875%. The difference between the two is more than 7 times, which is unfair to settlement participants of different sizes. The Central Clearing and Settlement System membership fee is also a completely new fee, which will increase the costs of settlement participants. He hopes the government can pay more attention and support industry participants who are likely to face larger negative impacts.

Brokerage firms: USM improves industry operational efficiency

Futu Securities welcomes Hong Kong’s push for a paperless securities market (USM). As physical share certificates are gradually phased out, it will make investing and post-trade processing more convenient and safer, help reduce manual steps and operational risks, and improve overall efficiency along the entire chain of operations. We look forward to working closely with regulators and all parties in the industry to ensure a smooth and orderly transition for the market, so that issuers, intermediaries, and investors all benefit together.