Following efforts over several years, Hong Kong has now taken a key step towards bringing USM, and the removal of paper share certificates, to reality, with the SFC recently publishing a consultation paper on the proposed subsidiary legislation to implement it. In co-ordination with the SFC, HKEX and other members of the Federation of Share Registrars (FSR), Computershare has been representing our clients’ and their shareholders’ interests in its development, and we wanted to bring some key points to your attention as you consider its impact and how you would relay your opinions.

Background

In 2020, following a joint public consultation, the SFC, HKEX & FSR issued a conclusions paper outlining the agreed USM model. In 2021, the USM Amendment Ordinance was enacted by the Legislative Council. Following extensive discussions between the stakeholders regarding the detailed operational and technical requirements, the SFC has recently published this consultation paper, which includes background on the USM initiative and details of the intended operational model for USM.

Critically, the consultation paper also includes SFC’s draft proposals to create two major new rule frameworks to give effect to USM:

  • The Securities and Futures (Uncertificated Securities Market) Rules (“USM Rules”) and
  • The Securities and Futures (Approved Securities Registrars) Rules (“ASR Rules”).

The consultation period will continue through 30 June 2023.

The proposed USM Rules mainly include matters that relate to: persons who hold prescribed securities, the processes and requirements for the transfer of a legal title of securities, the authentication of electronic messages in the USM environment, and the dematerialisation process.

The USM Rules also address the process for SFC to make securities ‘prescribed securities’ to participate in USM, and associated timelines impacting issuers once their securities are prescribed. We recommend that our clients make themselves familiar with these proposed Rules.

The proposed ASR Rules create a new framework for regulation of approved securities registrars in the USM environment.

Click below to read the frequently asked questions (FAQs).

FAQs

Benefits

Under the USM environment, major benefits include:

  • Facilitate enhanced corporate governance with digital communication with registered shareholders
  • Support ESG with paperless certificates and processes
  • Improve convenience to shareholders with:
    • Online processing of transactions
    • Shorter time frame for the transfer of shares
    • Electronic payment of stamp duty and corporate actions

For details of the proposal, please see the subject consultation paper below:

Read Now

Frequently Asked Questions (FAQs)

What listed issuers will be impacted by the Uncertificated Securities Market (USM) changes in the first phase?

USM will be effective for Hong Kong companies first, across multiple tranches. The SFC proposed a phased approach in both product scope and the timeline to full dematerialisation. The timetable of listed issuers in Mainland China, the Cayman Islands, Bermuda and the United Kingdom are also being actively worked on. If you are interested in being among the first to enjoy the benefits of USM, please contact your Relationship Manager.

 
Are all listed securities impacted by the USM changes?

The USM initiative will apply to “prescribed securities”, i.e. securities that are listed on the SEHK and that fall within one of the following categories: (i) shares; (ii) depositary receipts; (iii) stapled securities; (iv) interests in SFC-authorized collective investment schemes (authorized CIS); (v) subscription warrants; and (vi) rights under a rights issue. These are subject to the implementation protocol with phases to be defined by SFC.

 
What is the implementation date of USM in Hong Kong?

The consultation paper does not set out an implementation date but it is expected to be no earlier than 2025, as the underlying infrastructure are still being built. There will be further announcements later on.

 
What are the major impacts to issuers under the USM?

Issuers may need to revisit their communication strategy and shareholder engagement approach to take advantage of the availability of electronic communication channels (e.g. SMS / email). Issuers may also need to review if any changes in the Articles are needed for USM. Any cost impact will be shared at a later stage.

 

Still have questions? Get in touch with your Relationship Manager to have them answered.