Hong Kong explores digital settlement of securities

HKEX will develop new systems for the proposed paperless regime, which could be in place by early 2022. 

Hong Kong ‘s financial regulator, alongside the Hong Kong Exchanges & Clearing (HKEX), has proposed implementing a fully digital operational model for the settlement of securities in the region.

The Securities and Futures Commission (SFC), HKEX and the Federation of Share Registrars (FSR) published a consultation paper on the proposed changes, which would mean that investors can hold and transfer securities in their own name without share certificates or other paper documents.

A statement on the move said: “The digitisation of securities holdings and elimination of manual processes would enhance post-trade settlement and servicing, making our markets more efficient and globally competitive.”

The development of the new systems, which will be carried out by HKEX and FSR, is anticipated to take around 18 months. HKEX would also largely bear the costs of implementing the new systems and share registrars to support the revised model, as it looks to continue developing Hong Kong markets through the use of new technologies.

Those involved in the proposal added that many existing processes will also be retained, meaning the cost implications for market participants should be relatively low.

“The proposed model strikes a balance between preserving existing efficiencies in the clearing and settlement process and providing options for investors to hold securities in uncertificated form,” the statement from SFC, HKEX and FSR added.

A consultation period for the proposed changes has been launched for the next three months, with market participants advised to submit comments on the revised settlement model by 27 April. The SFC will publish a paper on its conclusions of the proposal by July this year, after which the new model will be implemented in phases, with the new regime possibly taking effect from early 2022.