Securities and Futures and Companies Legislation (Amendment) Bill 2021
MR CHAN CHUN-YING (in Cantonese):
Deputy President, being a member of the Bills Committee on the Securities and Futures and Companies Legislation (Amendment) Bill 2021 (“the Bills Committee”), I would like to express my views here on the Securities and Futures and Companies Legislation (Amendment) Bill 2021 (“the Bill”).
The securities market is a unique market which serves to realize and promote the liquidity of securities, and the existing rules governing securities transactions have been gradually developed to meet the needs of the securities market. Paper securities have formed the basis for the formulation of conventional securities law, with the holding and transfer of paper securities adopted as the basic model in the relevant law. Under such a transaction mode which has previously been put in place, Hong Kong’s securities market is currently largely paper-based. However, investors can hold and transfer securities in electronic form through the Central Clearing and Settlement System (“CCASS”), which is an immobilized securities settlement system operated by Hong Kong Securities Clearing Company Limited (“HKSCC”).
HKSCC is a subsidiary company of Hong Kong Exchanges and Clearing Limited (“HKEX”). All securities held within CCASS are registered in the name of a single nominee, i.e. HKSCC Nominees Limited. Investors who hold securities within CCASS hold only the beneficial interest in the securities, i.e. they are not the registered legal owner of such securities and do not hold legal title to the securities. It can thus be seen that even though with the wide introduction of computer technology into the modern securities market, the theoretical foundation of conventional securities law has not been shaken, and neither has the internal influence of traditional rules on securities transactions conducted in modern times been eliminated.
Having entered an information society, paper securities will ultimately be replaced by their uncertificated form. It has been a common trend for international financial centres in the world to move towards uncertificated securities markets (“USM”). The implementation of a USM regime in Hong Kong will ensure that its development of financial market infrastructure is in line with that in other major international financial centres and capital markets.
Further to the previous legislative work in 2015 concerning the implementation of a USM regime in Hong Kong, and in view of market concerns about the limitations of the operational model formulated in 2010, the Securities and Futures Commission (“SFC”), HKEX and the Federation of Share Registrars Limited have developed a revised operational model with further feedback from the industry and the continuous evolvement of the market for implementing the USM initiative. The key features of the revised operational model are: the existing nominee structure and the two options for holding securities are retained; share registrars will become participants of the HKEX’s clearing and settlement system, thus essentially creating an electronic interface between their respective systems; SFC should strengthen its regulation of the securities registration mechanism; and a phased approach will be adopted to implement the USM regime. With the introduction of this revised model, we can finally resolve the numerous problems that have been plaguing the implementation of a USM regime in Hong Kong for so many years.
The USM regime seeks to do away with the current paper-based transaction arrangements and replace them with a digitalized environment for the holding and transfer of securities, thereby enhancing market efficiency. The implementation of the USM regime will provide the option for investors to hold securities in their own names and in uncertificated form, and as compared with the current paper-based regime, such option will enable investors to enjoy both better legal protection and greater convenience.
Deputy President, with regard to the implementation of the USM regime, I have expressed to the Government at the Bills Committee meeting my opinions in three aspects as follows: Firstly, specific measures should be formulated to assist elderly investors to move from a paper certificated regime to the USM regime with peace of mind; secondly, efforts should be made to ensure that with regard to securities held through CCASS, the costs and levies involved will remain unchanged; thirdly, a concrete timetable should be drawn up for the full implementation of the USM regime, and it is unacceptable for the Government to feel its way as it goes.
The Bill introduced by the Government to this Council seeks to amend the Securities and Futures Ordinance, the Companies Ordinance (Cap. 622) and other enactments to facilitate the establishment and implementation of a USM regime in Hong Kong; provide for a regulatory regime for persons providing securities registrar services; refine the scope of certain regulated activities relating to over-the-counter derivative transactions; make minor miscellaneous amendments. I consider that all these are necessary and appropriate amendments which will provide the legal framework for implementing the USM regime, and will therefore support them all.
Deputy President, I so submit.