Preparing for Hong Kong’s paperless securities regime

Hong Kong’s securities market is about to undergo a fundamental infrastructure change with the uncertificated securities market (USM) regime due to take effect on 16 November. Once securities become participating securities, investors will be able to hold and transfer legal title in their own names without paper certificates.

Hong Kong Exchanges and Clearing (HKEX) and the Securities and Futures Commission (SFC) have already issued two sets of guidance setting out how listed issuers are to join the paperless regime. With less than six months to go before the target implementation date, listed issuers should now be reviewing their position and advancing the necessary preparatory work.

Reform gathers pace

Hong Kong remains one of the few major capital markets still substantially reliant on paper share certificates. By the end of 2025, more than 2,600 listed issuers incorporated under the laws of four principal jurisdictions – Bermuda, the Cayman Islands, the Chinese mainland and Hong Kong – accounted for more than 14.63 million paper instruments of title still in circulation.

Against that backdrop and amid increasing pressure for digitalisation, the paperless reform has now moved decisively into the implementation stage.

The current legal framework for the USM was established mainly through the Securities and Futures and Companies Legislation (Amendment) Ordinance 2021, and related subsidiary legislation scheduled to come into force on 16 November.

The supporting rules include the Securities and Futures (Uncertificated Securities Market) Rules (Cap 571AS); the Securities and Futures (Approved Securities Registrars) Rules (Cap 571AT); Part 4 of the Securities and Futures (Stock Market Listing) Rules (Cap 571V); and the Code of Conduct for Approved Securities Registrars.

At the centre of the regime is a change in how legal title is evidenced and transferred; it will no longer depend on a physical certificate, but instead be recorded, evidenced and transferred through an uncertificated securities registration and transfer (UNSRT) system operated by an approved securities registrar (ASR).

Two sets of guidance

HKEX’s Guide on the Uncertificated Securities Market is primarily concerned with operational compliance. All prescribed securities issuers must appoint an ASR. Before the relevant securities participate in the USM, the issuer must also ensure that its ASR has the capability to provide and operate a UNSRT system.

If an issuer fails to appoint an ASR, trading in its existing listed securities may be suspended. If intending to change an ASR, the issuer must notify the SFC and HKEX in accordance with applicable requirements – generally at least three months before the change takes effect, or as soon as possible after becoming aware of the change – and must make a timely announcement under the listing rules.

Issuers must also maintain a dedicated USM page on their websites. In addition, during the moratorium period – from 13 business days before participation date to 10 business days after, inclusive of participation date – issuers should avoid corporate actions involving changes to the register or determination of entitlements, to ensure an orderly transition.

The SFC’s Guidance Note for Issuers on Participating in the Uncertificated Securities Market Regime is more focused on legal obligations and preparatory steps. It sets out the participation timetable: prescribed securities, other than warrants and rights, constituted under the laws of the four specified jurisdictions – Hong Kong, the Cayman Islands, Bermuda and the Chinese mainland – must complete transition by the specified date or within five years of the implementation date, whichever is earlier.

Relevant securities first listed after the implementation date must be participating securities from the date of listing. The guidance also requires issuers to conduct a full review of, and amend, their constitutional documents so they are compatible with the USM regime. An appendix provides detailed model provisions covering key areas including the form of shares, transfers, lost certificates and dematerialisation.

As for sequencing, ASRs, Hong Kong Securities Clearing Company and HKEX will agree a detailed transition timetable. Issuers will receive at least three months’ prior written notice of their specified date and expected participation date.

Where exceptional circumstances beyond an issuer’s control arise, it may apply for a deferral. If that still does not address the difficulty, it may apply to the SFC for an exemption. The SFC has made clear, however, that this power will be exercised cautiously and only in exceptional circumstances.

Listed issuers should act now

Although the transition period runs for five years, listed issuers need to begin several strands of work immediately. First, they should ensure that an ASR is appointed in good time and capable of operating a UNSRT system before the relevant securities participate in the USM.

Second, amending constitutional documents will be a substantial exercise. Issuers must ensure their constitutions permit uncertificated holdings and electronic transfers, allow dematerialisation, and prohibit the issue of new paper certificates for participating securities.

These amendments must be completed by 16 November 2027, or before the first annual general meeting after USM implementation, whichever is later.

Issuers incorporated outside Hong Kong must also confirm that the laws of their place of incorporation do not conflict with the USM regime, and should obtain independent legal advice as early as possible.

Third, corporate action timetables will require careful forward planning. During the moratorium period – from 13 business days before participation date to 10 business days after it, inclusive of participation date – issuers should ensure that key dates such as record dates, rights issue entitlement dates, and effective dates for warrant exercises do not fall within that window.

Finally, compliance consequences should not be underestimated. Failure to complete the transition on time is a statutory breach and may result in a fine, together with a daily continuing penalty. Deliberate or systemic non-compliance could also prompt HKEX to question an issuer’s suitability for continued listing, with consequences extending well beyond financial sanctions.

For listed companies, the USM is not simply an upgrade to market infrastructure. It is a broad compliance exercise spanning legal, operational and corporate governance issues. Early planning and timely action will be critical to a smooth transition.

Stella Yeung and Stephen Luo are partners at Jingtian & Gongcheng