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Consultation Conclusions on a Proposed Operational Model
for a Scripless Securities Market
Mr. Stewart ShingExecutive Vice President and Head of Clearing Division
Hong Kong Exchanges and Clearing Limited
31 May 2004
2/32
Contents
Purpose of Consultation Conclusions
Consultation Results HKEx Responses The Issuer Register Model
Progressive Approach on Implementation
Implications for the Market
Conclusions and Proposed Way Forward
3/32
Purpose of the Consultation Conclusions
HKEx published a Consultation Paper on 24 October 2003
The Consultation Conclusions summarised
Comments receivedHKEx responsesHKEx recommendation
Way forward for scripless initiative in Hong Kong
4/32
Consultation Results (1/3)
21
10
21
43
12
0
2
4
6
8
10
12
Category of Repondents
Num
ber of
Res
pond
ents
Others are an individual and an anonymous respondents Total: 26 Submissions
5/32
Consultation Results (2/3)
Supportive of the scripless initiative in principle
Nearly half of the respondents
Concerns over certain features of the originally proposed model
Fragmentation of the Register Of Members (“ROM”) Removal of the immediate credit policy Registrar Participantship Shareholder Reference Number (“SRN”)
6/32
Consultation Results (3/3)
Other concerns
Cost implications
Timing of implementation
7/32
HKEx Responses (1/3)
The Split Register Model originally proposed
Feasible and generally sound
Modifications desirable in response to market concerns
8/32
HKEx Responses (2/3)
On fragmentation of ROM/removal of immediate credit
CCASS not as a “sub-register” and maintained on a nominee basis
Issuer Register Model
9/32
HKEx Responses (3/3)
On Registrar Participantship
Coordination in form of agreementOpen to other suggestions
On SRN
Currently under review by Federation of Share Registrars
On cost and timing
Progressive Approach
10/32
The Issuer Register Model
ROM(Issuer
Register)
- Register of Members (“ROM”)
- Boundary of ROM
- Names on ROM
RegistrarsHKSCCHKSCC
Uncertificated Shareholders
CertificatedShareholders
Omnibus Client Account##
Investor Participants
CCASSParticipants#
Stock Segregated Accounts with
Statements
- Person/institution/account
HKSCCNominees*
* HKSCC Nominees will dematerialise part of its shareholdings and also become an uncertificated shareholder, in addition to being a certificated shareholder, on the Issuer Register
# Excluding Investor Participants## Details of the beneficiary owners are kept by CCASS Participants
11/32
Key Features (1/3)
Dematerialisation
Optional
Investors may continue to hold certificates
12/32
Key Features (2/3)
Share Registrars
Roles and functions largely the same
The Issuer Register maintained
ROM
One for each listed company Shareholdings
certificated shareholdings+ uncertificated shareholdings
13/32
Key Features (3/3)
CCASS
Clearing and settlement operations largely the same
Immediate credit maintained
Not as a “sub-register”
14/32
Progressive Approach on Implementation
Initial Phase
Dematerialisation programme Starting with CCASS Depository
Further Development
Electronic linkage between CCASS and individual share registrars
For deposits and withdrawals of uncertificated shares
15/32
Initial Phase (1/5)
CCASS Depository (1/4)
Dematerialisation (i)
Locally incorporated Hong Kong-listed companies
1.6 million certificates (16% of market cap.)Jumbo and odd lots 550,000 certificates (15% of market cap.)
16/32
Initial Phase (2/5)
CCASS Depository (2/4)
Dematerialisation (ii)
Overseas incorporated Hong Kong-listed companies4.4 million certificates (18% of market cap.)
Depending on overseas jurisdictions
17/32
Initial Phase (3/5)
CCASS Depository (3/4)
Share deposits and withdrawals by Participants
Physical scrip accepted
18/32
Initial Phase (4/5)
CCASS Depository (4/4)
HKSCC Nominees
Shareholding information of CCASS Participants (except for Investor Participants)
Available to public subject to a fee
19/32
Initial Phase (5/5)
Market intermediaries and investing public
As an option when share registrars ready
20/32
Further Development
Main enhancement
Electronic linkage
Between CCASS and individual share registrars
Other enhancements
Depending on market needs
21/32
Implications for the Market (1/2) Minimal impact on operations for market
intermediaries
Limited changes to market structure
Minimal up-front development costs
Share registrars/CCASSSystem changesElectronic linkage
22/32
Implications for the Market (2/2)
Dematerialisation fee
To be determined by share registrars in consultation with SFC
CCASS fees
To be reviewed in consultation with SFC
23/32
Conclusions and Proposed way Forward (1/8)
Conclusions (1/4)
Removal of scrip is an important and unavoidable development
Higher efficiency
Lower costs
More shareholder transparency
24/32
Conclusions and Proposed way Forward (2/8)
Conclusions (2/4)
Issuer Register Model largely the same as currently
One ROM for each listed company Immediate credit policy maintainedCertificated and uncertificated shareholdings
25/32
Conclusions and Proposed way Forward (3/8)
Conclusions (3/4)
A progressive approach allowingInvesting public and market participants
Time to get used to the scripless environment
Market forces to determine pace for further development
26/32
Conclusions and Proposed way Forward (4/8)
Conclusions (4/4)
Market perception
Issuer Register Model workable and acceptableFederation of Share registrarsConsumer CouncilBrokers associations CCASS Custodian Participants
Support to take the proposal forwardSFC
27/32
Conclusions and Proposed way Forward (5/8)
Proposed Way Forward (1/4)
Enabling legislation
Introduction to legislature in the next legislative session
Dematerialisation of CCASS Depository
550,000 jumbo and odd lots certificates 12 to 18 months after legislation
28/32
Conclusions and Proposed way Forward (6/8)
Proposed Way Forward (2/4)
Continue discussions with SFC and Federation of Share Registrars
Electronic linkageHandling of overseas incorporated Hong Kong-listed sh
aresDematerialisation feeCCASS fee review
29/32
Conclusions and Proposed way Forward (7/8)
Proposed Way Forward (3/4)
Working closely with SFC and other stakeholders
Investor education
30/32
Conclusions and Proposed way Forward (8/8)
Proposed Way Forward (4/4)
Goals with the scripless initiative
To gain general market support
To serve as basis for Hong Kong to move forward
31/32
COMPLIMENTS
Respondents to the HKEx Consultation Paper
The following groups which gave comments in the discussion of the Issuer Register Model and the implementation approach
SFCFederation of Share Registrars,Consumer CouncilBrokerage communityCCASS Participants
THANK YOU