The Uncertificated Securities Market initiative (USM) seeks to provide an efficient means for investors to hold and manage securities in their own names and electronically.

In general, investors can currently hold their securities in one of two ways:

1. in their own names in paper form — this option allows investors to enjoy full shareholder rights directly, but they have to complete manual and time-consuming processes (which may take around 10 business days) when looking to trade their securities on the Stock Exchange of Hong Kong Limited (SEHK); or
2. electronically through a bank/broker — this option allows investors to hold and trade securities conveniently and efficiently, but the securities are held in the name of a nominee. Investors must therefore rely on their bank/broker and the nominee to receive corporate communications, enjoy corporate entitlements (eg, rights issues, dividends, etc) and exercise voting rights, which may involve time and costs. 

With the implementation of USM, investors will be able to hold securities in their own names and electronically. They will thus be able to enjoy full shareholder rights directly, and hold and trade their securities conveniently and efficiently.

Implementation is currently scheduled for early 2026. The exact date will depend on market readiness, and will be announced in due course.

Hong Kong Exchanges and Clearing Limited (HKEX) and the Federation of Share Registrars Limited (Federation of Share Registrars) are working on their respective system upgrades and technical preparations. The SFC is also working with them on the more detailed operational and logistical arrangements for the launch. More information on these will be provided in due course. 

The USM initiative will apply only to “prescribed securities”, ie, securities that:

1. are listed on the SEHK; and
2. fall within one of the following categories:
   • shares – shares of both Hong Kong incorporated and non-Hong Kong incorporated companies are covered;
   • depositary receipts;
   • stapled securities;
   • interests in SFC-authorised collective investment schemes (CIS) – these include listed real estate investment trusts (REITs), but exclude exchange-traded funds (ETFs) unless they are withdrawable from the Central Clearing and Settlement System (CCASS);
   • subscription warrants to subscribe for any of the above types of securities; and
   • rights under a rights issue to subscribe for any of the above types of securities.

The term “participating securities” refers to prescribed securities that are USM-enabled in the sense that all relevant procedures and formalities have been completed in order for investors holding those securities in their own names to be able to evidence and transfer them without paper documents. These procedures and formalities include the following.

1. The issuer of the securities must have appointed an approved securities registrar (ASR) to: (i) maintain the register of holders of those securities; and (ii) provide a computer-based system for evidencing and transferring legal title to those securities without paper instruments (UNSRT system).
2. The appointed ASR must have: (i) completed everything necessary for legal title to the securities to be evidenced and transferred through its UNSRT system; and (ii) confirmed to the issuer a date from when such evidencing and transferring through its UNSRT system may begin.
3. The terms of issue relating to those securities (eg, the articles of association in the case of shares) must have been amended so that they are consistent and compatible with requirements and obligations under the USM regime (eg, the articles should not provide for the issue of title instruments in respect of participating securities).

Securities are in “uncertificated form” if they can be held or transferred through a UNSRT system without paper documents. For securities to be in “uncertificated form”:

1. no current certificate or other title instrument has been issued in respect of them; and
2. they must be recorded in the relevant register of holders as being held in uncertificated form.

Securities that are not in “uncertificated form” are regarded as being in “certificated form”.

Under USM, participating securities may be held and managed electronically via a “USI Facility”. The term “USI Facility” refers to an electronic/online facility that:

1. is set up by an investor with an approved securities registrar (ASR); and
2. enables investors to view and manage any participating securities that they hold in their own names, and that are handled by the ASR with which the USI Facility is set up.

Investors may use their USI Facilities to communicate electronically with issuers of participating securities that the investor holds, including to:

1. receive corporate communications from issuers electronically;
2. initiate or affirm transfer instructions electronically; and
3. submit instructions in respect of certain corporate actions.

All issuers of prescribed securities will have to participate in USM.

Issuers of callable bull/bear contracts, derivative warrants and ETFs that are not withdrawable from CCASS will not have to participate as those securities do not come within the scope of “prescribed securities”.

Specific deadlines have been set for prescribed securities constituted under the laws of Hong Kong, Mainland China, Bermuda or Cayman Islands. Specifically:

1. For prescribed securities that are first listed after USM is implemented (ie, IPO securities), they will have to be in uncertificated form from the time they are first listed.
2. For prescribed securities that are already listed when USM is implemented, a five-year timeline (from USM implementation) has been set within which they will have to become participating securities.

In the case of (b) above, to ensure an orderly transition, a more detailed timetable will be worked out among approved securities registrars, Hong Kong Securities Clearing Company Limited (HKSCC) and the SEHK. This will include specific deadlines for each issuer, taking into account its size, number of title instruments in circulation, any upcoming or planned corporate actions, the need for amendments to its terms of issue, etc.

Issuers should engage with their share registrars as soon as possible to reflect any concerns they may have regarding their specific deadline. While share registrars will endeavour to take these into account, it may not always be possible to accommodate all requests.

As for prescribed securities constituted under the laws of other jurisdictions, we will work towards facilitating their participation within the five-year timeline as far as possible. However, in some cases (eg, for shares of companies incorporated under UK law), this may require amendments to overseas laws, and hence may need more time.

Issuers will need to complete various formalities before their securities become participating securities. These include:

1. amending the terms of issue of their securities (eg, articles of association in the case of shares) so that they are compatible with the USM regime; and
2. completing all necessary processes for onboarding their securities onto an approved securities registrar’s UNSRT system.

Issuers should reach out to their share registrars as soon as possible to understand what specific steps they need to take and by when. Issuers should also start the process of reviewing their terms of issue with a view to ascertaining what amendments are needed, and then initiate the process for making those amendments.

(See also Q1.4 above and the information paper published by the Federation of Share Registrars.)

The USM initiative is expected to bring cost savings in the longer run through streamlining and automating processes to minimise the need for paper and manual processes. In particular, over time, cost savings will be achieved through the reduced need to:

1. issue and deliver paper documents (eg, share certificates, provisional allotment letters, etc); and
2. process paper instructions (eg, instruments of transfer, instructions to exercise rights, etc).

As for the initial development costs and ongoing operational costs for implementing USM, although these will be borne largely by HKEX and individual share registrars, it would not be unreasonable for them to seek to recover a portion from other market participants, including issuers. Issuers should reach out to their share registrars as soon as possible to discuss the cost implications of their participation in USM.

Issuers may also wish to note the SFC’s February 2025 Consultation paper on proposed limits for certain fees following implementation of an uncertificated securities market in Hong Kong. That consultation proposes limits on the following fees to the extent that they are charged to investors:

1. fees for setting up a USI Facility;
2. fees for dematerializing prescribed securities; and
3. fees for processing and registering transfers of prescribed securities.

Investors do not need to take any immediate steps. However, investors are encouraged to:

1. set up a USI Facility with the relevant approved securities registrar(s) as soon as possible after USM is implemented; and
2. dematerialize their prescribed securities as soon as possible after they become participating securities.

For further details on the process for setting up a USI Facility and dematerializing securities, please refer to the information paper published by the Federation of Share Registrars.

It will not be mandatory for investors to set up a USI Facility. However, investors will need to set up a USI Facility under certain circumstances including:

1. dematerializing any participating securities that they hold;
2. transferring any participating securities that are in uncertificated form; and
3. submitting certain corporate action instructions in respect of participating securities that are in uncertificated form.

Even if investors do not hold any securities, they may still set up a USI Facility for future use. Investors are encouraged to do so as soon as possible after the implementation of USM so that they are ready to hold securities in uncertificated form at any time.

Each USI Facility will be set up with a particular approved securities registrar (ASR) and therefore may only be used to view and manage securities handled by that ASR. Hence, investors will need to set up more than one USI Facility if they:

1. hold multiple securities; and
2. the issuers of those securities have appointed different ASRs.

Additionally, if the issuer of any participating securities that investors hold changes its appointed ASR, investors will need to set up a USI Facility with the new ASR if they have not yet done so.

We expect that the majority of investors will need to set up at most two USI Facilities.

Even if investors have not set up a USI Facility with the relevant approved securities registrar (ASR), they will still receive their entitlements (eg, rights, subscription warrants, bonus shares, etc) in uncertificated form. However:

1. investors’ securities entitlements will be reflected in a “temporary” USI Facility; and
2. investors will not be able to exercise those entitlements (eg, in the case of rights or subscription warrants) or transfer them, until they have completed the process of setting up a USI Facility for such entitlements with the relevant ASR.

While the USM initiative is expected to reduce costs overall, the impact in each case may differ depending on the particular circumstances.

In general, we expect overall cost savings for investors who opt to hold participating securities in uncertificated form in their own names compared to those who continue to hold in paper form or through intermediaries.

1. Investors holding securities in paper form will need to continue taking actions and incurring various costs associated with manual or paper-based processes (eg, safe-keeping costs to guard against loss or damage, costs of arranging transfer documents to be physically stamped and physically delivered for registration, costs of formalities and processes for replacing lost title instruments, etc).
2. Investors holding through intermediaries will need to continue incurring various fees for services provided by their intermediaries (eg, custody fees, dividend collection fees, etc).

Investors may also wish to note the SFC’s February 2025 Consultation paper on proposed limits for certain fees following implementation of an uncertificated securities market in Hong Kong. That consultation proposes limits on the following fees to the extent that they are charged to investors:

1. fees for setting up a USI Facility;
2. fees for dematerializing prescribed securities; and
3. fees for processing and registering transfers of prescribed securities.

1. For investors who currently hold prescribed securities in certificated (paper) form in their own names:

   Investors may continue holding their existing securities in certificated form even after they become participating securities, ie:

   • there is no obligation to dematerialize their existing holdings (ie, convert them into uncertificated form); and
   • existing certificates will not be invalidated.

   However, once those securities become participating securities, no new certificates / title instruments will be issued. Consequently:

   • If investors acquire additional units of the same participating securities, they will have to hold the additional units in uncertificated form.
   • If investors transfer some of their existing units, they may need to dematerialize the units they have not transferred – eg, if the units transferred and units not transferred are covered by the same certificate / title instrument.
   • If investors lose or damage their certificate / title instrument, they will not be issued a replacement certificate / instrument, and will instead need to dematerialize the securities represented by the lost or damaged certificate / instrument.
2. For investors who currently hold prescribed securities through a bank/broker and in CCASS:

   Investors may continue to hold their existing prescribed securities through a bank/broker in CCASS, even after they become participating securities.

   If investors acquire any other prescribed securities, they may also hold them in the same way, ie, through a bank/broker in CCASS.

   Investors will continue to have the option to withdraw their prescribed securities from CCASS. However, once those securities become participating securities, they may only hold them in their own names in uncertificated form after withdrawal. 

Under USM:

1. Intermediaries will be able to continue providing custodian services to investors who prefer to hold their securities in CCASS, as they do today.
2. However, there will be some changes to the processes for depositing/withdrawing prescribed securities into/out of CCASS once they become participating securities. Currently, these processes are paper-based. Under USM, they will be largely electronic.

HKEX has been and will continue to conduct various programmes (including publishing papers, holding seminars, arranging market rehearsals, etc) to assist intermediaries in their understanding and preparation for USM. For further details, please refer to the information paper published by HKEX, and other information on its webpage.

Under USM, persons providing securities registrar services will need to be approved by the SFC as an approved securities registrar.

Securities registrar services refer to the following services:

1. maintaining any register of holders of prescribed securities;
2. providing or operating a UNSRT system (ie, a computer-based system for evidencing and transferring legal title to prescribed securities);
3. providing services in relation to any public offer of prescribed securities, and doing so as agent and securities registrar of the issuer of those securities; and
4. providing corporate action services in relation to prescribed securities, and doing so as agent and securities registrar of the issuer of those securities.

Upon implementation of USM, any person wishing to provide securities registrar services must first be approved by the SFC as an approved securities registrar (ASR).

Persons who are currently providing services similar to securities registrar services, and who wish to continue doing so immediately following implementation of USM will have to submit their application together with all relevant information and documents by June 2025.

Persons who are not currently providing services similar to securities registrar services but are interested in applying to become an ASR after implementation of USM should contact the SFC’s Supervision of Markets Division as soon as possible.

(See also Q5.1 which provides more information on securities registrar services.)