Consultation Conclusions on a Proposed Operational Model for a Scripless Securities Market Mr....

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

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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

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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

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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

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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”)

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Consultation Results (3/3)

Other concerns

Cost implications

Timing of implementation

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HKEx Responses (1/3)

The Split Register Model originally proposed

Feasible and generally sound

Modifications desirable in response to market concerns

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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

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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

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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

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Key Features (1/3)

Dematerialisation

Optional

Investors may continue to hold certificates

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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

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Key Features (3/3)

CCASS

Clearing and settlement operations largely the same

Immediate credit maintained

Not as a “sub-register”

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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

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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.)

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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

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Initial Phase (3/5)

CCASS Depository (3/4)

Share deposits and withdrawals by Participants

Physical scrip accepted

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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

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Initial Phase (5/5)

Market intermediaries and investing public

As an option when share registrars ready

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Further Development

Main enhancement

Electronic linkage

Between CCASS and individual share registrars

Other enhancements

Depending on market needs

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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

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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

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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

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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

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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

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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

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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

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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

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Conclusions and Proposed way Forward (7/8)

Proposed Way Forward (3/4)

Working closely with SFC and other stakeholders

Investor education

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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

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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