Upload
yessenia-burton
View
215
Download
0
Tags:
Embed Size (px)
Citation preview
Consultation on a Proposed Operational Model for a
Scripless Securities Market
Mr Paul Chow
Chief Executive, HKEx
24 October 2003
Page 2
Contents
Background
Principles underlying the Proposed Model
Purpose of the Consultation
The Consultation Period
Key Features of the Proposed Model
Page 3
Background
An Implementation Working Group (IWG) was formed in March 2002 by the SFC to implement the scripless securities market.
A Technical Working Group (TWG) and three Focus Groups were formed under the IWG to develop a scripless model.
Members of the IWG, TWG and the Focus Groups include SFC, FSTB, HKEx, share registrars, brokers, custodians, issuers and legal practitioners.
Model proposed by HKEx has taken into account discussions at the meetings of these fora, especially the TWG.
Page 4
Principles of the Proposed Operational Model
Maintain investor choices in share registration;
Enhance market efficiency and reduce costs;
Facilitate fair cost allocation through user-pays principle;
Improve investor protection and lower misappropriation risk; and
Uphold market integrity and system reliability levels.
Page 5
Purpose of the Consultation
A major infrastructure initiative for Hong Kong;
Potential impact on the operations of different market players;
Raise issues for attention and open discussion;
Seek market views on the model and key features; and
Provide input to finalising the scripless operational model and the way forward of the scripless initiative for consideration by government and SFC.
Page 6
The Consultation Period
24 October – 23 December 2003
Implementation subject to legislation
Key Features of the Proposed Operational Model
Mr Bryan Chan
Acting Head, Clearing Business Unit
Page 8
Current Shareholding Structure
Shareholder AShareholder B . .XXX Nominee . . . HKSCC Nominees
CCASS Depository
ShareRegistrars
……
….….
Register of MembersCCASS Participant sShareholding Records
Broker ABroker B . .YYY Securities . . . .Custodian ACustodian B . .KKK Custodian . .
Registered in the name of HKSCC Nominees
All depositedinto CCASS in the name of YYY Securities
Customer ACustomer B . . . .
YYY Securities
Client Shareholdings Records
All deposited into CCASS in the name of KKK Custodian
Customer ACustomer B . . . .
Client Shareholdings Records
KKK Custodian
Page 9
Overview of the Proposed Model
Issuer Register
Complete ROM
CCASSParticipants
CCASS Participant Sponsored Accounts *
Non-disclosed IPs
Beneficial Owners
InvestorParticipants
(IPs)
HKSCC Nominees
CCASS Register
CertificatedShareholders
UncertificatedShareholders
ShareRegistrarsHKSCCHKSCC
- Names on registers
- Boundary of ROM - Person/ institution/ account
- Register
- Subject to further discussion
* Shareholdings of the CCASS Participant Sponsored Accounts will be separately registered on the CCASS Register from the shareholdings of the sponsoring CCASS Participants.
Page 10
Key Features
Uncertificated Shares
Uncertificated shares will be allowed through amendments to Companies Ordinance.
Uncertificated shares will co-exist with scrip during a transitional period. Date of completion of scripless to be determined by Government/SFC.
Shareholders may dematerialise their scrip or rematerialise their uncertificated shares during the transitional period.
Page 11
Key Features (Cont.)
Registers of Members
Split registers – the Issuer Register (maintained by share registrars) and the CCASS Register (maintained by HKSCC). Both will be recognised under law as registers of members.
Issuer Register plus CCASS Register equals COMPLETE Register of Members.
Issuer Registers and CCASS Register will not overlap.
Page 12
Key Features (Cont.)CCASS Register
Include only uncertificated shares deposited into the CCASS Depository.
CCASS Participants become registered shareholders on the CCASS Register.
Settlement of CCASS transactions changes legal title on CCASS Register simultaneously and will be final.
Registration at investor level remains optional.
CCASS Depository will be progressively dematerialised upon implementation of scripless.
Ultimately, CCASS will become completely scripless.
Page 13
Key Features (Cont.)CCASS Participantship Structure
The existing categories of CCASS Participants will be maintained under the scripless market model. They include –
Broker Participant;Clearing Agency Participant;Custodian Participant;Stock Lender Participant;Stock Pledgee Participant; and Investor Participant (IP). (After scripless, IP can elect
to be either disclosed or undisclosed on the ROM)
In addition, the following is proposed upon the implementation of Scripless on CCASS :
a new account type - CCASS Participant Sponsored Account; and
a new participant type - Registrar Participant.
Page 14
Key Features (Cont.)
Inter-register Activities
Electronic transmission of CCASS Register to share registrars to produce COMPLETE registers of members.
Electronic transfers of uncertificated shares between CCASS Register and the Issuer Registers.
Dematerialisation and rematerialisation requests.
Page 15
Key Features (Cont.)
Shareholder Reference Numbers (SRN)
SRN is proposed by share registrars and used in Australia.
Each uncertificated shareholding on Issuer Register will be given a unique SRN generated and managed by share registrars.
SRN works like PIN of ATM card.
To transfer uncertificated shares from Issuer Register to CCASS Register (e.g. for trade settlement), an investor will have to inform his/her broker the relevant SRN. The broker will through CCASS submit the transfer request to share registrars. Request will be accepted if the SRN and the shareholder name are correct.
Page 16
Key Features (Cont.)
Shareholder Servicing
Share registrars will continue to send corporate communications to ALL shareholders (including shareholders on CCASS Register).
Share registrars will provide corporate action services (proxy voting, rights issues, dividend distribution, bonus share election etc.) to shareholders on Issuer Registers.
It is proposed that HKSCC will provide corporate action services to all CCASS Participants (or shareholders on CCASS Register).
Page 17
CCASS Dematerialisation Programme
Time
Pilot Run
6 - 12 months1 month
Bi-weekly Demat Batches
HKSCC will progressively dematerialise all shares deposited into its Depository, with a view that ultimately the Depository will become completely scripless. This will take place in phases.
A Pilot Run will be launched in which a few stocks with lower turnover will be dematerialised. The Pilot Run will be conducted over a weekend to minimise inconvenience to the market.
The whole dematerialisation process is expected to take about six to twelve months.
Page 18
Issues Highlighted in Consultation Paper
Shareholder Reference Numbers (SRN)
Concerns about security and investor-friendliness. Investor education programme needed. More discussion and work to refine system with market p
articipants and stakeholders.
Page 19
Issues (Cont.)
Dematerialisation Charges
Estimated a total of 25 mn to 30 mn share certificates in HK.
Uncertain as to what fees would be charged to market users and investors on dematerialising certificates.
Unreasonable charges could act as a disincentive to scripless. More discussion on the charges needs to occur.
Page 20
Issues (Cont.)
Potential Increased Costs to Issuers
Increased number of registered shareholders would increase costs to issuers. Possibly higher retainer fee to share registrars.
Possibly higher printing costs for corporate communications.
Acceptable cost for good corporate governance?
Page 21
Issues (Cont.)
Removal of Immediate Credit
At present, CCASS Depository credits shares deposited by Participants immediately on the same day. HKEx proposes to end immediate credit under the scripless model.
Immediate credit technically not possible under split register model.
Also better manage the risks of defective securities to HKSCC.
Working with share registrar industry to shorten the transfer period below 3 working days.
More discussion and work to be done with the market before making a decision.
Page 22
Issues (Cont.)
Corporate Action Services
The issue of how corporate action processing will be handled needs to be addressed.
HKEx proposes to retain services by HKSCC to its Participants on corporate actions using CCASS for the CCASS Register.
Share Registrars will do the processing for the Issuer Register.
Page 23
Processing of Inter-register Transfers
Scripless share movements between the CCASS Register and Issuer Register may take overnight to complete.
HKEx proposes to process inter-register transfers in day end batch mode initially upon launch.
Multiple batch processing during the day or real-time processing also being considered.
Trade-off between efficiency on one hand and costs and system dependency on the other.
Market feedback important to HKEx.
Issues (Cont.)
Page 24
Electronic Deposit Instructions (EDIs)
1. Investor discloses the SRN to a CCASS Participant;2. Participant inputs EDI to CCASS;3. HKSCC checks if the EDI contains all the required information. If not, the EDI will be rejected. (Note:
HKSCC will not be able to verify if the SRN and the shareholder details are valid as it does not have such information).
4. At day end, HKSCC creates EDI Files by stock encompassing all validated EDIs of the same stock;5. Registrar downloads the EDI File from CCASS at day end;6 Registrar verifies the EDIs and checks if the delivering shareholder has adequate stocks on the Issuer Register.
If so, the relevant shareholding record will be debited. If not, or if the information contained in the EDI (such as wrong SRN or wrong shareholder name or wrong address) does not match the record on the Issuer Register, the EDI will be rejected;
7. Registrar creates a Confirmed EDI File and a Rejected EDI File;8. Registrar uploads both files to CCASS; and9. HKSCC credits the receiving CCASS Participant accounts in accordance with the confirmed EDIs and sends
Rejected EDI messages to the initiating Participants.
Brokers/Custodians
Investors
CCASSCCASS
5
Share Registrar
7
4
1 8
2 3
6
Rejected EDI file
Confirmed EDI file
EDI file
9
SRN
Appendix
Q & A