HKEx paper proposes scripless IPOs
A gradual change to an electronic record of investors' shares in new listings is seen as the way to a paperless market
Newly listed companies will no longer need to print share certificates under a list of proposals to move Hong Kong towards a scripless market, according to a Hong Kong Exchanges and Clearing (HKEx) source.
HKEx chief executive Paul Chow Man-yiu would release a consultation paper on Friday detailing the proposals, which would see a gradual introduction of electronic records for initial public offerings, the source said.
In Hong Kong, where the stock market has been operating for more than 100 years, investors are holding millions of share certificates.
Most certificates are held in brokers' offices, deposited with custodians or the exchange clearing unit, the Central Clearing and Settlement System (CCASS), while other investors keep them in bank safety deposit boxes or at home.
The source said HKEx would adopt a gradual dematerialisation proposal in which all new IPOs would no longer need to give certificates to shareholders unless investors requested them.
The existing share certificates of more than 800 listed companies will remain valid and be circulated freely. However, investors could choose to put their share certificates with the CCASS or other share registrars in exchange for computer records.
'This would give time for investors to accept the idea to keep an electronic record of their shareholdings instead of keeping a printed certificate on hand,' the source said.
The HKEx will offer two other proposals in the paper - to either convert all share certificates into computer records or to maintain the system as it is.
However, both options were not preferable, the source said.
The government and the Securities and Futures Commission have wanted to move Hong Kong towards a scripless market since the fiasco of the Mass Transit Railway Corp's IPO in October 2000, when 1,508 duplicated share certificates were wrongly distributed to investors.
Central Registration, which is responsible for printing and distributing the certificates, has paid out more than HK$5.5 million as a result of the chaos, including travel expenses for investors to exchange the certificates, legal fees and newspaper advertisements.
Then financial secretary Donald Tsang Yam-kuen said the incident showed the need to build a scripless market and called for the Securities and Futures Commission to study the move.
The SFC released a report last month indicating market support for the move and paving the way for HKEx to consult on the details.
The consultation paper will also suggest other ways to encourage investors to maintain their own accounts with the CCASS, and will cover fee cuts, simplifying the account opening process and other incentives.
Now, only about 10,000 investors have their own share accounts with the CCASS. Most of the roughly one million investors put their shares in their brokers' accounts with the CCASS.
This practice has led to some brokerage staff stealing clients' certificates.