Worries over cost of digital shares

Government's proposal to allow digital share records are welcomed but brokers remain concerned about any additional costs and fees

PUBLISHED : Monday, 06 January, 2014, 12:28am
UPDATED : Monday, 06 January, 2014, 1:50am

Efforts to take the Hong Kong market digital for share records are welcomed by brokers, but lawmakers are expected to quiz government officials over any cost burden for the industry in a reform briefing today.

Officials will update legislators at their monthly Financial Affairs Panel meeting on progress towards the government's plan of submitting legislation to enable the option of a scripless market.

The government aims to present the reform to the Legislative Council in the second quarter of this year.

Despite the Hong Kong stock market's status as the sixth-largest by market capitalisation, all listed companies are required to issue paper share certificates - of which there are about 10 million in the city.

The city lags other markets, including Australia and the mainland, which have done away with physical share certificates. Britain gives investors the choice of holding digital or paper records of their shareholdings. The British model would be adopted under the proposed law change.

A scripless market was first proposed 25 years ago and stands as the only major proposal from the 1988 Ian Hay Davison report that is yet to be implemented. The report, commissioned by the government in the aftermath of the 1987 stock market crash, has served as the blueprint for measures to help protect the market against future crises. The Securities and Futures Commission was set up in 1989 as one of the report's key proposals.

The SFC launched its first consultation on a scripless market in 2002; Hong Kong Exchanges and Clearing did the same the following year. Both initiatives ran into resistance from investors and brokers. However, a consultation in 2009 gained support.

"Hong Kong needs to catch up with international practices, so the brokering community supports the reform to go to a scripless market," said Christopher Cheung Wah-fung, legislator for the financial services sector.

"What we are worrying about is the fee. Will brokers and investors need to pay more fees to enable the electronic system to be set up? We want to know more about the detailed fee structure as we do not want brokers or investors to have to pay too much money for the new services."

Jeffrey Chan Lap-tak, chairman of the Hong Kong Securities Association, is also concerned about the fees issue.

"A scripless market is a good idea and we do not oppose it; we should move forward. But the devil is in the detail. We do not know if the new system will add a lot of operational cost on brokers and investors," Chan said.

He said the older generation of investors would prefer to hold paper share certificates.

"It would be hard for the senior investors to accept the idea of only having electronic records to prove they are shareholders. They want everything in black and white on paper," he said. "However, there are many young investors who like to trade via internet or mobile phone and they have no problem with Hong Kong going to an electronic market."

According to documents circulated to lawmakers, investors can choose to hold their share records in paper or digital form.