Hong Kong is a step closer to becoming a scripless market, but is unlikely to go all the way, according to the Securities and Futures Commission (SFC).
Releasing its findings on proposals to turn Hong Kong into a scripless market, it found that most interested parties, including the Consumer Council, the Hong Kong Institute of Directors and the Hong Kong Stockbrokers Association, supported the idea.
But they also said the commission should allow retail investors to choose to keep physical share certificates.
Singapore, Shanghai and Shenzhen - markets which developed more recently - have scripless markets.
But in Hong Kong, where the stock market goes back more than 110 years, most investors still have physical certificates in bank safe boxes, at home, or deposited with the Central Clearing and Settlement System (CCASS) operated by Hong Kong Exchanges and Clearing (HKEx).
Changing to a scripless market would stop the circulation of fake certificates and reduce settlement failures due to the delay of physical delivery of share certificates.
It would also help Hong Kong to develop cross-border trading and settlements through electronic link-ups. The commission found that the market generally supported the scripless model but many parties called for investors to be allowed to keep their share certificates.
'Comments were mixed on whether, and if so for how long, share certificates should continue to be made available after the scripless model begins operating.
'But a clear majority of commentators believed certificates should continue to be available for a transition period, including the option to rematerialise a scripless holding,' the SFC said.
'Allowing for certificates during a transition period was felt to be particularly important for retail investors.
'We accept this approach,'' the SFC said.
The SFC said the next step would be for HKEx to consult the market on implementation. While the scripless market has benefits, commentators have expressed concerns that it may prove expensive.
The SFC has proposed that investors would have to pay for the electronic share registration service, with costs possibly higher than for the physical certificates.
HKEx director Dannis Li Jor-hung, a stockbroker, said not all investors would like the idea of cancelling their share certificates.
'Many investors, especially the older generations, may not like to have only an electronic record of their shareholding.
'It is also difficult to ask these investors to hand in their physical scrip and have them replaced by computer records,' he said.
He also warned that the SFC and the HKEx should undertake education and promotion on the changeover from paper certificates to electronic records to avoid creating panic and chaos.
'Once investors hear about the cancellation of their share certificates, they may be scared and react irrationally.
'Regulators must handle it with extreme care,' Mr Li said.
He was also worried the proposals would require a lot of capital investment from HKEx, which would need to modify its settlement system to record all shareholding information.