Hong Kong Exchanges and Clearing has mapped out a three-step strategy to transform Hong Kong into a scripless market with shares traded, settled and held electronically. It has proposed a third-party clearing system, which will enable brokers to concentrate on trading while outsourcing clearing and settlement functions to others. The measure effectively encourages small players to surrender their clearing and settlement obligations to bigger institutions. The HKEx said the move could help small brokers save on back-office expenses. The third-party clearing system could be seen as a step forward in the government's plans to enhance Hong Kong's financial infrastructure, HKEx senior vice-president Bryan Chan Pun-keung said yesterday. Under a 1999 market reform blueprint, the government plans to eventually transform Hong Kong into a scripless securities market to improve efficiency and reduce risks. Mr Chan said implementation of the third-party clearing system could be conducive to the development of the government's planned scripless electronic clearing and settlement infrastructure. Concentrating clearing and settlement functions on better-resourced third-party institutions would lower overall settlement risks for the entire market, he said. 'In the process of developing a scripless market, market participants will need to invest heavily in their own systems so as to complement the overall changes. 'Such investments may not be something small players can afford,' Mr Chan said. At present, Hong Kong requires companies to issue share certificates. It also requires investors to bring the certificates with them when they are involved in transferring the shares. By getting rid of physical share certificates, the government plans to develop a straight-through processing system. This would see securities transactions and settlement procedures performed seamlessly. HKEx recently established a joint venture with New York-listed software company Automatic Data Processing to provide electronic services for brokers' back-office operations. By providing such services to brokers, 'HKEx will pave the way for seamless, straight-through transaction processing from front-end to back-end operations', an article in the internal HKEx publication Exchange said. Meanwhile, Mr Chan said the HKEx had started discussions with share registrars on changing the fee structure for share registration, a proposal put forward by the Securities and Future Commission. Under the proposed change, which is also part of the government's scripless market plan, stock investors will no longer need to pay registration fees to the share registrar. Instead, listed companies will be required to pay a negotiable registration fee. Mr Chan said the exchange was aware of concerns among listed firms that the change could put them at risk of bearing substantial expenses for fees when their shares were heavily traded.