Following years of preparation, Hong Kong regulators are implementing the Uncertificated Securities Market (USM) in 2026, with the objective of enhancing market efficiency, strengthening competitiveness, and modernising the securities market infrastructure.

Background

At present, investors may hold securities of Hong Kong-listed companies either in their own names or through intermediaries such as brokerage firms and banks via the Central Clearing and Settlement System (CCASS).

Under the second arrangement, shares are held in the name of Hong Kong Securities Clearing Company Nominees Limited (HKSCC Nominees). Under the first arrangement physical share certificates are issued to investors, who then hold both legal title and beneficial ownership of the shares and can directly exercise shareholder rights, including voting and entitlement to distributions.

However, should they wish to sell their shares in the open market through the CCASS, they must first deposit the certificates with an intermediary, and this paper-based process takes about 10 business days.

USM regime benefits

The USM regime is designed to enable investors to hold shares in their own names electronically through platforms operated by approved securities registrars (ASRs), eliminating the need for paper certificates. This is why the regime is referred to as “uncertificated”.

Investors may also access their portfolios and conduct transactions more easily, conveniently and efficiently.

The USM regime additionally enables direct communication between listed companies and their investors holding uncertificated shares without the need to channel through intermediaries. Such direct engagement may enhance shareholder transparency, strengthen corporate governance and minimise the need for manual intervention.

The USM framework will accelerate securities transfers while improving trading and clearing efficiency. It may also reduce costs and contribute to a greener and paperless market, aligning Hong Kong with prevailing international ESG practices.

Scope of USM regime

The USM regime will only apply to prescribed securities, which cover Hong Kong listed shares, depositary receipts, stapled securities, interests in collective investment schemes authorised by the Securities and Future Commission (SFC), subscription warrants, and rights under a rights issue (if they do not fall under specified class of securities). For the SFC-authorised collective investment schemes, an example is listed real estate investment trusts, but exchange-traded funds that are not withdrawable from the CCASS are excluded under the USM regime.

Existing shares in a body corporate incorporated in Bermuda, Cayman Islands, Hong Kong or the Chinese mainland, as well as other existing prescribed securities constituted under the laws of Bermuda, Cayman Islands, Hong Kong or the Chinese mainland, must become USM participating securities within five years from implementation of USM.

For companies incorporated in those jurisdictions and newly listed on the Hong Kong Stock Exchange (HKEX), their shares must be issued electronically (i.e. without paper certificates) from the listing date, unless specifically exempted by the SFC.

Listed companies should note

The new listing rules related to the USM regime will apply to all listed issuers and listing applicants of prescribed shares as follows:

• They must appoint an ASR approved by the SFC to provide securities registrar services under the USM to maintain the register of those securities holders, and to provide an electronic system (the Uncertificated Securities Register and Transfer [UNSRT] system) for evidencing and transferring legal title to those securities without paper instruments.
• They must amend their constitutional documents (and/or terms of the prescribed securities) within one year of USM implementation date, to allow the issue of the prescribed securities in uncertificated form, and transfers of prescribed securities, through authenticated messages rather than physical instruments of transfer.
• Hong Kong Securities Clearing Company, the relevant ASR, and the HKEX will notify each listed company of its transition date to the USM. The listed company must announce this specified date within one business day of receiving such notice.
• Upon finalising its transition plan, the company must announce the date on which its prescribed securities will become participating securities (such participation date must not be later than the specified date, or five years from the USM implementation date, whichever is earlier) and details of its transition plan.
• Where there is any material change to its transition plan, the company must make an update announcement as soon as reasonably practicable.
• No later than 21 business days prior to the participation date, the company must also issue a reminder regarding the participation date, the transition process, and a summary of impact of those prescribed securities becoming participating securities.

From the participation date onwards, listed companies may issue new prescribed securities only in uncertificated form (including shares issued under rights issues or scrip dividends) and must not issue title instruments for existing prescribed securities.

Investors should note

Investors are not required to convert their prescribed securities from certificated form to uncertificated form. The existing share certificates will remain valid even after the USM regime becomes effective.

Under the USM regime, investors will be able to hold and manage uncertificated securities in their own names through the USI facility on the UNSRT system operated by the listed company’s ASR. The USI facility is specifically designed for investors to directly manage their prescribed securities in uncertificated form.

When investors wish to sell shares in the open market via the CCASS, they still need to transfer the shares to HKSCC Nominees. However, under the USM framework, transfers will be executed electronically via the USI facility in the UNSRT system and can be completed the same day upon receipt of investors’ instructions and information.

This represents a substantial improvement in efficiency for investors who prefer to hold shares in their own names while enjoying the flexibility to dispose of them promptly in the open market.

Rossana Chu is a partner at YYC Legal