The financial landscape of Hong Kong is undergoing a major transformation with the impending launch of the Uncertificated Securities Market (USM) Regime, expected in early 2026. This initiative, driven by the Securities and Futures Commission (SFC) and Hong Kong Exchanges and Clearing Limited (HKEX), represents a pivotal shift from the traditional paper-based system to a modern, electronic framework for holding and transferring listed securities. For listed companies in Hong Kong, understanding the legal and operational implications of this regime is crucial for a smooth transition and compliance. This material highlights the key features of the regime, as well as action points for listed companies and implications for investors.
The USM regime is established through a comprehensive legal framework. The foundation is the Securities and Futures and Companies Legislation (Amendment) Ordinance 2021, which introduced necessary changes to the Securities and Futures Ordinance (SFO), the Companies Ordinance (CO), and the Stamp Duty Ordinance (SDO). This primary legislation provides the legal basis for the uncertificated system and the new regulatory regime for approved securities registrars.
Supporting this are two key pieces of subsidiary legislation: the Securities and Futures (Uncertificated Securities Market) Rules (Cap. 571AS) (USM Rules), governing the operational and procedural aspects of the USM environment, and the Securities and Futures (Approved Securities Registrars) Rules (Cap. 571AT) (ASR Rules), which formalize the approval and regulation of persons providing securities registrar services.
For HKEX-issuers, the HKEX has published Listing Rule amendments to facilitate the implementation of the USM regime, which apply to both HKEX-listed issuers and HKEX-listing applicants.
The core objective of the USM is to provide an efficient and secure means for investors to hold legal title to their Hong Kong-listed securities in their own names, electronically, eliminating the need for physical share certificates: Summary of Features of USM.
The introduction of the USI profile is a key change, allowing investors to hold legal title directly. While USI-held securities must still be deposited into CCASS for trading on HKEX, the process will be faster and more convenient than the current paper-based system, encouraging greater investor participation and shareholders’ transparency.
The USM regime applies to "prescribed securities" including listed shares, depositary receipts, SFC-authorised funds where the units are withdrawable from CCASS (e.g. REITs), subscription warrants and rights under a rights issue. The transition is phased, with mandatory participation for Key Jurisdiction Issuers (KJIs)—listed companies incorporated in Hong Kong, Mainland China, Bermuda, and the Cayman Islands.
KJIs must set a USM participation date, which cannot be later than a specified deadline falling within a five-year period from the USM implementation date (expected early 2026 to 2031). HKEX will determine the specific deadline for USM participation for each HKEX-listed company considering factors such as the size of the HKEX-listed company, the number of title instruments in circulation, any forthcoming corporate actions and whether amendments are required to its terms of issue or constitutional documents. Issuers incorporated in other jurisdictions may participate voluntarily, provided their local laws permit. The transition for existing prescribed securities will occur in batches between 2026 and early 2031.
The transition requires proactive and timely steps from listed companies, particularly KJIs. See a table outlining the Critical Actions and Expected Timelines for Listed Companies.
The requirement to appoint an ASR by the USM Implementation Date applies to all issuers of prescribed securities, regardless of whether their securities have become participating securities under the USM. This is an immediate and critical step, as any gap in ASR appointment could lead to a suspension of securities trading on HKEX. Issuers shall update internal processes to handle new compliance obligations under the USM regime, and have parallel systems in place to accommodate both certificated and uncertificated securities.
For new applicants seeking a listing after the USM Implementation Date, the requirements are even more immediate. They must appoint an ASR and amend their constitutional documents prior to their date of listing. Furthermore, they must provide information on their USM participation in their listing document.
The USM regime introduces significant changes for investors, primarily offering a new choice in how they hold their securities.
Holding Options:
1 Through Intermediaries (CCASS Nominee): This remains the default and most common option for trading, where securities are held in the name of HKSCC Nominees to facilitate trading on HKEX. This is convenient for trading but means the investor holds a beneficial, not legal, title.
2 Directly in Own Name (USI Facility): Investors can opt to hold legal title in their own name via a digital Uncertificated Securities Investor (USI) profile set up with the ASR, and manage their securities electronically online using the platform operated by the ASR. This is not mandatory and investors can still keep their securities already issued in certificated form. If an investor holds multiple participating securities, and the issuers of such securities have appointed different ASRs, the investor will need to set up multiple USI accounts with these different ASRs.
Key Investor Benefits:
• Enhanced Security: Eliminates the risk of loss, theft, or forgery associated with physical share certificates.
• Faster Processing: The manual and time-consuming process of transferring paper-based shares (which can take around 10 business days) is replaced by electronic transfer, significantly speeding up settlement.
• Direct Shareholder Rights: Holding securities via a USI Facility set up with the ASR allows investors to enjoy full shareholder rights directly, including receiving corporate communications from issuers, initiating or affirming transfer instructions and submitting instructions in respect of certain corporate actions electronically and directly without relying on intermediaries.
Phasing out Existing Paper Certificates: Investors holding physical share certificates are not mandated to dematerialize existing securities (i.e. convert them to uncertificated form) except in certain specific circumstances. However, from its USM participation date, an issuer can only issue new securities in uncertificated form (e.g. on a rights issue or scrip dividend) and cannot issue physical title instruments in respect of existing securities (e.g. upon a transfer). This means request for replacement due to loss or damage of physical title instruments, and transfers and issuances of securities, after the issuer’s participation in USM will result in uncertificated securities. In addition, existing securities held in CCASS in the name of HKSCC Nominees will all be dematerialized, and uncertificated securities cannot be rematerialized except in limited situations such as delistings. If investors want to dematerialize their existing securities, they need to set up a USI Facility, and deposit their physical certificates, with the relevant ASR to convert them into uncertificated form.
A significant benefit of the USM regime is the potential for enhanced ownership transparency. As more investors hold securities in their own names, issuers will gain a clearer picture of their shareholder base, facilitating more direct engagement and communication. This improved transparency is particularly relevant for corporate actions like takeovers and privatisations, as it may reduce the reliance on the complex and time-consuming ownership investigation procedure empowered to a listed issuer under section 329 of the SFO (which involves sending a set of notices tracing ownership from brokers through to the ultimate beneficial owners), leading to more efficient transaction processes.
The Uncertificated Securities Market Regime is a major step in modernising Hong Kong's securities market infrastructure, aligning it with international best practices. While the transition presents legal and operational challenges for listed companies, particularly the KJIs, the long-term benefits of increased efficiency, reduced risk, and enhanced investor engagement are substantial. Legal advisers can guide their clients through the necessary constitutional amendments, ASR appointments, and operational adjustments to ensure full compliance and readiness for the paperless future of Hong Kong's capital markets. The time for listed companies to act is now, engaging with their securities registrars and legal advisors to map out a clear and timely transition plan.
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