SFC HKEX Joint consultation paper on a proposed operational model for implementing a scripless securities market in Hong Kong

The Document on the Joint consultation paper on a proposed operational model for implementing a scripless securities market in Hong Kong:

Feedback on the Joint Consultation Document

Following a thorough examination and extensive discussion among our members, we have formulated the following conclusions and recommendations regarding the consultation document:

1. General Agreement with Reservations: Our association supports the goals and principles outlined in the document, such as enhancing governance and market efficiency. However, we fundamentally disagree with the proposed model.

2. Concerns About Reform Scale and Feasibility: The proposed reforms are overwhelming in scope and scale. The associated costs and resources required are substantial and do not align with current priorities. Adapting to new systems and cultures will demand significant time and learning, risking errors and confusion with high costs and uncertain benefits. The existing central clearing system has been robust and resilient, continually improving with participant input. An overhaul appears unnecessary and challenging, and we oppose the scale and direction of the proposed reforms.

3. Inconsistencies with Overseas Securities: The document acknowledges that due to overseas legislative constraints, the paperless reform cannot include foreign securities listed in Hong Kong. Undertaking such extensive system changes while supporting paper-based settlements is counterproductive, likely causing confusion and increasing operational costs.

4. Impact on Brokers: Paragraphs 98 and 99 suggest that the central clearing house will divest agent services, requiring brokers to directly manage these services. This would significantly increase brokers' workloads and costs. Our association strongly opposes this aspect, as it contradicts the document's goals of cost reduction and market efficiency.

5. Preference for Gradual Optimization: The proposed reforms are not the most efficient or feasible for current market participants. A gradual optimization of the existing system would be more effective, minimizing confusion and potential errors.

6. Encouraging Stockholder Participation: Encouraging existing stockholders to join the central clearing system without compromising their interests is more practical and likely to face less resistance. Short-term incentives, streamlined account opening procedures, and reduced transfer fees could be effective. Promoting the system’s benefits may naturally lead investors to integrate into the central clearing system, supporting paperless objectives.

7. Incentives for New Investors: For new stock arrangements, similar incentives could encourage infrequent or new investors to establish long-term accounts. Reducing fees for infrequent traders could lead to economies of scale and enhance new stock application processes. Investors with accounts can seamlessly participate in new stock applications. Optimizing existing accounts and reducing fees can achieve paperless goals without disrupting the efficient current system.

8. Conclusion and Recommendations: Our association advocates for incentivizing and accommodating infrequent investors through simplification and education to open independent accounts, thereby strengthening the existing system and achieving more effective results.

Hong Kong Securities and Futures Industry Staff Union