Hong Kong is set to implement its uncertificated securities market (the “USM“) regime, currently expected to be on 16 November 2026 (the “USM Implementation Date“), a landmark reform enabling investors to hold and transfer legal title to listed securities electronically, in their own names, without paper certificates. While participation is mandatory for prescribed securities first becoming listed after the USM Implementation Date, issuers with prescribed securities already listed on the Main Board or GEM of The Stock Exchange of Hong Kong Limited (the “SEHK“) should begin preparing now. This newsletter focuses on and summarizes the key obligations and practical steps for such issuers.

Section 1: Legislative Framework

The USM regime is underpinned by four legislative instruments:

The Securities and Futures Commission (the “SFC”) and SEHK issued the “Guidance Note for Issuers on Participating in the Uncertificated Securities Market Regime” and the “Guide on the Uncertificated Securities Market” respectively to assist the market in understanding and preparing for the USM regime.

Section 2: Issuers and Prescribed securities  

Issuers have two main obligations: (i) ensure their prescribed securities become participating securities by the applicable deadline; and (ii) from the resulting participation date, comply with ongoing obligations.

Participation is mandatory for issuers constituted under the laws of Bermuda, the Cayman Islands, the Chinese Mainland or Hong Kong (the “Specified Jurisdictions“). It is presently not mandatory for issuers incorporated elsewhere to participate in the USM regime but they must still appoint an ASR regardless of participation status, and may participate voluntarily subject to conforming with home-law compatibility.

The table below sets out the categories of prescribed securities and the applicable deadlines for becoming participating securities:

Issuers are expected to engage in prior discussions with their ASR regarding a proposed specified date which is then reviewed and fixed by agreement between the SEHK, Hong Kong Securities Clearing Company Limited (“HKSCC”) and the issuer’s ASR, and notified by written notice to the issuer. In practice this date and the participation date are expected to coincide.  Upon the securities becoming participating securities, any units of such securities which are already held within the Central Clearing and Settlement System will have to be dematerialized within six months.

Section 3: Preparatory Steps – What Issuers Should Do Now

There are two main preparatory steps that issuers should begin immediately, without waiting for formal written notice of their specified date:

1. Amend constitutional documents

Issuers should review the constitutional documents or terms of issue of their prescribed securities to remove any inconsistency or conflict with the USM regime and even such constitutional documents or terms of issue are silent on a USM matter, it will still generally be useful to make amendments to provide for such matters to avoid any doubt or ambiguity.

The extent of this obligation depends on where the issuer is incorporated. For Hong Kong issuers, USM requirements override conflicting articles. For Bermuda, Cayman and Chinese Mainland issuers, USM requirements apply only insofar as they do not conflict with home law, though terms of issue should still be aligned with the USM regime. Dual-listed issuers may need multi-jurisdictional approval before making any amendments.

The key areas which typically require amendments include:

Issuers must complete amendments by the later of (i) one year after the USM Implementation Date (currently expected to be 16 November 2027) or (ii) the issuer’s first annual general meeting (“AGM”) after the USM Implementation Date. For issuers with a 31 December year end, this means that they will have until their next AGM in 2027, i.e. on or before 30 June 2027 to amend their constitutional documents.

2. Appoint an ASR with UNSRT capability

Not all ASRs are currently approved to operate a UNSRT system. Issuers should confirm with their ASR whether it holds such approval and, if not, consider whether an alternative ASR is needed. Issuers should obtain written confirmation from their ASR of (i) its readiness, and (ii) the date from which the UNSRT system may be used.

Section 4: Announcements and the Moratorium Period

Once a specified date has been fixed, the issuer must announce such specified date as soon as reasonably practicable and in any event, no later than one business day after being served with a written notice. The issuer must also publish an announcement setting out details of its transition to USM (the “USM Transition Plan“), including its participation date and any steps taken (or to be taken) to amend its constitutional documents or terms of issue, as soon as reasonably practicable following the finalisation of its USM Transition Plan.    Before its securities become participating securities, the issuer is required to issue a reminder announcement of its USM Transition Plan no later than 21 business days before the participation date.

Changes of ASR require written notice to the SFC and SEHK at least three months in advance (or as soon as practicable thereafter), followed by a public announcement.

SEHK will also publish, on a quarterly basis on its USM webpage, the prescribed securities scheduled to become participating securities in the upcoming three months, together with a list of securities that have already become participating securities.

Moratorium Period

Issuers are strongly advised to avoid corporate action activities within the period from 13 business days before to 10 business days after the participation date (the “Moratorium Period“).  For the avoidance of doubt, cash dividend payments and general meetings may still proceed within the Moratorium Period.  In addition, the last day for registering transfers entitling a transferee to physical certificates is 10 business days before the participation date, and must not be a book-close day. Issuers should therefore review corporate calendars now to identify any planned corporate actions that may need to be rescheduled around the participation date.

Section 5: Post-participation obligations

Once securities become participating securities, all new units must be issued in uncertificated form, and no new title instruments may be issued provided that the issuer has ensured that (i) the securities are recorded in the register of holders of those securities as being held in uncertificated form; and (ii) the holder of the securities is a system-member or provisional system-member of the issuer’s ASR’s UNSRT system. Pre-existing title instruments will remain valid unless and until they are cancelled.

Dematerialization without request

Issuers may (and are encouraged to do so) dematerialize any existing units of securities if they have received a pre-existing title instrument in respect of them even without a dematerialization request.  This dematerialization ability is provided for under the USM Rules and covers situations such as a request from securities holder in respect of a partial dematerialization or transfer of securities under a title instrument, share sub-division or consolidation exercise.  Where the issuer is satisfied that a title instrument is lost, it may also dematerialize the units covered by such lost instrument.  The issuer’s ASR may charge the registered holder a dematerialization fee even if the dematerialization was carried out at the issuer’s initiative and a failure to pay such fee may result in a refusal to register a transfer of the subject securities.

Dematerialization on request

Issuers may (and should) dematerialize units of prescribed securities on request of the holder of the securities provided that (i) the registered holder or transferee of such securities is a system-member of corresponding UNSRT system; and (ii) the issuer has received a valid title instrument or is satisfied that such title instrument has been lost.

Register of holders of securities

Issuers must ensure that the register of holders correctly records uncertificated holdings, notify holders in writing of relevant changes, and permit holders to inspect and (on payment of a fee) copy their own entries. It should be noted that under the USM regime, the register of holders of securities may no longer be closed for more than two consecutive business days at a time, or for any period during which trading of the securities is suspended.

Rematerialization

Rematerialization is generally prohibited except where securities are being delisted or the SFC has granted an exemption. On delisting, the issuer must remove uncertificated entries from the register, issue title instruments where required, and confirm the removal in writing to affected holders.

Consequences of breach

Breach of the USM obligations (without reasonable excuse) exposes issuers to Level 4 or Level 5 fines (HK$25,000 to HK$50,000) and daily fines of HK$700 for continuing offences in most cases, and in certain cases also call into question the suitability of the securities concerned to be or remain listed.

Section 6: Next Steps

Listed issuers should, without waiting for formal written notice of their specified date: (i) commence review of their constitutional documents; (ii) confirm their ASR’s UNSRT readiness in writing; and (iii) map their corporate action calendar against the anticipated Moratorium Period.

This newsletter is prepared for general information purposes only and does not constitute legal advice. It is not exhaustive and does not cover all matters which issuers may need to consider.  For further information, please contact the authors of this newsletter or your usual contact at CFN Lawyers LLP for assistance.