Following is a question by the Hon Robert Lee and a reply by the Secretary for Financial Services and the Treasury, Mr Christopher Hui, in the Legislative Council today (March 18):
 
Question:
 
     There are views that with the securities industry (especially small and medium securities dealers) facing the pressure of persistently increasing compliance and operating costs in recent years, the Government should introduce targeted support policies to assist small and medium securities dealers in adapting to and meeting new requirements, as well as enhancing their competitiveness. In this connection, will the Government inform this Council:
 
(1) to assist the securities industry in smoothly implementing the uncertificated securities market regime to be launched within this year, whether the Government will consider introducing funding schemes for securities dealers (especially small and medium securities dealers), so as to support the upgrading of the overall industry; if not, of the means by which the Government will assist securities dealers in catering for the relevant requirements of the regime;
 
(2) it is learnt that over the past years, securities dealers have incurred additional operating costs due to their custody of large quantities of delisted company stocks, how the authorities will assist such securities dealers in handling the issue of custody of delisted company stocks; and
 
(3) whether it will explore the setting up of a dedicated fund to provide funding support for the system upgrades undertaken by the securities industry to meet the new requirements, thereby mitigating their compliance costs; if not, of the reasons for that?
 
Reply:
 
President,
 
     With Hong Kong being an international financial centre, the Government has all along been driving the Securities and Futures Commission (SFC) and the Hong Kong Exchanges and Clearing Limited (HKEX) to leverage the unique advantages under "one country, two systems" to pursue reforms in different aspects of the securities market, introducing various enhancements to the listing regime and promoting high-quality development of the market.
 
     Driven by a series of reforms, Hong Kong's primary market welcomed 119 newly listed companies in 2025, with initial public offering funds raised exceeding HK$286.9 billion, ranking first globally. In the first two months of this year, 24 companies were newly listed, more than doubling the number in the same period last year. The average daily turnover in 2025 was HK$249.8 billion, representing a 90 per cent increase over 2024. In the first two months of this year, the average daily turnover was HK$260.9 billion, up 17 per cent year-on-year. While the stock market is buoyant, we must not rest on our laurels. We must continue to seek breakthroughs to enhance the efficiency and competitiveness of Hong Kong's securities market.
 
     In consultation with the SFC and the HKEX, my reply to the three parts of the question is as follows:
 
(1) The uncertificated securities market (USM) regime seeks to dispense with the need to use paper documents to evidence and transfer legal title to securities. By reducing reliance on paper and manual processes, it will facilitate straight‑through processing and strengthen the efficiency and competitiveness of Hong Kong's securities market. Under the USM regime, the existing nominee structure in the Central Clearing and Settlement System will be retained. This will preserve investors' choice of holding securities through brokers, maintain the current role of brokers, and reduce the impact on their existing operating models.
 
     Following multiple rounds of extensive public consultation, the Legislative Council passed in 2021 the Securities and Futures and Companies Legislation (Amendment) Ordinance 2021, which sets out the principal legal framework for the regime. Six pieces of subsidiary legislation providing for the detailed arrangements of the regime were also made in 2025 under the negative vetting procedure of the Legislative Council. In the 2026-27 Budget, the Financial Secretary indicated that the Government, together with the SFC and the HKEX, will work with the industry to implement the regime within the year.
 
     The SFC and the HKEX have been maintaining close communication with the industry on the implementation of the USM regime. A number of measures are already in place to assist stakeholders, including brokers, in making a smooth transition. These include:
 
(i) The USM adopts a phased implementation strategy, under which prescribed securities will gradually become participating securities by batches within five years from the commencement date. This will ensure market readiness, steady inclusion, and uninterrupted daily operations.
 
(ii) As the existing nominee structure will be retained, many current processes will remain unchanged, with manual and paper‑based procedures progressively replaced by electronic processes. From the brokers' perspective, the main changes will be the process in the deposit and withdrawal of securities. These will be achieved through the HKEX's system enhancements, while the system changes required of brokers will be relatively limited, facilitating a smoother transition to the USM regime by the industry.
 
(iii) The SFC and the HKEX have been working closely to provide brokers with sufficient information and technical support. The HKEX published information papers in 2024 and 2025 setting out detailed technical guidance for market participants including brokers, and organised three briefing sessions to familiarise brokers with the relevant processes and facilitate their preparations together with eight seminars and continuing training courses held by market stakeholders. The HKEX will continue to provide updated information and organise briefing sessions, and will also arrange market rehearsals to enable market participants to familiarise themselves with the operation of the upgraded infrastructure and operational procedures.
 
(iv) To help the market better understand and adapt to the new regime, the SFC and the industry will jointly conduct investor education, including further enhancements to the dedicated website providing one-stop information and a series of frequently asked questions. Publicity efforts on different fronts will be strengthened including through videos and briefing sessions to help investors understand the operation of the new mechanism and the steps for participation, thereby raising investor awareness and reducing brokers' workload.
 
     As certain existing fees will no longer be applicable under the USM regime, the HKEX will adjust its fee structure to make it simpler, more direct and predictable, and more aligned with the fee models of other major markets. This will ensure that market's operating costs are commensurate with digitalised operations and support sustainable market development. After extensive consultation with the industry, the HKEX has made multiple adjustments to the fees to minimise the financial burden on small brokers, including (i) raising the threshold for the lowest membership fee rate tier to cover more small brokers; (ii) lowering the membership fee rate for relevant brokers; (iii) granting a one-year waiver of membership fee for small brokers; and (iv) adjusting the stock custody fee rate. According to the HKEX's assessment, about 88 per cent of small brokers (i.e. Category C brokers) will pay lower relevant fees in the first year of USM implementation compared with before. From the second year onwards, about 65 per cent of small brokers will continue to pay lower fees.
 
(2) The Government is aware that brokers may incur costs in relation to the custody of shares of delisted companies. The 2026-27 Budget has indicated that the Government will continue to explore with the market the provision of an over-the-counter (OTC) trading platform for delisted stocks or those requiring special handling. The SFC and the HKEX have previously conducted preliminary consultation with market participants, and heard diverse views from the market. On the one hand, some consider that an OTC trading platform would provide shareholders of delisted companies with an exit opportunity, and that retail investors should be allowed to participate with market makers introduced to address liquidity concerns. On the other hand, some believe that if the platform only allows shareholders of delisted companies to sell their shares, the volume would be insufficient to sustain an OTC market. In addition, the fundamental conditions of relevant companies may lack transparency and make comprehensive assessment difficult, so retail investors may bear higher risks while the attractiveness to institutional investors would be limited. Whether the platform can provide brokers with a channel to dispose of such shares therefore remains uncertain. The HKEX will continue to consolidate views from different stakeholders and announce specific arrangements in due course, followed by further market consultation.
 
(3) With the buoyant stock market, we are pleased to see an increase in brokers' revenue. According to the latest Financial Review of the Securities Industry published by the SFC, Hong Kong's securities industry maintained steady growth in the first half of 2025, with net profit rising by 14 per cent to HK$28.9 billion compared with the preceding six months, driven by increasing trading volume. Notably, the aggregate net profit of exchange participants totalled HK$15.6 billion, up 34 per cent compared with the preceding six months, while Category C brokers' net profit doubled to HK$2.5 billion. Trading volume continued to grow in the second half of 2025 and the first two months of this year, and we expect that brokers' revenues and profits may continue to rise. The Government will continue to monitor brokers' operating conditions and maintain close communication with the industry.
 
     The Government understands that whenever new measures are introduced, the industry may have certain concerns, as was the case with the trading arrangements under severe weather implemented in 2024. Experience has shown that with comprehensive and candid communication, concerted efforts, and thorough preparation, we can successfully implement the USM regime together, thereby enhancing the overall efficiency and competitiveness of Hong Kong's securities market and benefiting the development of the securities industry.
 
     Thank you, President.

Ends/Wednesday, March 18, 2026
Issued at HKT 12:30

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