Stock transactions can thus be done electronically without a certificate. By encouraging electronic transfer and simplifying registration process, a more convenient, secure and cost-effective way of trading procedure can be achieved.

Currently, under the Companies Ordinance (Cap.32), public companies are required to keep a register of shareholders. Therefore, for effective share transfer, physical certificates are issued which together with an instrument of transfer, can be registered. The certificate is prima facie, though not exclusive, evidence of the title to the shares.

The registration mechanism creates substantial problems. Registered holders of share certificate faces risks of loss and misappropriation of their shares. If a certificate is lost, although it can be replaced at the share registrar, the replacement process is complex, costly and can drag on for a period of up to four months. This can be detrimental for speculators, as fluctuations in the stock market could mean great gains or losses. If a certificate is misappropriated and a transfer is registered in the name of a new holder, the owner will have effectively lost the shareholding. To recover the title, an action for rectification under the Companies Ordinance can probably be the only resort for the desperate owner.

To speed up the trading activities and to avoid bothersome paper works, some speculators opt to have their holdings traded and registered in the name of their brokers, indirectly, retaining the beneficial interests. Engaging brokers may be convenient, however, one has to pay higher commission for that and the risk of misappropriation of shares is still there. Besides, this indirect setting between the investors and their counter parties creates communication problem and reduces transparency of public companies. Dividends and company information have to pass to the brokers first before they come to the hands of the actual beneficial holders of those shares. All of these are obstacles for a more efficient stock market.

Under the proposal, all shares can be transferred electronically with no certificate needed. The registration is thus more flexible and facilitates various ways of shareholding. Shares can be registered either at the Central Clearing and Settlement System (Ccass) or at the issuer's register. Investors can easily have their name registered while at the same time retaining full control of the shares themselves, or instruct a broker to act for them; or if they wish, to resort to the old practice, to hold shares as beneficial owners through a broker without having their names appearing on the registrar.

Compared to overseas stock markets like the United Kingdom, New Zealand, Singapore, Australia and the Mainland, where scripless security markets are already in place, Hong Kong is lagging behind. To bring a scripless security market into operation, the Companies Ordinance will need to be amended to accommodate electronic registration of securities. The legal standing of electronic documents, signature, and digitally encrypted e-mails should be recognised and protected. Fortunately, we have the Electronic Transactions Ordinance (Cap. 553) for this. Furthermore, a set of globally accepted standards for electronic transactions should be developed to facilitate international stock trades. The relevant legislations of the above mentioned countries can surely offer us some guidelines. In short, a successful scripless market must be built on a supportive legal framework.