1991–1993: Why Did Chinese Stocks Suddenly Go Paperless?

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What Did Centralized Securities Registration and Settlement Actually Solve?

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In the 1980s, owning a stock meant holding a piece of paper.

By the early 1990s, that piece of paper was disappearing.

But this was not simply a story about replacing paper with computers.

It was the transformation of the very legal and technical representation of securities ownership:

Paper Stock Certificate
        ↓
Shareholder Register
        ↓
Securities Account
        ↓
Electronic Position
        ↓
Centralized Registration
        ↓
Clearing and Settlement

This transformation laid the foundation for the modern Chinese securities infrastructure.

1. Before 1990: A Stock Was Literally a Piece of Paper

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When China’s shareholding experiments began in the 1980s, the most intuitive way to represent ownership was a physical certificate.

A typical stock certificate could contain:

Company Name

Shareholder Name

Certificate Number

Number of Shares

Face Value

Official Seal

For example:

FEILE AUDIO

Shareholder:

Zhang San

Shares:

100

Face Value:

50 RMB / share

The paper itself was part of the ownership infrastructure.

If Zhang San wanted to transfer his shares, the securities intermediary had to deal with:

The physical certificate

+

The shareholder register

+

The transfer documents

+

The payment

This was fundamentally different from today’s securities market.

2. Early Securities Markets Had Two Separate Problems

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The first problem was:

How do we trade?

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Who wants to buy?

Who wants to sell?

At what price?

How many shares?

The second problem was:

Who actually owns the shares?

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Who is the shareholder?

How many shares does he own?

Has ownership been transferred?

Is the certificate authentic?

In the early Shanghai market, these two problems were tightly connected.

A securities counter might simultaneously perform:

Brokerage

Registration

Transfer

Settlement

Custody

3. The 1986 Shanghai Securities Counter

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The opening of the Jing’an Securities Business Department in Shanghai in September 1986 marked one of the most important early steps in China’s modern securities market.

But it was not a stock exchange.

It was closer to:

Banking Counter
       +
Securities Brokerage
       +
Registration Office

The infrastructure was extremely primitive by today’s standards:

Paper forms

Ledger books

Telephone calls

Rubber stamps

Cash

Physical certificates

Filing cabinets

There was no:

Matching engine

Central order book

Online trading terminal

Electronic securities account

Real-time market data network

Yet the basic business processes of modern securities systems were already there.

4. The Manual Ledger Was the Ancestor of the Securities Database

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This is one of the most important points when studying the history of securities IT.

A 1980s securities office might maintain several types of records.

Shareholder Register

#

It answered:

Who owns the shares?

Zhang San
    ↓
Feile Audio
    ↓
100 shares

Modern equivalent:

POSITION

Transaction Register

#

It answered:

What happened?

Date
Security
Buyer
Seller
Quantity
Price

Modern equivalent:

TRADE

Order Record

#

It answered:

What did the customer ask the broker to do?

Customer
Security
Buy / Sell
Quantity
Price
Time

Modern equivalent:

ORDER

Cash Ledger

#

It answered:

How much money belongs to the customer?

Modern equivalent:

CASH_ACCOUNT
BALANCE

The software terminology came much later.

The business concepts existed first.

5. Then the Shanghai Stock Exchange Appeared

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The Shanghai Stock Exchange officially opened on December 19, 1990.

This fundamentally changed the architecture.

Before:

Investor
    ↓
Securities Counter
    ↓
Manual Matching
    ↓
Transfer

After the exchange appeared:

Investor
    ↓
Broker
    ↓
Exchange Member
    ↓
Trading Seat
    ↓
Exchange

The exchange now became the place where orders were centrally matched.

6. But a New Contradiction Appeared

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The exchange was electronic.

The stock was still physical.

In other words:

Electronic Trading
        +
Paper Securities

This was an unstable combination.

Imagine that an exchange processed thousands of trades.

The exchange could electronically record:

BUY

100 shares

PRICE = X

But somewhere in the back office, people still had to deal with:

Physical Stock Certificate

The market could process transactions faster than it could physically move and register securities.

The paper certificate had become the bottleneck.

7. Why Physical Stock Certificates Became a Problem

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7.1 Physical Transportation

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Securities had to move between:

Seller
    ↓
Broker
    ↓
Registration Office
    ↓
Buyer

7.2 Physical Storage

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Large numbers of certificates required:

Vaults

Filing cabinets

Security procedures

Certificate numbering

Manual reconciliation

7.3 Manual Transfer

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Every transaction could require changes to:

Certificate

Shareholder Register

Brokerage Ledger

The workload increased with transaction volume.

7.4 Fraud and Loss

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Physical certificates could be:

Lost

Damaged

Forged

Duplicated

Incorrectly recorded

7.5 Cross-Regional Trading

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The problem became even more serious when securities markets expanded beyond a single city.

If:

Shanghai Investor

buys

Shenzhen Security

then someone has to answer:

Where is the certificate?

Who holds it?

Who registers the transfer?

Who confirms ownership?

Who settles the transaction?

A national securities market cannot efficiently depend on physical paper movement.

8. The Solution: Turn Securities Ownership into an Account Entry

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The fundamental idea was simple:

If money can exist as an account balance, why can’t securities ownership exist as an account balance?

Instead of:

Physical Certificate

the system could record:

Securities Account

    ↓

Security Code

    ↓

Quantity

For example:

Securities Account:

A123456

Holdings:

Feile Audio     100 shares
Yanzhong        500 shares

The investor no longer needed to carry the physical security.

The database became the representation of ownership.

9. 1991: The Securities Account Became the New Ownership Carrier

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In 1991, Shanghai began introducing securities accounts and computer-based automatic transfer.

The significance was enormous.

The investor could now move from:

I own this piece of paper

to:

The registration system records
that my securities account owns these shares.

This is the essence of dematerialization.

10. Why Investors Naturally Distrusted the Process

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From a modern perspective, paperless securities seem obvious.

For a 1990s investor, they were not.

Imagine holding:

100 shares

in physical form.

Then someone says:

Give us the certificate.

And the explanation is:

We will record your 100 shares in a computer system.

The obvious question was:

Where are my shares now?

The investor could physically see the certificate.

A database record could not be touched.

Therefore, paperless securities required something more important than computers:

Trust in the registration system.

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11. Paperless Securities Were Really a Change in the Legal Representation of Ownership

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This is why “paperless” is a misleadingly simple term.

The real transformation was:

Ownership Right

represented by

Physical Certificate

becoming:

Ownership Right

represented by

Electronic Book Entry

The important object was no longer the paper.

It was the authoritative record.

12. The Birth of the Securities Account

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This also introduced an important distinction.

A securities market now needed to answer two different questions.

How much money does the customer have?

#

Cash Account

How many securities does the customer own?

#

Securities Account

Therefore:

Customer
   │
   ├── Cash Account
   │       └── RMB balance
   │
   └── Securities Account
           └── Securities positions

This distinction later became fundamental to brokerage software.

13. But Who Owns the Master Record?

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Paperless securities solved one problem:

No more physical certificate movement.

But it created another:

Who maintains the authoritative securities ledger?

Suppose there are:

100 Brokers

1,000,000 Investors

100 Securities

Every broker could maintain its own customer holdings.

But then:

Broker A says:

Zhang San owns 1,000 shares.

while:

Broker B says:

Li Si owns 2,000 shares.

The market still needs a final answer:

How many shares exist in total, and who owns them?

14. This Is Where Centralized Registration Becomes Necessary

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The market therefore needs a centralized securities record.

Conceptually:

Issuer

   ↓

Central Securities Register

   ↓

Investor Securities Accounts

The central registration system becomes the authoritative infrastructure for securities ownership.

This is fundamentally different from the exchange order book.

15. The Exchange and the Registration System Do Different Jobs

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This distinction is extremely important.

Exchange

#

Answers:

What was traded?

Buy

Sell

Price

Quantity

Time

Registration System

#

Answers:

Who ultimately owns the securities?

Account A

Security X

Quantity 10,000

Therefore:

EXCHANGE

≠

SECURITIES REGISTRATION

They are connected, but they are not the same system.

16. What Does Clearing Actually Do?

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Clearing is often confused with settlement.

They are not the same thing.

Suppose:

Zhang San

buys

1,000 shares

from:

Li Si

at:

10 RMB/share

The clearing process determines:

Zhang San

-10,000 RMB
+1,000 shares


Li Si

+10,000 RMB
-1,000 shares

In other words:

Clearing calculates the obligations created by trading.

17. What Does Settlement Do?

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Settlement is the final delivery.

Conceptually:

Securities

→

Buyer

and:

Money

→

Seller

Therefore:

TRADE

   ↓

CLEARING

   ↓

SETTLEMENT

   ↓

FINAL POSITION

This distinction eventually became a fundamental part of securities IT architecture.

18. Why Registration, Clearing and Settlement Had to Become Specialized

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As the market expanded, it became increasingly inefficient for the exchange itself to perform every function.

The architecture naturally evolved toward:

Broker

↓

Exchange

↓

Registration / Clearing / Settlement Infrastructure

The division of labor became clearer.

Broker

#

Customer

Account

Order

Cash

Exchange

#

Order Matching

Trade Formation

Market Data

Registration and Settlement Infrastructure

#

Securities Registration

Custody

Clearing

Settlement

Corporate Actions

19. 1993: Shanghai Securities Central Registration and Settlement Company

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The next major institutional step came in March 1993.

The Shanghai Securities Central Registration and Settlement Company was established on March 8, 1993.

It was an important step toward separating:

Trading

from

Registration

Clearing

Settlement

This organization later became part of the institutional lineage leading to today’s China Securities Depository and Clearing infrastructure.

The historical sequence is therefore important:

1990

Shanghai Stock Exchange opens


1991

Securities accounts

Computerized transfer

Paperless securities


1992

Rapid expansion of securities accounts
and banking connectivity


1993

Shanghai Securities Central Registration
and Settlement Company

These were related developments, but they were not the same event.

20. “Paperless” and “Centralized Registration” Are Two Different Revolutions

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This distinction is critical.

Revolution One

#

Dematerialization

#

Paper Certificate

↓

Electronic Securities Account

Question solved:

How do we represent ownership without moving paper?

Revolution Two

#

Centralized Registration and Settlement

#

Fragmented Records

↓

Centralized Securities Infrastructure

Question solved:

Who maintains the authoritative market-wide securities records and completes clearing and settlement?

21. The 1986–1993 Evolution

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The entire process can be summarized as:

1986

#

Paper Stock

↓

Securities Counter

↓

Manual Matching

↓

Manual Transfer

1990

#

Securities Counter

↓

Exchange Member

↓

Trading Seat

↓

Computerized Exchange Matching

1991

#

Exchange Trading

+

Securities Account

+

Computerized Transfer

+

Paperless Securities

1993

#

Broker

↓

Exchange

↓

Central Registration

↓

Clearing

↓

Settlement

↓

Electronic Securities Ownership

22. The Modern Securities Data Model Was Starting to Appear

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Once securities became electronic, the system could represent them as structured data.

A simplified model looks like:

CUSTOMER
    │
    ├──────────────┐
    │              │
    ▼              ▼
CASH_ACCOUNT   SECURITIES_ACCOUNT
    │              │
    ▼              ▼
BALANCE        POSITION
                   ▲
                   │
                 TRADE
                   ▲
                   │
                 ORDER

This is the ancestor of the securities brokerage database.

23. The Historical Origin of the “Position” Table

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Consider the old shareholder ledger.

It might say:

Zhang San

Feile Audio

100 shares

Digitize that ledger and you get:

POSITION

ACCOUNT = A001

SECURITY = FEILE

QUANTITY = 100

This is an extremely important transition.

The modern POSITION table is conceptually the electronic descendant of the old shareholder register.

24. The Historical Origin of the “Trade” Table

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The old transaction register:

Date

Buyer

Seller

Security

Price

Quantity

became:

TRADE

TRADE_ID

ACCOUNT

SECURITY

PRICE

QUANTITY

TRADE_TIME

25. The Historical Origin of the “Order” Table

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The old paper order form:

Customer

Buy/Sell

Security

Quantity

Price

became:

ORDER

ORDER_ID

ACCOUNT

SECURITY

SIDE

PRICE

QUANTITY

STATUS

26. The Historical Origin of the Cash Account

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The old cash ledger:

Customer

Deposits

Payments

Withdrawals

Balance

became:

CASH_ACCOUNT

ACCOUNT_ID

BALANCE

AVAILABLE

FROZEN

27. This Is Where Securities IT Really Begins

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It is tempting to say:

Securities IT began when brokerage firms bought computers.

Historically, that is too late.

The real beginning was the digitization of financial objects:

Customer

↓

Account

↓

Security

↓

Order

↓

Trade

↓

Position

↓

Settlement

The computer merely became the machine capable of maintaining these relationships at scale.

28. Why This Eventually Led to Centralized Brokerage Systems

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Once securities became electronic, brokerage firms had to manage increasingly complicated relationships:

Customer
    ↓
Customer ID
    ↓
Cash Account
    ↓
Securities Account
    ↓
Order
    ↓
Trade
    ↓
Clearing
    ↓
Position

And the brokerage had to connect to:

Banking Systems

Exchange Systems

Registration Systems

Clearing Systems

The securities counter was becoming a distributed financial information system.

29. The Architecture Was Becoming Layered

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The emerging architecture looked roughly like:

                    INVESTOR
                       │
                       ▼
                ┌────────────┐
                │  BROKER    │
                │ Brokerage  │
                └─────┬──────┘
                      │
               Orders / Trades
                      │
                      ▼
                ┌────────────┐
                │  EXCHANGE  │
                │  Matching  │
                └─────┬──────┘
                      │
                   Trades
                      │
                      ▼
        ┌──────────────────────────┐
        │ Registration / Clearing  │
        │ Settlement Infrastructure│
        └─────────────┬────────────┘
                      │
                      ▼
               Securities
                Ownership

And the money side connected separately:

Investor

   ↓

Broker Cash Account

   ↓

Bank

   ↓

Cash Settlement

30. The Most Important Concept: The Securities Ledger

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The deepest change between 1986 and 1993 was not:

Paper → Computer

It was:

Physical Object

↓

Electronic Ledger Entry

The securities market was becoming a giant distributed accounting system.

A share was no longer something that had to physically travel from one person to another.

Instead:

SELLER POSITION

-100

and:

BUYER POSITION

+100

could represent the transfer.

31. Compare One Transaction in 1986 and 1993

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1986

#

Buyer
 ↓
Counter
 ↓
Find Seller
 ↓
Payment
 ↓
Physical Certificate
 ↓
Manual Transfer
 ↓
Shareholder Register

1990

#

Buyer
 ↓
Broker
 ↓
Trading Seat
 ↓
Exchange
 ↓
Computer Matching
 ↓
Physical Securities
 ↓
Transfer

1991

#

Buyer
 ↓
Broker
 ↓
Exchange
 ↓
Computer Matching
 ↓
Automatic Transfer
 ↓
Securities Account

1993

#

Buyer
 ↓
Broker
 ↓
Exchange
 ↓
Central Registration /
Clearing / Settlement
 ↓
Electronic Position

32. Why This History Matters for Understanding 1990s Securities Software

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Once we understand this evolution, later brokerage systems become much easier to understand.

The software did not invent the business model.

It digitized an existing institutional workflow.

The historical sequence was:

Share Certificate
        ↓
Shareholder Register
        ↓
Brokerage Ledger
        ↓
Securities Account
        ↓
Electronic Position
        ↓
Central Registration
        ↓
Clearing and Settlement
        ↓
Brokerage Database
        ↓
Trading Middleware

33. The Road Toward KCBP, KCXP, AS and AR

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This is where the story becomes particularly interesting.

By the mid-to-late 1990s, securities firms were no longer dealing with a simple counter.

They had to connect:

Customer Systems

↓

Branch Brokerage Systems

↓

Centralized Brokerage Platform

↓

Order / Transaction Processing

↓

Trading Network

↓

Exchange

At the same time:

Clearing

Registration

Settlement

Banking

Risk Control

were becoming increasingly important.

This created the technical environment in which products such as:

Jinzhen KCBP
Jinzhen KCXP

Hundsun AS
Hundsun AR

could emerge.

They were not inventions disconnected from the earlier securities market.

They were software responses to a problem that had been developing since the paper certificate era:

How do we turn a fragmented, human-operated securities business into a reliable, centralized, high-volume financial transaction system?

34. From Paper Certificate to Middleware

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The complete historical chain can therefore be written as:

Paper Certificate
        ↓
Manual Register
        ↓
Securities Counter
        ↓
Trading Seat
        ↓
Exchange Computer
        ↓
Securities Account
        ↓
Electronic Position
        ↓
Central Registration
        ↓
Clearing / Settlement
        ↓
Centralized Brokerage
        ↓
Transaction Middleware
        ↓
High-Speed Securities Network

The last few stages are where the history of Chinese securities IT becomes especially interesting.

35. The Real Meaning of “Going Paperless”

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The phrase:

China’s stocks went paperless

sounds like a minor administrative improvement.

It was actually one of the deepest infrastructure transformations in the history of China’s financial system.

It changed the fundamental representation of ownership:

Before:

Ownership = Physical Certificate

to:

After:

Ownership = Authoritative Electronic Record

Once that happened, securities could finally become native digital objects.

And once securities became digital objects, the rest became possible:

Electronic Trading

Electronic Clearing

Electronic Settlement

Electronic Custody

Electronic Corporate Actions

Centralized Brokerage

Real-Time Risk Control

Automated Reconciliation

36. The 1986–1993 Story in One Diagram

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1986
Paper Shares
     │
     ▼
Securities Counter
     │
     ▼
Manual Registration
     │
     ▼
1990
Shanghai Stock Exchange
     │
     ▼
Trading Seats
     │
     ▼
Computerized Matching
     │
     ▼
1991
Securities Accounts
     │
     ▼
Automatic Transfer
     │
     ▼
Paperless Securities
     │
     ▼
1992
Banking / Securities Connectivity
     │
     ▼
1993
Central Registration & Settlement
     │
     ▼
Electronic Securities Ownership
     │
     ▼
1990s Brokerage Software
     │
     ▼
Centralized Trading Architecture
     │
     ▼
KCBP / KCXP / AS / AR

37. The Next Question

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Once securities became electronic, another problem immediately became unavoidable:

If one investor can have a securities account, a cash account, a shareholder code, a brokerage account, a trading seat and a custody relationship — what exactly is each number?

Why did the early Chinese securities market eventually need concepts such as:

Customer ID

Shareholder Code

Securities Account

Cash Account

Fund Account

Branch ID

Broker ID

Seat ID

Trading Unit

Custody Unit

And more importantly:

Which institution assigned each identifier?

Which system stored it?

Which identifier actually connected a customer to an exchange order?

Which identifier connected the trade to the final securities position?

The answers to these questions lead directly into the architecture of 1990s Chinese brokerage systems.

The next chapter is therefore:

1993–1997: Shareholder Cards, Securities Accounts, Cash Accounts and Trading Seats

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Why Did China’s Securities Market Need So Many Different IDs?

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That is the point where the history of Chinese securities markets turns directly into the history of Chinese securities software.