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The Government has taken the lead in drawing up measures to improve the regulation of listing to enhance market quality, following public consultation on Proposals to Enhance the Regulation of Listing, according to the Consultation Conclusions released today (March 26).
"We are pleased to note that there is overwhelming support for giving statutory backing to certain fundamental listing requirements and expanding the dual filing system," the Secretary for Financial Services and the Treasury, Mr Frederick Ma, said.
"The proposed improvement measures set out in the Consultation Conclusions will contribute towards a quality market. They will further strengthen our position as the premier capital formation centre for the Mainland and a major international financial centre in the region."
"We will work closely with the Securities and Futures Commission (SFC), the Hong Kong Exchanges and Clearing Limited (HKEx) and all market users towards this common goal," Mr Ma said.
The Consultation Conclusions recommend codifying in the statute the more important listing requirements, i.e. financial reporting and other periodic disclosure, disclosure of price-sensitive information and shareholders' approval for notifiable transactions. This will be achieved by subsidiary legislation to be made by the SFC under s.36 of the Securities and Futures Ordinance (SFO).
In parallel, the Government will introduce a Securities and Futures (Amendment) Bill into the Legislative Council to the effect that breaches of statutory listing requirements will become a new type of market misconduct. Any persons who breach the statutory listing requirements can either be subject to civil sanctions imposed by the Market Misconduct Tribunal under Part XIII of SFO, or criminal sanctions under Part XIV of SFO following prosecution.
Mr Ma said, "Any breach of statutory listing requirements would not only hurt our investors, but also tarnish the reputation of our equity market. By bringing the regulatory regime for listing in line with that for other types of market misconduct, such as insider dealing and stock market manipulation, we hope to demonstrate to the local and international investors our commitment to enhancing market quality."
To address market calls for swift actions to be taken by SFC, the Government will also amend SFO to allow SFC to impose direct civil sanctions, namely reprimands and disqualification orders, on specific, well-defined "primary targets" for breaches of the statutory listing requirements. It is the consensual view among the regulators that these "primary targets" should be the issuers, directors and corporate officers, who are primarily accountable for corporate disclosure and other corporate activities under the listing regime.
"We shall continue to rely on the regulatory framework under SFO, in particular the licensing regime, for SFC to regulate IPO sponsors. We note the efforts being made by SFC and HKEx to upgrade the regulation of sponsors," Mr Ma said. "We recommend that they should expedite action on this front."
Mr Ma noted that the Government aimed at introducing the Securities and Futures (Amendment) Bill into the Legislative Council in early 2005, as pledged by the Financial Secretary in his Budget Speech for 2004-05.
"To facilitate consideration of the Amendment Bill by the legislature and the public, we have invited SFC to endeavour to expose the draft rules on the more important listing requirements for public consultation before the Amendment Bill is introduced into the Legislative Council."
"The Government, SFC and HKEx will together review the need to extend the scope of these statutory rules to cover other listing requirements, in light of the regulatory experience, public reaction and market development needs," he added.
With these legislative changes, the existing dual filing system will be expanded accordingly. SFC will be responsible for enforcing the existing as well as the new statutory listing requirements.
"The Stock Exchange of Hong Kong Limited (SEHK) will continue to receive listing applications at the frontline, and no securities will be listed on SEHK unless they are approved by the SEHK Listing Committee," Mr Ma said.
The Consultation Conclusions also recommend a number of improvement measures to enhance the transparency and accountability of the performance of listing functions by both SFC and HKEx as follows -
(a) SFC and HKEx to enhance the transparency of their decisions relating to listing;
(b) SFC and HKEx to articulate in a public statement their division of responsibilities relating to listing;
(c) SFC to submit its reports on annual audit of HKEx's performance of listing functions to the Financial Secretary, who shall cause the reports to be published;
(d) SFC's regulatory oversight of HKEx's performance of listing functions to be a subject of regular review by the Process Review Panel (PRP);
(e) SFC and HKEx to invite the Independent Commission Against Corruption (ICAC) to study their respective procedures and practices for the performance of listing functions under the dual filing system; and
(f) monitoring of the implementation of improvement measures identified by ICAC's study through SFC's annual audits of HKEx Listing Unit, and PRP's annual reports on SFC's due process.
"We look forward to the continuing support by both SFC and HKEx for the early implementation of the legislative and administrative measures to enhance the effectiveness, transparency and accountability of the listing regime," Mr Ma said.
The Financial Services and the Treasury Bureau published on 3 October 2003 the Consultation Paper on Proposals to Enhance the Regulation of Listing. The Consultation Conclusions are available on the website of FSTB at www.info.gov.hk/fstb/fsb.
Ends/Friday, March 26, 2004
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