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Following is a question by the Hon Emily Lau and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (November 1):
Question:
Under the dual filing system, the Hong Kong Exchanges and Clearing Limited (HKEx) has to file copies of the listing applications and disclosure documents, submitted to it by listing applicants and listed issuers, with the Securities and Futures Commission (SFC). SFC may, within the period specified, require the relevant persons to supply further information, object to listings or impose conditions on not objecting to listings. In this connection, will the Executive Authorities inform this Council:
(a) as the Chairman of HKEx proposed last month that the dual filing system be reviewed, whether the authorities know the reasons for his putting forward the proposal;
(b) of the views of the securities sector on the operation of the dual filing system; and
(c) whether they have reviewed if there are any implementation problems with the dual filing system, such as double vetting; if so, of the review results; if not, whether they will conduct a review?
Reply:
Madam President:
The dual filing system was introduced under the Securities and Futures (Stock Market Listing) Rules (SFSMLR) which came into effect on April 1, 2003. The SFSMLR require corporations applying to list its securities for trading on the Stock Exchange of Hong Kong Limited (SEHK) to file copies of its listing application to the Securities and Futures Commission (SFC) after the same is submitted to the SEHK (dual-filing). To facilitate compliance and minimise any additional costs to a listing applicant, the Rules allow the applicant to fulfil this obligation by authorising the SEHK to file the material with the SFC on its behalf. Under the SFSMLR, SFC may require the applicant to supply further information in relation to the listing application and may object to the listing if the applicant fails to comply with such a requirement, if it appears to the SFC that the applicant has supplied false or misleading information in its application, or it is not in the public interest or in the interest of the investing public.
The SFSMLR provide that similar filing requirements will apply to public statements and other on-going disclosure of information by listed corporations pursuant to requirements under the SEHK Listing Rules.
With this dual-filing arrangement, the SFC may exercise its statutory powers to investigate persons who knowingly or recklessly provide false or misleading information in its statutory filing with the SFC. Where appropriate, the SFC may bring offenders to prosecution in the Court.
Our response to the specific questions is as follows -
(a) We note from media reports that the Chairman of the Hong Kong Exchanges and Clearing Limited (HKEx) has commented on the dual filing system.
To maintain and consolidate Hong Kong's status as an international financial centre and the premier capital formation centre for the Mainland, we have to keep the regulatory regime governing listing under constant review in tandem with changing market needs and international trends. The Administration and the regulators, i.e. the SFC and the HKEx all strive to keep on improving our regulatory regime to achieve this common objective.
(b) During the consultation on proposals to enhance the regulation of listing conducted by the Administration in late 2003 and early 2004, we noted from the submissions received that the dual filing system had been operating smoothly and had been well received by market users. It helps upgrade market quality without adding an undue compliance burden on the part of the issuers, or creating uncertainty in the market.
The SFC has also been tapping market views on the dual filing system through the Dual Filing Advisory Group which comprises experienced market practitioners. We understand from the SFC that the Group has been supportive of the present regime.
(c) To clarify the delineation of responsibilities between SFC and HKEx in administering the listing functions, they entered into the Memorandum of Understanding (MOU) Governing Listing Matters in January 2003 which sets out, amongst others, their division of responsibilities and the detailed procedures for handling the listing documents and ongoing disclosure materials filed with these two regulators. The MOU is a public document which can be found at the websites of the SFC and the HKEx.
To avoid duplication and facilitate communication with the market, the MOU provides that the SEHK remains the frontline regulator and the key contact point for listing applicants and their advisers during the listing process, while the SFC passes its comments to the SEHK. On average, the SFC responds to the SEHK with written comments on a listing application within seven business days. Where appropriate, the SFC would discuss any relevant issues in advance with the SEHK, thereby reducing any unnecessary duplication.
We note that the dual filing system which has strengthened the gate-keeping function for the securities market in respect of disclosure at initial public offering has been generally well received by the market. Having said that, we will not lose sight of the need for continuous improvement. The Administration is supportive of any plan or proposal initiated by the SFC and the HKEx to review or further improve the listing process, including the dual filing system.
Thank you, Madam President.
Ends/Wednesday, November 1, 2006
Issued at HKT 11:45
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