| EXECUTIVE
SUMMARY |
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INTRODUCTION
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MAJOR FINDINGS
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CONCLUSIONS
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RECOMMENDATIONS
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Engaging the Market and the Public
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Assessing Market Reaction
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Improving the Consultation Process
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Reviewing the Three-tiered Regulatory Structure
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Strengthening Investor Education and Protection
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OTHER RECOMMENDATIONS
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FINAL REMARKS
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PART ONE
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BACKGROUND
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CHAPTER 1
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INTRODUCTION
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THE PENNY STOCKS INCIDENT
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APPOINTMENT OF THE PANEL
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SCOPE OF THE INQUIRY
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MODUS OPERANDI
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STRUCTURE OF THE REPORT
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CHAPTER 2
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OVERVIEW OF THE HONG
KONG STOCK MARKET
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INTRODUCTION
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OVERVIEW OF THE HONG KONG MARKET
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PENNY STOCKS OR MICRO CAPS
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KEY STAKEHOLDERS IN THE SECURITIES INDUSTRY
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Interested Parties
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Investors
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Securities Intermediaries
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Credit Providers
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OBSERVATION
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CHAPTER 3
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THE THREE-TIERED
REGULATORY FRAMEWORK FOR THE SECURITIES AND FUTURES INDUSTRY
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INTRODUCTION
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THE THREE-TIERED REGULATORY FRAMEWORK
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Origin of the Three-tiered Structure
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The First Tier - The Government
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The Second Tier - The SFC
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The Third Tier - The HKEx
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REVIEW AND REFINEMENT
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CHAPTER 4
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ORGANIZATION, COMMUNICATION
AND CONSULTATION CHANNELS
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INTRODUCTION
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RELEVANT PARTIES
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The First Tier - The Government
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The Second Tier-The SFC
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The Third Tier - The HKEx
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Segregation of HKEx' s Business and Regulatory Functions
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The Listing Committee
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CO-ORDINATION WITHIN AND AMONGST DIFFERENT PARTIES
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Within the First Tier - The Government
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Within the Second Tier - The SFC
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Within the Third Tier - The HKEx
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Between the First and Other Tiers
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Between the Second and Third Tiers
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CONSULTATION AND MARKET ASSESSMENT
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The Government
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The SFC
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The HKEx
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CHAPTER 5
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PROCEDURES FOR THE
PREPARATION AND RELEASE OF LISTING RULES AND AMENDMENT THERETO
BY THE HKEx
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INTRODUCTION
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LISTING
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AUTHORITY FOR MAKING OR AMENDING LISTING RULES
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Transfer of Authority from the SFC to the Exchange and
from the HKEx Board to the Listing Committee
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PROCEDURES FOR AMENDMENT TO THE LISTING RULES
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Four Stages
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Initiation
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Preparation and Release of Consultation Papers
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Market Consultation
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Approval
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OBSERVATIONS
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No Pre-consultation Sounding Exercise by the HKEx
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Involvement of the Listing Committee
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Role of the SFC
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CHAPTER 6
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THE ACCOUNTABILITY
SYSTEM AND ITS IMPLICATIONS
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INTRODUCTION
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ACCOUNTABILITY SYSTEM
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ROLE OF THE FINANCIAL SECRETARY
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ROLE OF THE SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY
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IMPLICATIONS OF THE ACCOUNTABILITY SYSTEM ON THE THREE-TIERED
REGULATORY FRAMEWORK
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Statutory Powers and Functions of the FS and the Secretary
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Responsibility over Executive Departments
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OBSERVATION
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| PART TWO |
PREPARATION AND RELEASE OF THE
CONSULTATION PAPER |
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CHAPTER 7
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PREPARATION OF THE
CONSULTATION PAPER
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INTRODUCTION
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IDENTIFYING PENNY STOCKS AS A PROBLEM
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FORMULATING THE PROPOSALS
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The Proposal in its Embryonic Form
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Subsequent Evolution
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The Main Communications
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How The Matter Developed
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EXCHANGES BETWEEN THE HKEx AND THE SFC
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Key Exchanges
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First Draft Paper on Share Consolidation
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The SFC's Comments on First Draft Paper on Share Consolidation
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Second Draft Paper on Share Consolidation
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The SFC's Comments on the Second Draft Paper on Share Consolidation
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First Draft of the Consultation Paper on Admission Eligibility
Criteria and Continuing Eligibility Criteria
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Second Draft of the Consultation Paper
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Third Draft of the Consultation Paper and the SFC' s Comments
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Fourth Draft of the Consultation Paper and the SFC's Comments
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Fifth Draft of the Consultation Paper and the SFC's Comments
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Sixth Draft of the Consultation Paper
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Sixth Draft Circulated to the Listing Committee
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Listing Committee Deliberation
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Finalizing the Consultation Paper
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Observations
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INVOLVEMENT OF THE GOVERNMENT
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Chronology of Events Involving the Government
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From October 2000 to November 2001
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December 2001 to January 2002
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Tripartite Meetings and Co-ordination Committee Meetings
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First Tripartite Meeting on 24 January 2002
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Coordination Committee Meeting on 1 March 2002
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Second Tripartite Meeting on 19 March 2002
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Third Tripartite Meeting on 7 June 2002
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SFST Assumed Office on 1 July 2002
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1 July to 24 July 2002
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Involvement of the Financial Secretary
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OBSERVATIONS
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COMMUNICATIONS WITH THE MARKET
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The HKEx
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The SFC
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Consultation Networks
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Consulting the Shareholders Group on the HKEx's Proposals
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Observations
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Shareholders Group Meeting on the 6 March 2002
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Advisory Committee Meeting on the 13 May 2002
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Government
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OVERALL OBSERVATIONS
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Formulating the Proposals
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Alternative Trading Platforms
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CHAPTER 8
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THE PRESENTATION
AND RELEASE OF THE CONSULTATION PAPER
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PRESENTATION
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TIMING FOR THE RELEASE OF THE PR PACKAGE
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TIMING FOR THE RELEASE OF THE CONSULTATION PAPER
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The HKEx' s Plan
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Why 25 July 2002?
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Why a Thursday?
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PRESS CONFERENCE
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DISTRIBUTION OF THE CONSULTATION PAPER
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CHAPTER 9
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THE SIX EVENTFUL
DAYS - 26TH TO 31ST JULY
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MARKET RESPONSE
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THE AFTERMATH
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Overview
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26 JULY 2002
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Morning and Early Afternoon
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The HKEx' s Press Statement
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The SFC's Press Statement
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The Secretary's Media Stand-up
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27 JULY 2002
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The HKEx' s Clarification and Extension of Consultation
Period
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Discussion between the FS and the Secretary
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28 JULY 2002
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Luncheon with Brokers
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Meeting at the FS'Residence
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Press Conference at 6:00 p.m.
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29 JULY 2002
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Preparing a Chronology of Events for the Secretary
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The FS'Remarks
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30 JULY 2002
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Discussion between the Bureau and the Secretary
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31 JULY 2002
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Clarification
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Preparation
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Special Meeting of the LegCo Panel on Financial Affairs
on 31 July 2002
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The Secretary
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The SFC Chairman
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Chief Executive of the HKEx
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CHAPTER 10
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WHAT HAPPENED ON
THE 26 JULY 2002 AND WHY
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INTRODUCTION
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GENERAL COMMENTS
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ECONOMIC OVERVIEW
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PRESS COVERAGE PRIOR TO THE ANNOUNCEMENT
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THE MARKET IN THE PERIOD FROM THE 26 JUNE 2002 TO THE 25
JULY 2002
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THE BEHAVIOUR OF THE MARKET ON THE 25 JULY AND THE 26 JULY
2002
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The 25 July 2002
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The 26 July 2002-Immediately after opening
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After 11:00 a.m. on the 26 July 2002
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LOSS IN MARKET CAPITALIZATION ON 26 JULY 2002
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CHURN RATE
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BEHAVIOUR OF DECLINING STOCKS PRIOR TO THE 26 JULY 2002
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THE MARKET SINCE THE 26 JULY 2002
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PRELIMINARY FINDINGS
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THE SAC's CONCLUSIONS
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THE PANEL'S VIEWS
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CHAPTER 11
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A CRITICAL REVIEW
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INTRODUCTION
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COMMENTS ON THE INCIDENT
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Underlying Spirit of the Consultation Paper
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Yardstick
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Number of Criteria
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Minimum Price Threshold and Scope of the Consultation
Paper
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Confusing Message
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Alternative Trading Platform
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Consolidation
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Under-estimating the Market Reaction
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Lack of Market Experience
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Bad Timing
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The HKEx' s Consultation Practices
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Consultation Not Genuine
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Lack of Communication between the HKEx and Market Players
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Neglecting the Interests of Small Investors and Companies
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No Contingency Plans and Wavering Attitude
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Authorities Shirking Responsibilities
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Lack of Coordination among the Authorities
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Comments on the HKEx
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Comments on the SFC
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Role of the FS
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Role of the Secretary (SFST)
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Comments on the Three-tiered Structure
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EVALUATING THE COMMENTS
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MINIMUM TRADING PRICE THRESHOLD
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The HKEx's Response
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The SFC's Views
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The Panel' s Views
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ALTERNATIVE TRADING PLATFORM
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The HKEx' s Response
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The SFC's Response
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The Panel's Views
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UNDER-ESTIMATING MARKET REACTION
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The HKEx' s Comments
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The SFC's Comments
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The Panel' s Views
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LACK OF MARKET SENSE
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The HKEx' s Comments
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The Panel' s Views
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NO CONSULTATION WITHIN THE HKEx NETWORK
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The HKEx' s Comments
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The Panel' s Views
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Listing Committee
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LACK OF COMMUNICATIONS WITH THE MARKET
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The HKEx' s Comments
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The Panel' s Views
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BAD TIMING
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The HKEx' s Comments
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The SFC's Comments
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The Panel' s Views
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CONSULTATION NOT GENUINE
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The HKEx' s Comments
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The Panel's Views
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CHAPTER 12
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ROLES OF INDIVIDUALS
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INTRODUCTION
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FINANCIAL SECRETARY
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His Involvement
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Division of Responsibility between the FS and the Secretary
under the New Accountability System
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Political Responsibility under the Accountability Systems
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Remarks on the 29 July 2002
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Observations
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SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY
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His Involvement
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His Responsibilities
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THE SFC CHAIRMAN
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His Involvement
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Remarks on the 28 July
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His Responsibilities
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CHIEF EXECUTIVE OF THE HKEx
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His Involvement
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His Responsibilities
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FINANCIAL SERVICES AND THE TREASURY BUREAU
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Involvement
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Responsibilities
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| PART THREE |
CONCLUSIONS AND RECOMMENDATIONS |
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CHAPTER 13
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CONCLUSIONS
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INTRODUCTION
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CONCLUSIONS
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Conclusion No. 1
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Conclusion No. 2
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Conclusion No. 3
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Conclusion No. 4
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Conclusion No. 5
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Conclusion No. 6
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Conclusion No. 7
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Conclusion No. 8
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Conclusion No. 9
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CHAPTER 14
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RECOMMENDATIONS
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SUMMARY OF RECOMMENDATIONS
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GENERAL RECOMMENDATIONS
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PREPARATION AND RELEASE OF CONSULTATION DOCUMENT
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Engaging the Market and the Public
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Making the Best Use of the Existing Network
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Expanding the network
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Ensuring a Broadly Representative Network
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Engaging the Market at an Early Stage
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Proposals by the Executive of the HKEx
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Assessing Market Reaction
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Improving the Consultation Process
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Reviewing the Three-tiered Regulatory Structure
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|
Strengthening Investor Education and Protection
|
|
|
OTHER RECOMMENDATIONS
|
|
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|
CHAPTER 15
|
FINAL REMARKS
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Last updated: October
17, 2002