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HKEx Publishes Consultation Paper on New Structure for Listing Decision-making

Corporate
Regulatory
18 Feb 2005

Hong Kong Exchanges and Clearing Limited (HKEx) today (Friday) published a consultation paper on a new structure for listing decision-making.

The consultation paper explains the proposed new structure and sets out draft amendments to the Main Board and Growth Enterprise Market (GEM) Listing Rules (together, the Rules) that would implement the structure.

"In the March 2004 Consultation Conclusions on Proposals to Enhance the Regulation of Listing, the Government extended an invitation to HKEx to consider how suggestions made during the Regulation of Listing consultation process concerning the composition and operation of the Listing Committee could be implemented. This consultation paper sets out proposals developed by the Listing Division in consultation with Securities and Futures Commision staff", HKEx's Head of Listing, Richard Williams, said.

Mr Williams explained that "the aim of the consultation proposals is to put in place a clearer and more efficient administrative framework for decision-making in listing matters, such as listing applications and suspected breaches of the Rules, whilst also preserving the checks and balances necessary to minimise and manage regulatory risk including real or potential conflicts of interest within HKEx."

HKEx seeks comment on the consultation paper by 22 April 2005.

The conclusion paper can be downloaded from the HKEx website at http://www.hkex.com.hk/eng/newsconsul/mktconsul/marketconsultation.htm. Copies are also available from the HKEx offices at 11/F, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong.

Background

Since July 1997, the Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of HKEx, and HKEx have been considering the scope for improvement to its administrative structure for making decisions about listing applications and breaches of the Rules.

In news releases dated 6 May 2002 and 24 July 2002 HKEx set out a proposed new structure. However, development of the proposed new structure was put on hold in light of the recommendations of the Expert Group and the subsequent consultation on the Regulation of Listing.

With the determination of the issues relating to the Regulation of Listing, it is now appropriate to recommence the consultation process regarding HKEx's listing decision-making structure.

The proposals set out in the consultation paper are informed by developments since 2002 including the Government's March 2004 Consultation Conclusions on Proposals to Enhance the Regulation of Listing.

The consultation proposals and draft Rule amendments have been prepared in consultation with the Securities and Futures Commission.

Summary of the consultation proposals

The consultation proposals address, amongst other things:

1. The current committee structure comprising the Listing Committee, GEM Listing Committee, Listing (Review) Committee and Listing Appeals Committee would be replaced with new decision-makers as follows:
  • a Listing Policy Committee (LPC);
  • a Listing Decisions Panel (LDP);
  • a Listing Review Panel (LRP);
  • an Adjudicator; and
  • a Disciplinary Review Panel (DRP).


Non-disciplinary

2.

The new LPC would have up to 28 members including one chairman and two deputy chairmen, who between them would chair all LPC meetings, the Chief Executive of HKEx (the CE), and at least eight investor representatives. It would be responsible for:

  • advising on and, as necessary, approving policy concerning listing matters including disciplinary listing matters;
  • considering and approving Rule amendments; and
  • approving material Rule waivers or modifications that are intended to have general effect.
3. Each LDP would be drawn from the pool of members of the LPC excluding the LPC chairman and deputy chairmen. The LDP would be responsible for significant first instance listing application and delisting decisions. The Listing Division would make all other first instance listing-related decisions.
4. Each LRP would consist of one of the chairman or deputy chairmen of the LPC and four members from the LDP pool. The LRP would be the sole review body for all non-disciplinary decisions, unlike the current arrangements, which provide in certain cases for two stages of review from an initial decision.
5. The Listing Committee's existing oversight role would be modified. Specifically, it is proposed that the Rules be amended so that the Exchange Board delegates certain decision-making power directly to the Listing Division, subject to revised oversight mechanisms. However, considering the proposals provide for the most important non-disciplinary decisions to be made by the LDP, for any decisions made by the Listing Division to be reviewable by the LRP, and for the LPC to have a central role in policy formulation and approval, the proposed changes should not have an adverse effect on the substance of arrangements to manage regulatory risk including real or potential conflicts of interest within HKEx.
6. As under the current structure, seeking a review of a decision would involve payment of a review fee. Otherwise, the Rules would provide for each party to bear its own costs.
7. All members of the LPC, LDP and LRP would be eligible for a daily (or per diem) allowance.

Disciplinary

8. The Adjudicator would initially be a full-time staff member of HKEx appointed by the Exchange Board on the recommendation of HKEx's Head of Listing.
9. The Listing Division would be responsible for investigating and referring suspected breaches of the Rules to the Adjudicator.
10. The Adjudicator's decision-making processes would, save for exceptional circumstances, only be in writing. That is, there would not be an opportunity for the parties to make oral submissions.
11. Reviews of first instance disciplinary decisions would be de novo reviews and each review would be decided by a separately constituted DRP. The DRP would be the only review stage for disciplinary decisions, unlike the current arrangements, which provide for two stages of review of disciplinary decisions.
12. Each DRP would consist of five members drawn from a pool with a minimum 20 members including at least seven investor representatives and four legally qualified persons. The chairman of every DRP would have legal qualifications and be responsible for writing up the Disciplinary Review Panel's decision and reasons for its decision.
13. All members of the DRP would be eligible for a daily (or per diem) allowance.
14. As with non-disciplinary reviews, the Rules would provide for a fee to be paid for a review application.
15. In addition, the proposed sanctions available for use by the Adjudicator or DRP would include an order requiring parties to the proceedings to pay the reasonable investigation costs of the Exchange.
Timetable
Publication of the consultation paper on the HKEx website 18 February 2005
Comments due in response to the consultation paper 22 April 2005
Planned implementation of the final consultation conclusions Second half 2005

Updated 18 Feb 2005