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Stock Exchange Publishes Statement on Settlement of Cases Involving Listing Rule Breaches

Regulatory
22 Jun 2007

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), published today (Friday) a statement outlining the Exchange’s approach towards and criteria for settlement of disciplinary matters involving breaches of Listing Rules, and settlement procedures.

As the frontline regulator of listed issuers in Hong Kong, the Exchange has the statutory duty to ensure, so far as reasonably practicable, an orderly, informed and fair securities market in Hong Kong.  Enforcement is an important tool for the achievement of this regulatory objective.

There is already posted on the HKEx website under the Listing Matters and Listed Companies – Listing Enforcement section an article “The Stock Exchange’s Strategy for Enforcing the Listing Rules” which, among other things, outlines the major criteria adopted by the Exchange in determining whether to take disciplinary action when there are rule breaches.  The statement represents the Exchange’s continuing efforts to improve the efficiency, timeliness and effectiveness of its enforcement actions and is published in the interest of transparency to the market.  It outlines the Exchange’s approach towards and criteria for settlement as well as the settlement procedures.

A few key points in the statement are highlighted below:

1. Settlement has the benefit of saving the costs and time otherwise involved in a disciplinary action on the part of the relevant parties and the Exchange. It contributes towards the efficient and effective use of the Exchange’s regulatory resources;

2. Settlement is acceptable to the Exchange only if it results in an acceptable regulatory outcome;

3. Settlement may be proposed and negotiated at any stage of an investigation or in the course of a disciplinary action and is conducted on a “without prejudice” basis;

4. All settlements are subject to approval by the Listing Committee;

5. In its disciplinary efforts, whether by way of contested disciplinary action or settlement, the Exchange has been moving in the direction of not only punishing past misconduct but also requiring remedial actions to be taken with a view to ensuring and enhancing future compliance.  For example, if the Listing Committee is satisfied that serious rule breaches directly or indirectly result from lack of proper knowledge on the part of the Directors, the Listing Committee may direct that those Directors undergo a specified number of hours of training on Listing Rule compliance and corporate governance; and

6. Publicity is a necessary element in any settlement, effected by publication and despatch of press releases.

A copy of the statement can be found on the HKEx website under the Listing Matters and Listed Companies – Listing Enforcement section.

Updated 22 Jun 2007