Hong Kong Exchanges and Clearing Limited (HKEx) has noted an incorrect report in today's Oriental Daily News headed "Serious listing backlog in HKEx". In response to media enquiries, HKEx wishes to make the following clarification.
The Progress of Listing Approval
The article is misleading to suggest that HKEx has a serious backlog of listing applications. The IPO progress report issued on 30 September 2002 showed that the Listing Division was processing 40 Main Board and 61 GEM listing applications. About 48.5 per cent of these applications were submitted in August and September. Since it takes time to complete the approval procedures, it would not be fair to say there is a backlog.
It is also incorrect to say that the Listing Division is only able to process about a dozen listing applications each month. The Listing Division's review procedures begin as soon as an application is received. In other words, the Listing Division was processing 101 applications at the end of September.
The figures quoted by the article also fail to count the newly listed companies of each month. There were 11 newly listed companies in May, 13 in June, 13 in July, 9 in August and 6 in September. In the nine months to September, 91 listing applications (47 Main Board and 44 GEM companies) successfully listed on the Exchange.
Listing applications processed by the Listing Division and successful listing were no fewer in 2002 than in previous years. There were 88 newly listed companies in 2001 (32 on Main Board and 56 on GEM), 93 in 2000 (46 on Main Board and 47 on GEM) and 38 in 1999 (32 on Main Board and 6 GEM) (Note: GEM was introduced in November 1999). Given three more months to come before the year ends, the number of newly listed companies in 2002 is expected to exceed those of the previous three years.
The allegation that HKEx failed to process listing applications efficiently because of inadequate manpower is not supported by fact.
Human Resources for listing regulation
HKEx has repeatedly stressed that despite being a listed company, its objectives to obtain profits or commercial benefits are built on the long-term interests of the Hong Kong market. That is why HKEx has always been committed to improving the quality of its markets and it will not sacrifice market quality just to increase the number of listed companies.
HKEx has devoted considerable regulatory resources over the past two years to raise the standard of market regulation. Though total HKEx staff number has been reduced by more than 25 per cent since the merger, the Listing Division has never stopped filling vacancies over the past few years and creating new posts to meet the increasing regulatory workload. Early this year, HKEx strengthened the manpower of the Listing Division by creating a senior position. In July HKEx announced the appointment of Richard Williams as senior vice president of the Listing Division. Mr. Williams formerly worked in the Financial Services Authority in the UK. He reported duty last week.
To fulfil its regulatory functions, HKEx has always been concerned about the human resources of its regulatory units. There are currently 100 staff in the Listing Division, 84 of them are professionals and 16 are clerical staff. This compares with 68 professionals and 20 clerical staff at the Listing Division at the end of March 2000 and 75 professionals and 20 clerical staff at the end of 2001. Of the existing 84 professionals, 51 are qualified accountants and 18 are lawyers and the rest come from finance-related backgrounds.
Like other professional organisations, the Listing Division also encounters a braindrain problem from time to time. This is especially so for the middle and senior level when the market is bullish. However, the turnover of Listing Division staff is not as severe as the article suggests. Staff turnover at the Listing Division has steadily improved from 34 per cent in 2000 to 13 per cent at the end of September 2002.
Out of the 84 professional staff of the Listing Division, 23 have worked in the Division for five years or more and among them, five joined the Division at least 10 years ago. Of the 31 staff in the senior manager grade or above, 18 have been with the Division for over five years. There are 22 professional staff who have worked for the Division for two to five years. In sum, professional staff with over two years of working experience at the Division represent 53 per cent of the Division's total staff. Their professional experience prior to joining HKEx has not even been mentioned.
Commitment to improving efficiency in listing approval
To ensure that both listing approvals and disclosures in prospectuses are of high quality, HKEx reviews the listing process from time to time to improve efficiency.
To this end, an HKEx study began early this year on the integration of the Listing Division's Prospectus Vetting and Accountancy team and the Corporate Finance team. Series of recruitment and training were carried out during the year. The new listing review process are expected to be implemented gradually in the fourth quarter.
The Corporate Finance Department has been a core unit in the vetting of listing applications. In general, it ensures that applicants meet listing requirements and are suitable for listing. Disclosure requirements for listing prospectuses prescribed in the Companies Ordinance are very much similar to those in the Listing Rules, and financial disclosure is a basic requirement in the Listing Rules. It should be a more sensible and workable solution for the Corporate Finance Department to handle these requirements as well.
Diverse expertise is required in the daily operations of the Listing Division, so various finance-related professional qualifications are considered when the Division recruit professionals over the years. This will ensure a balanced mix of talent in accounting, finance and law.
To support the new arrangement, HKEx commissioned in February a renowned legal firm and a leading international accounting firm to provide training to professionals at the Division on issues related to prospectus vetting, the Companies Ordinance and accounting practices, and to study issues that are frequently encountered.
HKEx believes all listing professionals could have a good knowledge of the Listing Rules including its financial disclosure requirements and basic company law requirements. For more complicated issues involving accounting standards, a specialised team led by experienced accountants has been established under the Listing Division to provide accounting support to the Corporate Finance Department when needed.
Despite the provision of training to staff and the requirements on staff to possess basic skills in reviewing listing applications, HKEx is not demanding an employee of a particular profession to turn into a specialist in another. Furthermore, listing applications are handled by working teams of the Listing Division so that team members with different expertise can support each other. Listing applications are not vetted by one person as suggested in the report.
Sufficient Internal Checks and Balances
Like other units under HKEx, the Listing Division is subject to periodic review by HKEx's Group Internal Audit, which reports to HKEx's Audit Committee which is comprised of non-executive directors. Furthermore, the SFC also supervises and monitors the operation of the Listing Division.