Hong Kong Exchanges and Clearing Limited (HKEx) today submitted its views on each of the Government's and the Securities and Futures Commission's (SFC) consultation documents on proposals aimed at giving statutory backing to major listing requirements.

A summary of the key observations made by HKEx in its combined response to the Government and the SFC is set out below.

"HKEx continues to support statutory backing for the more important Listing Rule requirements in order to achieve the objective recommended by the Government's March 2004 Consultation Conclusions on Proposals to Enhance the Regulation of Listing, that is, to give additional enforcement "teeth" to key listing requirements", HKEx's Chief Executive, Paul Chow, said.

Mr Chow continued "However, HKEx is concerned that the proposals, in particular, the draft rules, go beyond what was proposed in the 2004 Conclusions and beyond what is in our view necessary and appropriate to achieve that objective. We look forward to working with the Government and the SFC as well as the rest of the market and the Hong Kong public to settle these issues in a manner that will work most effectively for Hong Kong".

The full text of HKEx's submission can be found on the HKEx website.

Summary of HKEx submission

1. HKEx continues to support statutory backing for the more important Listing Rule requirements as proposed in the Government's Consultation Conclusions on Proposals to Enhance the Regulation of Listing (ROL Conclusions). HKEx submits that the proposed legislative provisions, in particular the Securities and Futures (Stock Market Listing) Rules (SMLR), should give effect to the ROL Conclusions.
   
   
2. HKEx is concerned that the draft SMLR go beyond what was proposed in the ROL Conclusions and what is necessary and appropriate to achieve the objective of the ROL Conclusions i.e. to give additional enforcement "teeth" to key listing requirements. The current proposals would result in significant administrative and enforcement duplication between the Stock Exchange of Hong Kong Limited (Exchange) and the SFC. This is inconsistent with the recommendation in the ROL Conclusions that the Exchange continue to be the frontline regulator.
   
   
3. HKEx submits that there should be a clear principle that the Exchange administers and interprets the Listing Rules and the SFC enforces those requirements which receive statutory backing.
   
   
4. Apart from periodic financial reporting, the only requirements that should be incorporated into the Securities and Futures Ordinance (SFO) and SFC rules are the key requirements for the protection of investors and the reputation of the market, namely, the general obligation of disclosure and prior independent shareholder approval for material connected party transactions.
   
   
5. The statutory requirements should be revised such that:
   
   
   1. the key provisions are set out in the SFO (rather than the statutory listing rules). Those provisions would include the general obligation to disclose price sensitive information, the requirements as to the publication and contents of periodic financial reports (with the form and content set out in the regulations) and the prohibition on connected transactions (although the definition of associate could be in the regulations). Prohibiting conduct, particularly when the possible consequences of engaging in such conduct include criminal prosecution, is the responsibility of the legislature. HKEx does not agree that the SFC should have the broad rule making power it has been given under the proposed amendments to section 36 of the SFO. Subsidiary legislation should fill in the detail and procedures not set the main requirements.
      
      
   2. the obligations are clearly defined and the SFC's role is clearly confined to investigate breaches of those obligations and the SFC does not have power to waive, interpret or otherwise administer the relevant listing requirements; and
      
      
   3. the SFO differentiates sanctions depending on the nature of the conduct.
      
      
6. As regards the proposed sanctioning powers, HKEx supports the SFC having the power to impose limited fines. However, HKEx considers that a power for the SFC to disqualify directors is unnecessary. None of the US, UK, Singapore or Australian statutory regulators has an equivalent power.
   
   
7. Furthermore, there should be a clear differentiation between the level of sanctions the Market Misconduct Tribunal (MMT) can impose and those the SFC can impose. The absence of such clear differentiation may mean there is insufficient incentive for the SFC to take action before the MMT.
   
   
8. HKEx is concerned that some of the SFC's rules are not sufficiently clear or are very broadly worded but do not contain appropriate carve-outs or safe harbours. HKEx suggests a number of the proposed requirements would benefit from revision. The Financial Services and the Treasury Bureau (FSTB) and SFC might consider establishing a suitably qualified working group to assist with framing the key and substantive obligations in clear terms. HKEx would welcome the opportunity to contribute to such a working group and to a dialogue with the FSTB and the SFC in order to refine the proposed reforms.