The Stock Exchange of Hong Kong Limited (the Exchange), a wholly owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), will not extend the post-vetting regime to announcements about very substantial transactions for the time being.

"The Exchange’s experience with the post-vetting regime has been positive,” HKEx’s Head of Listing Mark Dickens said.

"However, in light of the current diverse market views on the Rule interpretations for reverse takeovers, cash companies and sufficiency of operations or assets, publication of un-vetted announcements by issuers could cause significant market uncertainty where the transactions announced are not structured in compliance with the Rules.  In such circumstances, suspension of trading may be necessary to maintain a fair and orderly market before the issues raised by the Exchange are resolved.  Therefore, the Exchange considers it appropriate and necessary to continue to pre-vet these categories of announcements,” Mr Dickens added. 

The post-vetting regime was implemented on 1 January 2009 following market support in the consultation in 2008.  The Exchange adopted a phased approach to shift its regulatory focus from pre-vetting announcements to reviewing and monitoring them after publication. Under the current regime, the Exchange does not pre-vet a majority of announcements, including announcements about issues of securities, notifiable (major or below) transactions, connected transactions and matters involving trading arrangements.   

In the consultation conclusions published in 2008, the Exchange mentioned its intention to implement the final phase of the post-vetting regime to cover all the remaining categories of announcements 12 months after the second phase began, which would be about January 2011.   The Exchange notes continued pre-vetting of announcements about very substantial transactions for the time being is necessary to maintain a fair and orderly market.

Positive Experience with the Post-vetting Regime

The Exchange’s experience with the post-vetting regime has been positive.  The results indicate that issuers are generally able to comply with the Listing Rules under the new regime.  Between January and September, there were 24,489 post-vetted announcements of which 38 per cent were subject to detailed reviews.  The Exchange performed a high-level review of all announcements before the commencement of each trading session to evaluate suspension issues, and a detailed review of announcements related to more complex transactions during the day.

Of the announcements subject to detailed review, a large majority (95 per cent) required no follow-up or no further action after the Exchange’s initial follow-up.  Only 0.2 per cent required suspension pending clarification.  Non-compliance was handled through established procedures. 

Between January and September, only 1 per cent of issuers’ announcements were pre-vetted.  Experience has shown that these announcements are amongst those most likely to involve material compliance issues where the Exchange and the issuers had different views on Rule application:-

• Many of the Very Substantial Acquisition announcements raised issues about backdoor listings.  In some cases, the transactions were ruled to be reverse takeovers and the issuers would have been treated as new listing applicants if they had proceeded.  The issuers either revised the terms of the acquisitions or did not proceed with them. 
  
  
• Some Very Substantial Disposal announcements raised issues of whether the disposals would result in the issuers becoming cash companies or failing to have sufficient operations or assets under the Listing Rules.  Such issuers might become unsuitable for listing.  

The Exchange will monitor the developments and implement the final phase of the post-vetting regime when it considers it appropriate to do so.

Ends