The Listing Committee1 of The Stock Exchange of Hong Kong Limited (the Exchange), a wholly owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), has decided after considering the views of the board of the Securities and Futures Commission (SFC) that it will not proceed with its draft proposal2 on Weighted Voting Rights (WVR) at this time.
"The Listing Committee has decided, in light of the SFC Statement3, that it will not, at this time, proceed with finalising its draft proposal for discussions with stakeholders nor seek to put forward a proposal for a formal consultation as originally proposed in the Exchange announcement of 19 June 2015. It will, however, keep this matter under review," David Graham, HKEx's Chief Regulatory Officer and Head of Listing, said.
The Listing Committee's views on the acceptability of primary and/or secondary listings by companies with WVR structures are summarised below.
In an announcement of 19 June 2015, the Exchange said it would refine its draft proposal through discussions with stakeholders to ensure that it had the benefit of their views before putting forward a proposal for formal consultation on the acceptability of WVR structures. The Listing Committee is of the view that the draft proposal represented its best effort, after a considerable period of discussion, analysis and engagement with the SFC at staff level, to propose, for initial consultation across a broad range of stakeholders in advance of any formal consultation, a limited WVR regime that it believed addressed the competition concerns expressed in the Concept Paper on WVR (published in August 2014), and, at the same time, ensured appropriate ring-fencing and safeguards. The Listing Committee is conscious that it has worked on WVR for over two years and committed significant time and resources, in conjunction with the Listing Department to this area.
In light of the SFC Statement, the Listing Committee and the Listing Department considered whether the draft proposal could be modified in a way that would meet the stated concerns in the SFC Statement whilst providing a regime that would be likely to succeed in developing the Hong Kong market. Whilst the Listing Committee continues to believe that this is an important topic for Hong Kong and one that deserved the full attention of the Hong Kong market, it does not believe that progress can be made, currently, on a workable proposal for the primary listing of companies with WVR structures in Hong Kong.
The Listing Committee has concluded, however, that the Exchange should continue to monitor regulatory and market developments, both in Hong Kong and elsewhere, together with any broader Hong Kong initiatives around fostering innovation and capital formation, and the maintenance of Hong Kong’s standing as a leading international financial centre, which may require a further review on a modified proposal in due course.
On secondary listings, the Listing Committee notes from the SFC Statement that the SFC Board did not form a definitive view on a WVR regime for secondary listings. The Listing Department has since engaged with SFC staff on this matter and has identified that several of the SFC's stated concerns regarding the primary listings of WVR companies are also relevant to secondary listings.
After further consideration, the Listing Committee, in conjunction with the Listing Department, have concluded that there are no easy solutions to these concerns and no certainty that it would be able to develop a workable proposal that would gain SFC support. This being the case, the Listing Committee has again decided that, in the near term, the Exchange should not progress the matter further. In due course, the Exchange will likely re-visit the question of secondary listings as part of any future holistic review of its regime for the listing of overseas companies, including a review of the Joint Policy Statement Regarding the Listing of Overseas Companies (JPS) and the "centre of gravity" test4.
||The Exchange's Listing Committee acts both as an independent administrative decision maker and an advisory body for the Exchange.
||The draft proposal set out in Chapter 5 of the Exchange's Consultation Conclusions to the Concept Paper on Weighted Voting Rights (June 2015) stating that WVR structures would be permitted for certain companies in certain circumstances with certain safeguards.
||Published on 25 June 2015, the SFC Statement made clear that the SFC would not support a draft proposal for primary listings with WVR structures that: restricted eligible applicants to only those with very high market capitalisations; required the Exchange to make a subjective judgment on eligible applicants based on a set of "enhanced suitability" criteria; and ring-fenced WVR companies by restricting them to new applicants as these measures, when considered with other measures set out in the draft proposal did not, in the SFC's opinion, contain adequate safeguards and ring-fencing and anti-avoidance measures to address the risk of WVR becoming commonplace in Hong Kong.
||Paragraph 94 of the JPS states that an application for secondary listing from an overseas company that has its "centre of gravity" in the Greater China region will not be approved. The Exchange considers several factors to determine whether an overseas company has its "centre of gravity" in Greater China including where the company is headquartered, the location of its main business operations and assets and the nationality of its management and controlling shareholders or their country of residence.