The Securities and Futures Commission (SFC) and The Stock Exchange of Hong Kong Limited (Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today published the conclusions to their joint consultation on proposed enhancements to the Exchange's decision-making and governance structure for listing regulation (Note 1). After carefully considering market feedback, the SFC and the Exchange have decided to adopt the way forward as set out in the conclusions.
The conclusions clarify the role of the SFC as the statutory regulator which administers the Securities and Futures Ordinance (SFO) and the Securities and Futures (Stock Market Listing) Rules (SMLR), and which supervises, monitors and regulates the activities carried on by the Exchange, as well as the Exchange’s role as the regulator administering the Listing Rules (Note 2). The role of the SFC as a statutory regulator has evolved to have a more direct presence in more serious areas of listing regulation (Note 3).
A new Listing Policy Panel will be established as an advisory, consultative and steering body outside the SFC and the Exchange to initiate and centralise discussion of listing policies with broader regulatory or market implications (Note 4).
"The way forward will ensure that policy development is more agile, coordinated and responsive to emerging risks and market development imperatives and that listing decisions are made in a transparent, efficient and accountable manner," said Mr Carlson Tong, Chairman of the SFC. "The SFC, as the statutory regulator, will continue with its new front loaded approach to directly intervene in serious listing matters to protect our markets, and together with the enhancements announced today this will have a positive impact on both market quality and market development. Looking ahead, I believe the SFC and the Exchange are now well placed to meet the opportunities and challenges in driving Hong Kong’s competitiveness as an international financial centre."
"As the financial market’s pace of change continues to increase, we need to build on the existing structure and coordinate our regulatory efforts to address new market challenges," said Mr C K Chow, Chairman of HKEX. "Under the enhanced structure, the Exchange will remain listed issuers' primary frontline regulator and its Listing Committee will continue to make decisions under the Listing Rules, including decisions on suitability for listing. We will continue to work hard in relation to our regulatory responsibilities, and I am confident that, by the Exchange and the SFC working together to address issues as they emerge, our market will continue to thrive and remain both high quality and robust."
The role of the Listing Committee (Note 5) under the Listing Rules will remain unchanged. Going forward, the Chief Executive of HKEX will attend Listing Committee meetings as a non-voting member representing the HKEX's board only where listing policy matters are discussed, and will not attend Listing Committee meetings on individual cases.
The SFC will discharge its statutory oversight of the Exchange's listing function through a materially enhanced, published audit of the Listing Committee and the Listing Department (Note 6).
To enhance governance within the Exchange's structure for reviewing the Listing Committee's decisions, the Exchange will conduct a separate consultation in 2018 on the review system for decisions of the Listing Committee (Note 7).
A summary table in Appendix 1 of the conclusions paper sets out the main consultation proposals and conclusions.
- The SFC and the Exchange issued the joint consultation paper on 17 June 2016. A total of 8,793 submissions were received from a broad range of respondents.
- The Exchange will be the primary front-line regulator and will remain the contact point for all listing applications save in respect of concerns raised by the SFC under the SMLR, and will continue to make decisions for listing applications (including "suitability" for listing) and post-listing matters.
- Where listing applications raise concerns under the SMLR, the SFC will now interact directly with a listing applicant about its concerns, and the SFC and the Exchange will coordinate and cooperate to ensure the process is efficient. Once the SFC has formed the view that a case does not give rise to concerns under the SMLR, it will cease to review and comment on it. If the SFC concludes that its concerns under the SMLR are well founded, it will proceed to exercise its formal statutory powers under the SMLR to object to the listing. Its decisions are subject to appeal to the Securities and Futures Appeals Tribunal.
- The Listing Policy Panel comprises the chief executives of the SFC and HKEX, two senior executives of the SFC's Corporate Finance Division, the chairperson and two deputy chairpersons of the Exchange's Listing Committee, the chairperson of the SFC's Takeovers and Mergers Panel as well as two non-executive directors from each of the boards of directors of HKEX and the SFC.
- The Listing Committee will continue to comprise representatives of investors, listed issuers and market practitioners, and the Chief Executive of HKEX will continue to be an ex officio member of the Listing Committee.
- The audit will focus on whether the Exchange has discharged and is discharging its duties under the SFO.
- The proposals include replacing the Listing (Review) Committee and the Listing Appeals Committee with one or more independent committees which consist entirely of outside market participants, ie, with no current Listing Committee members or representatives of the SFC or HKEX. Until the implementation of necessary Listing Rule amendments resulting from the consultation process, the Listing (Review) Committee and the Listing Appeals Committee, and other aspects of the current system for the review and publication of listing decisions, will continue to operate unchanged.