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1 November, 2017
The Securities and Futures Commission (the “SFC”) and The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) issued a joint consultation paper on proposed enhancements to the Stock Exchange’s decision-making and governance structure for listing regulation on 17 June 2016, which sought for public feedback for a period of five months. A total of 8,793 submissions were received in response to the consultation and on 15 September 2017, the SFC and the Stock Exchange published conclusions to the consultation, containing details on, amongst others, a new listing policy panel, listing applications and procedures, and the review of listing decisions.
New Listing Policy Panel
According to the conclusions, a new Listing Policy Panel (the “LPP”) will be established as an advisory, consultative and steering body outside the SFC and the Stock Exchange to initiate and centralise discussion of listing policies with broader regulatory or market implications. The LPP will be formed outside of the Stock Exchange and the SFC through memorandum of understanding arrangements.
The LPP will comprise the chief executives of the SFC and Hong Kong Exchanges and Clearing Limited (the “HKEX”), two senior executives of the SFC’s Corporate Finance Division, the chairperson and two deputy chairpersons of the Listing Committee of the Stock Exchange, the chairperson of the Takeovers Panel and two non-executive directors from each of the boards of the HKEX and the SFC.
Listing applications and the roles of the SFC and the Stock Exchange
The conclusions clarify the role of the SFC as the statutory regulator which administers the SFO and the Securities and Futures (Stock Market Listing) Rules (the “SMLR”), and which supervises, monitors and regulates the activities carried on by the Stock Exchange. The SFC will now have a more direct presence in more serious areas of listing matters that fall within the scope of the SMLR or the Securities and Futures Ordinance as well as acting as a “real time” gatekeeper.
IPO applications will continue to be received by the Stock Exchange and filed with the SFC. However, a listing applicant will be communicating directly with the SFC when the SFC raises concerns under the SMLR (i.e. the SFC forms the view that it is more likely than not, given the known facts and circumstances, that an objection will be raised under the SMLR) upon issuing a “letter of mindedness to object”. Once it is determined that the application does not raise concerns under the SMLR, the SFC will cease to review and comment on it.
The Stock Exchange will continue as the primary front-line regulator and contact point for listing applications save in respect of concerns raised by the SFC under the SMLR. The current application and vetting process will remain in place, for instance, the Stock Exchange will still make decisions under the Listing Rules including decisions on suitability for listing and the Listing Committee will continue to make decisions under the Listing Rules.
Review of Listing Decisions
The SFC is of the view that one or more independent committees consisting entirely of outside market participants with no current Listing Committee members or representatives of the SFC or HKEX should be established for reviewing listing decisions. The Stock Exchange will conduct a separate consultation on this and the replacement of the Listing (Review) Committee and the Listing Appeals Committee in 2018.
Other Matters
There were also other proposals in the 2016 consultation including the establishment of new disciplinary committees, where one committee will act as the body responsible for the oversight of the listing function. However, these have not been adopted as mentioned in the conclusions.
The role of the Listing Committee of the Stock Exchange remain unchanged. The chief executive of the HKEX will attend Listing Committee meetings only where listing policy matters are discussed and not meetings on individual cases.
Furthermore, the conclusions discuss about the SFC discharging its statutory oversight of the Stock Exchange’s function through a materially enhanced, published audit of the Listing Committee and the Listing Department, with a focus on whether the Stock Exchange has discharged and is discharging its duties under the SFO.
Norman Hui, Partner, Eversheds Sutherland
normanhui@eversheds.com
