Hong Kong Strengthens Listing Rules

by Mary Swire, Tax-News.com, Hong Kong

02 March 2007

A revised proposal on giving statutory backing to major listing requirements has achieved the right balance between creating an effective deterrent and avoiding over-regulation, according to Securities and Futures Commission Chief Executive Officer Martin Wheatley.

Releasing consultation conclusions on Thursday, Wheatley stressed that the revised proposal aims to bolster Hong Kong's position as a leading international financial centre by reinforcing the listing regulatory regime. The move will also boost investor confidence in the Hong Kong market and its competitiveness, he said.

The proposal's main features are:

• A set of general principles will be enshrined in the Securities & Futures Ordinance. These are fundamental obligations listed issuers must comply with, being statements of standards the market expects and reflecting the spirit behind existing listing requirements;
• A new schedule to the ordinance will explain the general principles, including the definitions and factors in determining compliance;and
• A non-statutory listing code will be issued to set out the more detailed and technical provisions to assist compliance.

The listing requirements covered are periodic financial reporting, disclosure of price-sensitive information and notifiable transactions, and connected transactions which require shareholders' approval.

Non-compliance with the general principles will be regarded as market misconduct. Non-compliance with the provisions of the schedule or the listing code may constitute a contravention of the general principles. In such cases the commission may take action in accordance with the proportionality principle, taking into account the conduct's seriousness; whether it was intentional, reckless or negligent; and whether it may have damaged the investors' interest or that of the investing public.

Serious cases will potentially be subject to the Commission's disciplinary action, Market Misconduct Tribunal proceedings - or criminal prosecution.

"The proposal seeks to address the insufficient investigation powers of the Stock Exchange and the limited sanctions available under the existing non-statutory listing rules," Wheatley said.

"The revised approach follows an international trend towards principles-based regulation and enables the regulator to address serious breaches that cause significant harm to the market, while minimising issuers' risk of incurring statutory liability due to minor breaches. This represents the right balance between creating an effective deterrent and avoiding over-regulation," he added.

Lawmakers will discuss the revised proposal on Friday. A bill will be tabled before lawmakers, and a draft code will be published for public consultation.

The commission will work closely with the Government and Stock Exchange on implementation arrangements, subject to legislative approval, and in particular will seek to ensure a smooth transition to the new regime.

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