Hong Kong's SFC Takes On Stock Exchange Powers

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

08 May 2002

Hong Kong's Securities and Futures Commission has issued consultation documents on two sets of proposed stock market rules, the Draft Securities and Futures (Stock Market Listing) Rules and the Draft Securities and Futures (Transfer of Functions - Stock Exchange Company) Order.

The two sets of rules would form part of subsidiary legislation under the recently enacted mammoth Securities and Futures Ordinance. The fact that the SFC is marching onto the territory of stock exchange regulator Hong Kong Exchanges and Clearing reflects dissatisfaction with the effectiveness of HKEx as a policman when it has the interests of its member firms at heart and is also a profit-making company in its own right.

Executives who lie or mislead the public in listing documents or corporate announcements face criminal prosecution under the new rules. Anyone who intentionally or recklessly provides false or misleading information could face a maximum penalty of two years in jail and a fine of HK$1 million.

Companies will have to file a copy of their listing prospectus with the SFC, which will have the power to reject listings, and companies will also have to file copies of disclosures such as annual reports, circulars and announcements of price-sensitive developments with the SFC. It may refer suspected offences other than disclosure abuses to the Commercial Crime Bureau or the Market Misconduct Tribunal to be established under the Securities and Futures Ordinance.

Some commentators said that the new proposals did not go far enough, and that the SFC should take over the whole stock exchange regulatory function from HKEx, but an SFC spokesperson said there was no intention of going that far, and HKEx would remain the front-line regulator for the stock exchange.

The proposals are open for consultation for just one month, and are likely to go into effect before the end of the year.

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