United States: Governance & Securities Law Focus: Asia Edition, July 2016


The SFC and the Stock Exchange Launch Joint Consultation on Proposed Enhancements to the Stock Exchange's Decision-Making and Governance Structure for Listing Regulation

On 17 June 2016, the Securities and Futures Commission ("SFC") and The Stock Exchange of Hong Kong Limited (the "Stock Exchange") jointly launched a consultation on proposed enhancements to the Stock Exchange's decision-making and governance structure for listing regulation (the "Proposals"). Under the Proposals, the Stock Exchange will continue to be the frontline regulator for listing matters. The SFC's powers and functions in relation to listing matters will remain unchanged, but the ways in which those powers and functions are exercised and performed will be enhanced.

The Current Regime

Under the existing regulatory regime, the Stock Exchange is responsible for making new Listing Rules and Listing Rule amendments, subject to the prior approval of the SFC. In addition, the SFC has powers under the Securities and Futures Ordinance (Cap. 571) to supervise and monitor the Stock Exchange in the performance of its listing function. The SFC may object to listing applications and listing applicants must file listing applications and draft listing documents with the SFC via the Stock Exchange.

To ensure the independence of the Stock Exchange's regulatory function, the board of directors of the Stock Exchange has delegated its powers and functions relating to listing matters, including formulation of listing policy, to the Listing Committee. The Listing Committee is currently comprised of 28 members, including representatives of investors, listed companies, market practitioners and the Chief Executive of Hong Kong Exchanges and Clearing Limited ("HKEX"). As members of the Listing Committee are only available on a part-time basis, the Listing Committee has delegated a range of listing powers and functions to be discharged by the Listing Department and the Chief Executive of the Stock Exchange. The Listing Committee has retained the role of oversight and acts as an independent review body for decisions made by the Listing Department and the Chief Executive of the Stock Exchange.

The Proposals

The Proposals introduce structural and procedural enhancements to the above regulatory and decision-making process. Two new committees, each with equal representation from the SFC and the Stock Exchange, will be established. For matters within the mandates of the new committees, the Listing Committee will act as an advisory body and provide the committees with non-binding views.

Listing Policy Committee

The Listing Policy Committee will be established to initiate, steer and decide Listing Rule amendments and overall listing policy. The committee will comprise of:

  • the Chief Executive of HKEX, the Chairperson and two Deputy Chairpersons of the Listing Committee; and
  • the Chairperson of the Takeovers and Mergers Panel, the Chief Executive Officer of the SFC and two senior executives from the Corporate Finance Division of the SFC.

Under the Proposals, the Chief Executive of HKEX will no longer be a member of the Listing Committee, and instead will become a member of Listing Policy Committee as referred to above.

The Listing Policy Committee will also replace the Listing Committee as the body responsible for oversight of the listing function and the Listing Department's performance within the Stock Exchange. The Listing Department will remain within the Stock Exchange but, under the proposed regime, will report to the Listing Policy Committee on its work.

Listing Regulatory Committee

The Listing Regulatory Committee will be established to decide on initial listing applications and post-listing matters that have suitability concerns or broader policy implications. The committee will comprise of:

  • the Chairperson and two Deputy Chairpersons of the Listing Committee; and
  • three senior executives from the Corporate Finance Division of the SFC.

The Listing Committee, together with the Listing Department, will continue to decide a large majority of initial listing applications and post-listing matters which do not involve suitability issues or give rise to broader policy implications. To enhance the structure for reviews of listing decisions, the Listing Regulatory Committee will replace the current Listing (Review) Committee as the review body for decisions made by the Listing Committee.

According to the consultation paper, the Proposals aim to provide the SFC with earlier and more direct input on listing matters, establish clearer accountability for decision-making in listing regulation, achieve closer coordination and cooperation between the SFC and the Stock Exchange on policy formulation and simplify the process for initial listing applications. As part of the Proposals, the SFC will no longer, as a matter of routine, issue a separate set of comments on statutory filings made by new applicants.

The three-month consultation will end on 19 September 2016. The joint consultation paper is available at:



SEC and NYSE/Nasdaq Developments SEC Proposes to Revise Regulation S-K

On 13 April 2016, the US Securities and Exchange Commission ("SEC") issued a concept release seeking public comment on modernising certain business and financial disclosure requirements in Regulation S-K. The concept release seeks comment on 340 questions organised around three broad topics: (i) the disclosure framework of Regulation S-K; (ii) the specific business and financial requirements of Regulation S-K; and (iii) the presentation and delivery of disclosure in periodic reports.

The concept release reviews the current line item requirements of Regulation S-K that relate primarily to core company business information, company performance, financial information (other than financial statements) and future prospects and risk management. The release does not address executive compensation or corporate governance, but SEC Chair Mary Jo White has made clear that these topics will be part of the SEC staff's future review of disclosure effectiveness.

The SEC is seeking feedback on whether disclosure of public policy and sustainability matters (i.e., environmental, social and governance concerns) are important to investors and thus should be disclosed by SEC reporting companies as material information.

The concept release also delves into whether the scaled disclosure requirements ought to be extended in an effort to reduce the burden and costs of disclosure compliance on smaller companies.

Notably, the SEC's concept release raises the question of whether quarterly reporting for US domestic issuers on Form 10-Q should be discontinued, or, in the alternative, whether quarterly reporting should be eliminated for smaller reporting companies and replaced with semi-annual reports.

The deadline for submitting comments on the concept release is 21 July 2016.

For the full list of topics seeking public comment, please see the official SEC concept release here:


SEC Adopts "Publish What You Pay" Rules for Resource Extraction Issuers

On 27 June 2016, the SEC adopted a final rule requiring resource extraction issuers to disclose payments made to the US federal government or a foreign government if the issuer engages in the commercial development of oil, natural gas or minerals and is required to file annual reports with the SEC under the Securities Exchange Act of 1934 (the "Exchange Act") (Form 10-K, 20-F or 40-F). Issuers must also disclose payments made by subsidiaries or other entities controlled by the issuer and that are consolidated for purposes of the issuer's financial statements.

Resource extraction companies will be required to disclose the following types of payments made to governments or state-owned enterprises: (i) taxes, including taxes levied on corporate profits, income and production but excluding taxes levied on consumption (i.e. VAT); (ii) royalties; (iii) fees (including licence fees); (iv) production entitlements; (v) bonuses, including signature, discovery, and production bonuses; (vi) dividends, except those paid to a government as a common or ordinary shareholder under the same terms as other shareholders; (vii) infrastructure payments; and (viii) community and social responsibility payments required by law or contract.

In the case that a resource extraction issuer acquires a company not previously subject to "publish what you pay" reporting, it will not be not be required to report payment information for the acquired company until the filing of a Form SD for the first fiscal year following the acquisition. The rules also permit reporting of payments related to exploratory activities to be delayed by one year.

For more information, please see the official SEC Final Rule here:


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