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:
http://www.sfc.hk/edistributionWeb/gateway/EN/consultation/openFile?refNo=16CP2
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