SFC and Exchange concluded joint consultation on listing regulation

Introduction 

On 15 September 2017, the Securities and Futures Commission (the “SFC”) and The Stock Exchange of Hong Kong Limited (the “Exchange”) published the conclusions (the “Conclusions”) to their joint consultation on proposed enhancements to the Exchange’s decision-making and governance structure for listing regulation in June 2016.

This client alert summarises the key points of the Conclusions. 

Establishment of a new “Listing Policy Panel” 

Instead of establishing the originally proposed Listing Policy Committee, a Listing Policy Panel (“LPP”) will be established as an advisory, consultative and steering body constituted by memorandum of understanding arrangements between the SFC and the Exchange to initiate and centralise discussions on listing policy with broader regulatory or market implications.  The key features of the LPP are set out below:

Exchange will continue to make decisions under the Listing Rules while SFC will increase its direct presence in more serious listing matters 

The original proposal to establish a Listing Regulatory Committee to decide on cases with suitability concerns or broader policy implications will not be implemented.  The Exchange will continue to make all decisions under its Listing Rules (including decisions on suitability of listing).

The LC’s role will remain unchanged.  The Chief Executive of HKEX will not attend LC meetings on individual cases, but will attend LC meetings as a non-voting member representing the HKEX’s board only where listing policy matters are discussed (primarily quarterly policy meetings).

The SFC’s new approach to the regulation of listing matters was unveiled earlier by Ashley Alder, the SFC’s Chief Executive Officer, in his speech at HKSI luncheon in July 2017.  The new approach has increased the SFC’s direct presence in more serious listing matters that fall within the scope of the Securities and Futures (Stock Market Listing) Rules (the “SMLR”) or the Securities and Futures Ordinance more generally.

The key features of the SFC’s new approach to processing new listing applications are set out below:

• If the SFC forms the view that it is more likely than not to object to a new listing application under the SMLR, it will promptly issue a “letter of mindedness to object” (“LOM”) with detailed reasons for its concerns directly to the listing applicant. Discussions of the SFC’s concerns will be conducted directly between the SFC staff and the applicant and its advisers.
• If the SFC staff form the view that an applicant’s submission(s) in response to the LOM are inadequate, they will issue a “final decision notice” (“FDN”) to object to the listing application.  That decision is subject to review by the Securities and Futures Appeal Tribunal (“SFAT”).
• If the SFC staff determine that a listing application does not raise concerns under the SMLR, they will cease to review and comment on that case. 

Consistent with the approach taken for new listing applications, if and to the extent the SFC is minded to exercise its power to object to a listing application by a listed issuer (e.g. for a follow-on equity offering) based on the grounds set out under the SMLR, it will normally issue an LOM. If the SFC makes a determination to object to the listing application, it will issue an FDN setting out the reasons for its decision directly to the issuer. 

Separate consultation on the review system for listing decisions and the Exchange’s disciplinary powers and sanctions

The Exchange will conduct separate consultations in 2018 on the review system for listing decisions in relation to the following matters:

• whether to replace the current Listing (Review) Committee and the Listing Appeals Committee with one or more independent committees solely comprising outside market participants with no current LC members or representatives of the SFC or HKEX;
• whether to maintain a two-tier review structure for the LC’s decisions;
• the LD’s right to seek review of the LC’s decision if the LC overturns, modifies or varies a LD decision on matters involving listed issuers; and
• whether decisions made by the proposed new review committees should be routinely published on a reasoned basis.

The Exchange will also conduct a separate consultation on its disciplinary powers and sanctions in due course.