Kong has the world's 10th largest securities market
and the second largest in Asia after Tokyo. As
of March 2000 the Hong Kong Stock Exchange and
the Futures Exchange were merged into Hong Kong
Exchanges and Clearing (HKEx). The launch of the
Growth Enterprise Market (GEM) in November 1999
for smaller and high growth companies has broadened
Hong Kong's stock market, although the timing
of GEM's launch was unfortunate, and the 'dotcom'
shakeout in 2000 weakened its initial impact.
The influx of Mainland China issuers into Hong
Kong, boosted by economic reforms, has accelerated
the growth of the Hong Kong market.
the most liquid overseas market for mainland enterprises,
Hong Kong's capital market will play a key role
in funding China's state-owned enterprises reform,
as well as its massive infrastructure development
was a good year for HKEx when a number of trading
records were set. Listings were up 55% on the
previous year and two of the three largest IPOs
in the world, AIA Group Ltd and Agricultural Bank
of China Ltd, took place on the exchange, which
raised USD20bn and USD12bn, respectively, in Hong
Kong. Total equity funds raised reached HKD850.1bn
by December 31, beating the previous annual record
of HKD642.1bn set in 2009. Funds raised by Chinese
mainland enterprises (IPO and post-IPO) reached
HKD466bn by year's end, well above the previous
record of HKD384.9bn set in 2006.
total number of shares traded in 2010 reached
just under 35 trillion by the end of the year,
surpassing 2008's record of 27.1 trillion. New
records were also set in trading turnover for
several instruments, including exchange-traded
funds, futures and options, index futures and
options, and stock options. The number of listed
companies on the exchange rose by 8.65% to 1,244
during 2010, and market capitalisation was just
under HKD30 trillion as at December 31, 2010,
17.86% higher than the end of 2009.
the end of the first quarter of 2011 there were
1,258 companies and a total of 8,200 securities
listed on the Main Board. Total turnover in the
first quarter in terms of value was HKD4.69 trillion
(up from HKD3.9 trillion in Q1, 2010).
the GEM there were 168 listed companies at the
end of Q1, 2011. Total turnover was HKD22.6bn
(down from HKD31.5bn in Q1, 2010) and total market
capitalisation stood at HKD137.8bn (down from
HKD134.7bn at the end of Q1 2010).
traded funds (ETFs) have been a strong growth
area for HKEx since the first one was listed in
2000. As of mid 2011, there were 76 ETFs listed
on the exchange, accounting for about 3.5% of
Strategic Plan 2010-2012
January 2011, HKEx launched the second year of
its Strategic Plan 2010-2012, focusing on three
key components: accelerating its platform infrastructure
upgrade and necessary market structure reforms,
reinforcing its position as a global listing venue
by promoting international listings, and developing
its renminbi (RMB) capability and Mainland compatibility.
HKEx said that it anticipates "significant
challenges" in pursuing these strategic initiatives
in 2011 while at the same time maintaining its
operational excellence and system reliability.
"With inherent conflict between those objectives,
the key is to determine when HKEx might be moving
too fast or not fast enough," the exchange
informed as part of its announcement on January
11. "Development pace cannot be at the expense
of system stability and market readiness; but
an overly conservative approach could result in
loss of critical strategic opportunities, especially
in today’s highly competitive environment
and rapidly changing industry landscape. While
HKEx will strive with full effort to achieve the
most optimal outcome, it should also recognise
that there is no magic formula for striking the
perfect balance and that no option is risk free
or cost free."
are HKEx’s major plans for the coming year
of trading hours in two phases: HKEx
is preparing internally for the implementation
of the first phase which is scheduled to begin
on 7 March, 2011. The second phase is scheduled
to be implemented on 5 March, 2012. HKEx believes
the proposed changes will improve the price
discovery function for Mainland-related securities
by increasing the overlap of trading hours with
Mainland exchanges. This will also strengthen
HKEx’s competitiveness by narrowing the
gap between its trading hour duration and those
of regional and global competitors.
trading of futures and options: HKEx
has been conducting a study and soft consultation
with market participants on the trading of futures
and options after their current market close
to help improve execution efficiency and trading
arrangements. HKEx plans to publish a consultation
paper to seek market views on the proposal in
the middle of this year.
of risk management regime: One of HKEx’s
strategic initiatives is to develop proposals
to enhance clearing house capital adequacy and
improve the securities market’s risk management
and access to liquidity to meet its current
and future needs, particularly in light of HKEx’s
growing business and experience with market
volatility. HKEx also aims to more closely align
its clearing houses with international standards
and best practices.
clearing: HKEx decided last month to
establish a clearing house by the end of 2012
for derivatives traded in Hong Kong’s
over-the-counter (OTC) market to support global
regulatory initiatives and take advantage of
business opportunities in OTC derivatives clearing.
HKEx believes the business has tremendous potential
for growth, particularly with the wider use
of RMB in international transactions. HKEx plans
to make an initial investment of $180 million
in the new clearing house using internal resources.
and derivatives market system capacity and technology
upgrades: The upgrade to the securities
market trading system (known as AMS/3.8) aims
for a 10-fold improvement over the existing
securities trading system capacity to achieve
an initial capacity of 30,000 orders per second
(scalable to 150,000 orders per second if necessary),
as well as an average order processing latency
of nine milliseconds. HKEx expects the upgrades
to be completed by the end of this year.
Generation Data Centre and hosting services:
In 2010, HKEx started preparatory work
to build its Next Generation Data Centre (NGDC)
in Hong Kong’s Tseung Kwan O Industrial
Estate. The NGDC will consolidate the primary
data centres for all of HKEx's markets and clearing
houses’ systems, as well as certain IT
development and support staff. HKEx currently
has primary data centres in two separate locations
in Hong Kong and backup centres in three other
locations in the city. The NGDC will be built
to meet the highest level of resilience, targeting
top-level Tier 4 data centre requirements, and
the LEED Gold standard, which is part of an
internationally recognised green building certification
of the scripless market model: The
consultation conclusions were published on 21
September of last year. The Securities and Futures
Commission (SFC) will consult the public this
year on new subsidiary legislation that will
set out in more detail how the scripless environment
and those that play a key role in that environment
will be regulated. A scripless regime will be
implemented in phases following the necessary
legislative changes and when the market infrastructure,
key operators and market participants are ready.
The first phase of the scripless regime is expected
to be implemented in late 2013.
at market close: HKEx will explore
possible options to enable execution at market
close in view of market needs and based on its
experience. Any future proposals will be put
forward for public consultation before implementation.
There is no timetable for this initiative.
of trading spreads: HKEx continues
to review its trading environment from time
to time and endeavours to enhance the efficiency
and liquidity of its markets. It does not have
a timetable for this initiative.
anonymity: While Hong Kong has a long
tradition of showing broker identity on securities
trading screens, HKEx is aware of some market
participants’ suggestions about providing
broker anonymity in its securities market’s
electronic trading system, which processes all
transactions. HKEx will closely monitor developments
in other international markets and will carefully
consider whether any changes are necessary.
It does not have a timetable for this initiative.
market access: Some brokers provide
designated connections for specific clients
and these clients can send orders directly to
HKEx's trading systems. In order to understand
the market practice and development trend as
well as the possible impact on our marketplace,
HKEx will study direct market access related
activities in its market and will work with
the SFC to ensure best practices have been adopted
by sponsoring brokers.
of clearing houses: HKEx is analysing
the cost and benefits of unifying its clearing
houses. This is a complex project which will
require careful, in depth consideration. HKEx
needs to be sure consolidation would be in the
best interest of the markets and Participants
before proceeding. A consultation on these proposals
will be announced in due course.
plans to expand its international listing base
further by accepting more overseas jurisdictions
as places of incorporation for listed issuers,
including India and South Africa. Last year, the
Listing Committee approved the US State of California,
Brazil, the Isle of Man, Japan and Italy as recognised
jurisdictions, bringing the total number of recognised
jurisdictions to 15. This is in addition to the
four jurisdictions stipulated in the Listing Rules,
namely Hong Kong, Mainland China, Bermuda and
the Cayman Islands.
exchange also plans to develop its renminbi-handling
capabilities and it is exploring the feasibility
of developing an RMB liquidity pool to assist
investors who do not have RMB to invest in RMB-denominated
securities. Such a mechanism would also facilitate
the listing of RMB-denominated products in Hong
Kong. HKEx is working with banks on foreign exchange
and other treasury arrangements for a RMB liquidity
pool. A timetable has not yet been determined
but HKEx hopes a liquidity mechanism can be introduced
in the second half of this year.
is also preparing its systems for RMB-related
products, including RMB futures. At the time of
the Strategic Plan's release, HKEx was in discussions
with potential market makers for RMB futures to
explore ways to connect their forex trading systems
to its trading system.
The principal regulator of Hong Kong’s securities
and futures markets is the Securities and Futures
Commission (SFC), which is an independent statutory
body established in 1989 by the Securities and
Futures Commission Ordinance (SFCO).
SFCO and nine other securities and futures related
ordinances were consolidated into the Securities
and Futures Ordinance (SFO), which came into operation
on 1 April 2003.
The SFC is responsible for administering the laws
governing the securities and futures markets in
Hong Kong and facilitating and encouraging the
development of these markets. Its regulatory objectives
as set out in the SFO are:
maintain and promote the fairness, efficiency,
competitiveness, transparency and orderliness
of the securities and futures industry;
promote understanding by the public of the operation
and functioning of the securities and futures
provide protection for members of the public
investing in or holding financial products;
minimise crime and misconduct in the securities
and futures industry;
reduce systemic risks in the securities and
futures industry; and
assist the Financial Secretary in maintaining
the financial stability of Hong Kong by taking
appropriate steps in relation to the securities
and futures industry.
SFC is divided into four operational divisions:
Corporate Finance Division is responsible for
the dual filing functions in relation to listing
matters, administering the Takeovers and Mergers
Code and Share Repurchases Code, overseeing
the Stock Exchange's listing-related functions
and responsibilities, and administering securities
and company legislation relating to listed and
Intermediaries and Investment Products Division
is responsible for devising and administering
licensing requirements for securities and futures,
and leveraged foreign exchange trading intermediaries,
supervising and monitoring intermediaries' conduct
and financial resources, and regulating the
public marketing of investment products.
Enforcement Division is responsible for conducting
market surveillance to identify market misconduct
for further investigation, undertaking inquiry
into alleged breaches of relevant ordinances
and codes, including insider dealing and market
manipulation, and instituting disciplinary procedures
for misconduct by licensed intermediaries.
Supervision of Markets Division is responsible
for supervising and monitoring activities of
the exchanges and clearing houses, encouraging
development of the securities and futures markets,
promoting and developing self-regulation by
Stock Exchange of Hong Kong (SEHK) operates as
a private entity. Thus when the stock market crashed
in 1987, the Securities Commission had no legal
authority to intervene in the affairs of the SEHK.
The regulatory infrastructure for the securities
industry has since been revamped and, in 1989,
the Securities and Futures Commission Ordinance
was enacted. The Ordinance provides the legal
basis for the SFC to supervise and regulate the
securities industry. The SFC now has the authority
to take actions necessary to protect the safety
of the securities market and to prosecute individuals
who breach securities market ordinances and codes.
of the Regulatory Structure
1991 the Securities (Insider Dealing) Ordinance
was amended, resulting in higher penalties for
insider trading. Fraud and misrepresentation are
also punishable by the SFC. Another ordinance
enacted in 1991 calls on a companys directors
and executives, as well as those who acquire more
than 10 percent of a companys voting shares,
to publicly disclose their dealings. Firms seeking
to list on the SEHK must make a prospectus publicly
available. The SFC has the authority to determine
which clearinghouses are permitted to settle accounts
and their rules of operation in order to ensure
a sound clearinghouse system.
November 2000 the Hong Kong Government introduced
the Composite Securities and Futures Bill which
combines and replaced all ten existing pieces
of securities and futures legislation. The new
law gives the SFC the power to regulate Internet
trading. In addition the SFC can also seize the
working papers of market professionals during
investigations. The Bill became law in 2001. An
independent non-statutory body, known as the Process
Review Panel, has been established to ensure that
the SFC's internal operations, including its investigative
and disciplinary procedures, are fair and consistent.
Despite the Securities and Futures Ordinance,
the Government was keen to see further integration
of financial regulation, modelled on the UK's
Financial Services Authority (FSA). The government
had been anxious for some time to address the
perceived conflict of interest created by the
fact that the stock market regulator, Hong Kong
Exchanges and Clearing (HKEx) is also itself a
profit-making listed firm.
March, 2004, it became clear that the SFC was
to be the sole regulator for listing sponsors.
SFC chairman, Andrew Sheng explained that: "In
line with the wishes of the market, there will
be a single regulatory regime for sponsors, and
both the HKEx and Commission agree that we will
enforce that regime."
went on to add that although investment banks
sponsoring companies hoping to list on the stock
exchange would not be expected to assume issuer
liability: "They have to be liable for their own
standards of conduct and their role in due diligence."
are pleased to note that there is overwhelming
support for giving statutory backing to certain
fundamental listing requirements and expanding
the dual filing system," announced the Secretary
for Financial Services and the Treasury, Mr Frederick
He continued: "The proposed improvement measures
set out in the Consultation Conclusions will contribute
towards a quality market. They will further strengthen
our position as the premier capital formation
centre for the Mainland and a major international
financial centre in the region."
will work closely with the Securities and Futures
Commission (SFC), the Hong Kong Exchanges and
Clearing Limited (HKEx) and all market users towards
this common goal," Mr Ma said.
The Consultation Conclusions recommended codifying
in the statute the more important listing requirements,
i.e. financial reporting and other periodic disclosure,
disclosure of price-sensitive information and
shareholders' approval for notifiable transactions.
This was to be achieved by subsidiary legislation
to be made by the SFC under s.36 of the Securities
and Futures Ordinance (SFO).
In parallel, the government proposed the introduction
of a Securities and Futures (Amendment) Bill into
the Legislative Council to the effect that breaches
of statutory listing requirements will become
a new type of market misconduct. Any persons who
breach the statutory listing requirements can
either be subject to civil sanctions imposed by
the Market Misconduct Tribunal under Part XIII
of the SFO, or criminal sanctions under Part XIV
of the SFO following prosecution.
Mr Ma added: "Any breach of statutory listing
requirements would not only hurt our investors,
but also tarnish the reputation of our equity
market. By bringing the regulatory regime for
listing in line with that for other types of market
misconduct, such as insider dealing and stock
market manipulation, we hope to demonstrate to
the local and international investors our commitment
to enhancing market quality."
To address market calls for swift action to be
taken by the SFC, the government also proposed
to amend the SFO to allow the SFC to impose direct
civil sanctions, namely reprimands and disqualification
orders, on specific, well-defined "primary targets"
for breaches of the statutory listing requirements.
It is the consensual view among the regulators
that these "primary targets" should be the issuers,
directors and corporate officers, who are primarily
accountable for corporate disclosure and other
corporate activities under the listing regime.
shall continue to rely on the regulatory framework
under the SFO, in particular the licensing regime,
for the SFC to regulate IPO sponsors. We note
the efforts being made by the SFC and HKEx to
upgrade the regulation of sponsors," Mr Ma observed.
"We recommend that they should expedite action
on this front."
The Securities and Futures (Amendment) Bill was
introduced in 2005.
September, 2006, the SFC announced that investors
suffering losses due to defaults by licensed or
registered intermediaries, securities margin financiers
and banks would be able to claim up to $150,000
through the Investor Compensation Fund Company.
SFC described "default" as meaning any situation
in which an intermediary, its employee or its
associated person is in bankruptcy, wound up or
insolvent or has committed breach of trust, defalcation,
fraud or misfeasance.
maximum claim was capped at $150,000 for both
securities and futures products traded on the
Stock Exchange of Hong Kong and the Hong Kong
Futures Exchange. Both margin clients and cash
clients are entitled to compensation if their
commission explained that investors lodging claims
need documents such as the client agreement, their
latest account statements, contract notes, proof
of payment, and deposit receipts for securities.
The more evidence a claimant can provide, the
easier it will be to deal with the claim.
Kong's Securities and Futures Commission and the
Financial Reporting Council signed a memorandum
of understanding, to enhance co-ordination and
exchange of information between the two parties,
in November, 2007.
to a government statement, the pact outlines the
working arrangements between the two bodies in
areas of potential authority overlap and matters
of common interest, so that they can discharge
their functions effectively and enhance investor
agreement also outlines the framework for case
referral, and establishes principal contact points
to ensure efficient and effective communication.
council's Chief Executive Officer MT Shum added
that he is confident that the two parties will
work together to enhance the financial reporting
integrity of listed entities in Hong Kong.
Financial Reporting Council is a statutory organisation
which launched in July, 2007. Its main functions
are to investigate - with respect to listed entities
- auditing and reporting irregularities, enquire
into non-compliance with financial reporting requirements,
and to require listed entities to address any
December 17, 2010, HKEx published two consultation
papers: one proposed changes to the requirements
for debt securities for professional investors
only (currently referred to in the Rules as listing
by selective marketing); the other proposed changes
to the Code on Corporate Governance Practices
(the Code) and certain Listing Rules relating
to corporate governance. The former paper proposes:
Presenting the Rules in more accessible language.
the definition of professional investor in the
Rules with the definition in the Securities
and Futures Ordinance.
provisions relevant only to retail investors
from the eligibility requirements for applicants.
the current detailed disclosure requirements
in listing documents with an obligation to include
information that is customary for offers of
debt securities to professionals. Existing requirements
to include responsibility and disclaimer statements
in prescribed forms and a statement limiting
distribution of the offering circular to professionals
will be retained.
the application procedures for applicants and
the vetting and approval procedures within the
Removing provisions relevant only to retail
investors from continuing obligations.
changes will bring us more into line with the
requirements of other stock exchanges and allow
us to offer processing times that are comparable
to those exchanges,” said Mark Dickens,
HKEx’s Head of Listing. “None of these
proposals will apply to debt offered to retail
investors in Hong Kong.”
consultation paper can be downloaded from the
HKEx website. Interested parties were encouraged
to respond to the consultation paper by submitting
the questionnaire. The deadline for replies to
the consultation paper was 18 February 2011.
proposed changes to the Code on Corporate Governance
Practices (the Code) and certain Listing Rules
relating to corporate governance, HKEx said that
the consultation paper is part of its ongoing
initiative to promote the development of higher
corporate governance standards. "Our proposed
changes are also generally in line with international
best practice,” said Mark Dickens, HKEx’s
Head of Listing. “We also propose revising
some Listing Rules that may be impractical or
burdensome to the market or may not meet their
intended corporate governance purpose.”
Code was introduced in January 2005. Since then,
market conditions locally and overseas have changed,
and HKEx believes an update to the Code and the
related Rules is warranted.
Under the proposals, some Code Provisions (CPs)
have been promoted to Rules because of their importance
and many Recommended Best Practices (RPBs) have
been upgraded to CPs. While issuers are required
to abide by the Rules, they continue to have the
flexibility to comply with the CPs. If issuers
decide not to adopt a CP, they must explain the
reasons for the decision in their corporate governance
report. For RBPs, issuers are encouraged, but
not required, to state whether they have adopted
In summary, the review and proposed rule amendments
include measures to:
Improve transparency by bolstering requirements
for disclosure and communication with stakeholders;
Enhance the quality of directors and company
secretaries by requiring training;
Require greater involvement in issuers’
board committees by independent non-executive
Recognise company secretaries’ contribution
to corporate governance and define their role
and function; and
Place emphasis on the leadership role of the
chairman of the board in corporate governance
of the proposals are highlighted below:
duties and time commitments: To strengthen
the accountability of directors, HKEx proposes
to expand the Rules on directors’ duties,
provide guidance to directors, and revise the
Code to recommend greater disclosure of time
commitments by directors, particularly INEDs.
HKEx also seeks market views on whether HKEx
should introduce a Rule or a CP to limit the
number of INED positions an individual may hold
and if so, determine the maximum number. If
there is strong support for such an approach,
HKEx will conduct a further consultation on
this specific topic before making any Rule change.
HKEx believes that increasing the number of
INEDs will promote better corporate governance
and proposes to introduce a Rule that INEDs
should constitute one third of an issuer’s
board. Since 21 per cent of issuers do not currently
meet this proposed requirement, HKEx proposes
a transitional period with full compliance mandatory
by 31 December 2012.
committee: HKEx proposes a rule to require
issuers to set up a remuneration committee.
The committee’s chairman and a majority
of the members must be INEDs. The board
should either delegate to the committee
authority to determine the remuneration
of executive directors and senior management,
or retain that authority, with the committee
taking an advisory role.
committee: HKEx proposes to upgrade the
current RBPs relating to the committee’s
establishment, composition and terms of
reference to CPs.
Corporate governance committee: HKEx proposes
to introduce new CPs that set out the duties
and composition of a corporate governance
committee. The Exchange also believes the
corporate governance committee should be
an RBP because some issuers may have resource
constraints and would prefer an existing
board committee to carry out the functions
of a corporate governance committee.
committee: HKEx proposes to revise the relevant
CP so that instead of once a year, the audit
committee should meet at least twice a year
with the issuer’s external auditor.
HKEx also proposes a new RBP stating that
the audit committee should establish a “whistleblowing”
policy enabling employees and those who
deal with the issuer to raise concerns.
Chairman and CEO: HKEx proposes
to revise the Code by upgrading existing RBPs
to CPs to emphasize the chairman’s role
and responsibility in leading the issuer’s
corporate governance efforts. HKEx also proposes
rules requiring that a chief executive officer
(CEO) who is not a director must disclose his
or her appointment, resignation, re-designation,
retirement or removal. The remuneration of a
CEO (if he or she is not a director) should
also be disclosed.
Other proposed changes cover areas including,
among others, directors’ training, communication
with shareholders, company secretary and board
consultation paper can be downloaded from the
Interested parties are encouraged to respond to
the consultation paper by completing and submitting
the questionnaire. The deadline for replies to
the consultation paper is 18 March 2011.
December 2010, the Exchange decided to amend the
Listing Rules to remove the requirements for issuers
to file printed documents with the Exchange. The
Rule amendments became effective on 1 January
changes are part of our continuing efforts to
streamline our document requirements and to reduce
paper consumption” said Mark Dickens, the
Head of Listing.
Under the amended Rules issuers will no longer
be required to submit printed copies of various
documents to the Exchange, including:
for repurchase mandates and the corresponding
resolutions passed at general meetings; and
respect to collective investment schemes, other
documents issued to holders of interests in
SFC, and The Stock Exchange of Hong Kong Limited
(SEHK), a wholly-owned subsidiary of Hong Kong
Exchanges and Clearing Limited, jointly released
Consultation Conclusions on November 26, 2011,
to allow the issue of paper application forms
for public offers of certain securities without
paper listing documents, subject to conditions
set out in a class exemption.
exemption will allow companies seeking to list
shares and debentures on SEHK by public offers
to distribute paper application forms as long
as the prospectus is available on the Internet,
subject to certain conditions. Similar waivers
will be granted to issuers of SFC-authorised collective
investment schemes that will be listed on SEHK.
proposal represents a balanced approach that facilitates
market efficiency without undermining investor
protection, given that investors will still have
access to printed prospectuses and that issuers
must satisfy exemption conditions and requirements,"
said Brian Ho, the SFC's Executive Director, Corporate
Finance. "We further hope that this initiative
will reduce wastage of paper prospectuses, in
line with environmental protection.”
Mixed Media Offer will give issuers greater flexibility
on prospectus information dissemination as the
popularity of Internet continues to grow,"
said HKEx's Head of Listing Mark Dickens. “While
a truly electronic environment for prospectus
information dissemination requires more careful
consideration, we continue to encourage issuers
to create shorter and more concise prospectuses.”
SFC and SEHK received wide support for the proposal
from professional associations, market practitioners,
law firms, members of the public and an environmental
The Exemption Notice, subject to negative vetting,
will become effective on 1 February 2011. The
Listing Rules amendments will take effect when
the Exemption Notice becomes effective.
Developments - Liberalization of the Renminbi
Chinese Premier Wen Jiabao announced in Singapore,
in November 2007, that he did not agree with the
cash withdrawal limits placed on Shenzhen banks,
they were hastily withdrawn, leaving the underground
pipeline that has been sustaining Hong Kong's
booming stockmarket in full flood.
Shenzhen banks' motives are good but they could
employ better methods," said Wen. "We
should have taken measures that were more effective
and that were acceptable to the public."
Chinese authorities are of course fully aware
of the flow of illegitimate cash to Hong Kong,
caused by Chinese exchange controls, and they
are under heavy pressure to liberalize the renminbi
(RMB). It was this that had led to the now-abandoned
'through-train' proposal to allow investment in
Hong Kong stocks through defined channels.
banks had set a daily withdrawal limit of RMB30,000
on personal accounts. "If the illegal fund
flow is not controlled, it will affect the financial
stability in the country, including Hong Kong,"
Wen said, but it's not clear what action Beijing
will now take.
not just the official banks that operate the pipeline:
the local equivalent of hawali money-exchange
networks are involved, and there are many parallel
unofficial links between individuals. In fact
the border is so porous that it's difficult to
see how some form of liberalization can be avoided.
Local estimates are that the daily flow of cash
between Hong Kong and Shenzhen amounts to several
of renmimbi trading in Hong Kong is in fact now
well under way. In April, 2004, the Bank of China
Hong Kong announced that it would begin issuing
credit cards and bank cards for use with the yuan.
The first renminbi bond issue by a Mainland financial
institution came in 2007. In August 2010, the
People's Bank of China (PBoC) announced that eligible
institutions outside the Mainland could take part
in a pilot scheme to make use of their RMB funds
to invest in the Mainland's interbank bond market.
2011, companies could be able to issue Chinese
RMB-denominated shares through initial public
offerings in Hong Kong, according to Charles Li,
Chief Executive of HKEx. A move to allow stock
issues in RMB, to be followed by equity derivatives
and other products within another five years,
would provide an additional outlet for offshore
investors with funds deposited in the currency,
in Hong Kong or elsewhere, following recent liberalization
measures allowing interbank transfers, trade settlements
in yuan, and yuan-based bonds and insurance policies.
investments might also provide the competitive
returns that have been so far lacking in RMB-denominated
products in other investment areas. Li disclosed
that he is hoping that those equity products with
more attractive yields would also encourage further
trading in the RMB market, particularly through
he was aware that the development of a yuan-denominated
equity market would not happen overnight. There
are various technical and regulatory barriers
to overcome, and liquidity in the market would
be a big problem. As in other markets, it would
be the case of progressing on a gradual basis,
continually demonstrating to the Chinese regulators
that possible risks to the internal RMB market
can be controlled.
was also bullish about Hong Kong’s future
as an international centre for RMB-denominated
products, in possible competition with Shanghai
and other cities in China. He pointed out that
Hong Kong is already an international financial
centre, and one which allows China to test the
market for new products in RMB, without any direct
effect on its domestic financial market.
on Foreign Investment
its bilateral agreement with the United States
over WTO accession, China made concessions on
foreign investment in the mainland's securities
market. Foreign securities firms can establish
joint ventures (with foreign ownership less than
1/3) to engage (without Chinese intermediary)
in underwriting A-shares, and in underwriting
and trading B- and H-shares, as well as government
and corporate debt within three years of accession.
as greater foreign ownership is allowed in telecommunications,
banking, insurance and other sectors, more mainland
firms will seek a listing in Hong Kong to tap
overseas funds. Restructuring among China's enterprises
(mergers and acquisitions) should increase in
preparation for intensified foreign competition.
Restructured mainland companies will rely more
on equity finance for expansion as part of the
regional trend, bringing more business to Hong
Developments since 2004
major element of HKExs mission depends on
demonstrating the effective discharge of its regulatory
responsibilities. The Listing Division has a keen
and continuing interest in demonstrating that
it is discharging its responsibilities effectively
and making itself more effective. HKEx welcomes
the steady improvement of corporate governance
in Mainland companies listed in Hong Kong and
intends to do all it can to ensure that this improvement
Amendments to the Main Board and GEM Listing Rules
designed to enhance corporate governance and market
quality came into effect on March 31, 2004. They
included new provisions on notifiable transactions
and connected transactions, revised classifications
of notifiable transactions and connected transactions,
revised definitions of the terms reverse
takeover, connected person and
associate of a connected person, revised
requirements for refreshment of general mandate
and revised requirements on the disclosure of
directors remuneration in annual reports.
In addition, there have been changes in the initial
listing eligibility criteria, listed companies
continuing obligations and the disclosure requirements
at the time of listing.
Law Consultation Conclusions Released
September, 2006, the SFC released the Consultation
Conclusions on the reform initiatives proposed
under a drive to modernise the regime governing
the public offering of shares and debentures in
the Companies Ordinance.
August, 2005, the SFC had consulted the public
on 21 reform initiatives relating to the CO prospectus
regime and received 26 submissions from market
practitioners, issuers and professional bodies.
was broad support for the majority of the initiatives,
but certain of the proposals have been revised
in light of public comments received.
Ho, the SFC�s Executive Director of Corporate
Finance, announced that: �Implementation of the
initiatives proposed to be taken forward will
more closely align Hong Kong's public offering
regime with that of other leading jurisdictions
and support Hong Kong's continuing role as an
international financial centre."
of all securities laws in a single piece of legislation
marks a significant step after the implementation
of the Securities and Futures Ordinance in our
drive to conform the regulatory philosophy and
eliminate opportunities for regulatory arbitrage.�
of the key initiatives proposed and consulted
consolidate securities laws in a single piece
of legislation, the provisions in the CO relating
to the public offering of shares and debentures
will be moved to the Securities and Futures
Ordinance (SFO) as a discrete part separate
from the investment advertisement regime in
Part IV of the SFO.
harmonise the legal and regulatory treatment
of investment arrangements and instruments with
broadly similar risk and reward exposure, public
offers of structured products will be subject
to regulation under Part IV of the SFO, whilst
plain vanilla share or debenture offers will
be governed under the separate prospectus regime.
This should reduce regulatory arbitrage.
The focus of the prospectus regime will be changed
from a �document-based� to a �transaction-based�
approach by regulating the act of offering rather
than any document containing the offer.
will be regulated without regard to place of
incorporation or their legal form. This will
bring the prospectus regime into line with the
investment advertisement regime in Part IV of
the SFO, which regulates advertisements and
invitations issued by any person, whether made
in writing or otherwise.
attach liability unequivocally to specified
persons responsible for the prospectus, prospectus
liability will be imposed on (i) the issuer
and/or the offeror of the shares or debentures;
and (ii) each person who accepts, and is stated
in the prospectus as accepting, responsibility
for the prospectus. In view of the market response
and the new Guidelines for Sponsors and Compliance
Advisers issued by the SFC which were due to
come into effect on 1 January 2007, imposition
of prospectus liability on sponsors was viewed
order to provide investors with withdrawal rights
where materially adverse new developments occur
prior to the results of allocation being announced,
the issuer of the prospectus will be required
to publish a supplemental prospectus and provide
successful applicants with a right to withdraw
their allocations and be repaid in full. The
offer period will not be required to be extended
or re-opened � this will allow the scheduled
date for refund of surplus application moneys
and unsuccessful applications to remain unchanged.
to the SFC, the following proposals would not
be taken forward at that stage:
Proposal 9 � to extend the classes of persons
who may claim compensation for a misstatement
in a prospectus to subsequent purchasers who buy
in the secondary market;
Proposal 10 � to remove the requirement for claimants
to prove that they have actually read and relied
on the prospectus when making a claim for compensation;
Proposal 17 � to extend the 3-day waiting period
before allotments of shares or debentures in the
case of initial public offers of shares or debentures
and the removal of the 3-day waiting period for
allotments in the case of public offers of shares
or debentures of a class already listed;
Proposal 18 � to provide that an application form
or procedure for shares or debentures may not
be distributed or implemented by any person unless
it is accompanied by or contained in a prospectus
which complies with the prospectus provisions
or is exempted from them;
Proposal 20 � to introduce a separate regulatory
regime to regulate offers to employees and their
dependants, including a requirement for a declaration
of solvency and going concern by the directors
and auditors of the company; and
Proposal 21 � to provide that an issue or sale
of securities in contravention of the law should
be void or voidable.
'Red Chips' Threatened
September, 2006, it seemed that Chinese 'red chip'
listings were threatened by new rules which came
into effect to control abuse of the restructuring
process needed to transfer assets into offshore
'red chip' share is formed when a Chinese company
transfers its assets into the ownership of an
offshore holding company, typically in the Cayman
Islands or the British Virgin Islands, prior to
a listing in Hong Kong or New York. Historically
there has been little control over the process,
allowing Chinese owners to sell assets to the
offshore companies at artificially low prices,
encouraging capital flight.
new regulations cover the valuation of assets
to be transferred, and permission for each issue
will have to be given by the Ministry of Commerce.
Brokers and issuers feared that if the rules were
applied retrospectively, whether to already listed
stocks, or to those in the issuance pipeline,
there would be delay and confusion in the markets.
new rules also sought to control the use of the
proceeds of a red chip issue by requiring listed
companies to repatriate funds obtained through
listing and to report on the process to the State
Administration of Foreign Exchange.
of Overseas Companies Encouraged
March 2007, the Stock Exchange of HKEx and the
SFC published a Joint Policy Statement Regarding
the Listing of Overseas Companies. The joint policy
statement was aimed at facilitating the listing
of overseas companies by clarifying requirements
in the Listing Rules and providing a clear roadmap
for potential issuers and their advisers to refer
to regarding key shareholder protection matters.
incorporated outside Hong Kong and other recognised
jurisdictions seeking a primary listing on the
Main Board and the Growth Enterprise Market are
currently assessed on a case-by-case basis and
have to demonstrate they are subject to appropriate
standards of shareholder protection, which are
at least equivalent to those required under Hong
Kong law. The schedule of key shareholder protection
measures set forth in the joint policy statement
will help applicants in providing submissions
on key requirements to demonstrate they are subject
to appropriate measures.
Chief Executive Officer, Martin Wheatley, said:
“The policy statement provides clear guidance
to companies seeking to list in Hong Kong which
are incorporated outside Hong Kong, Bermuda, Cayman
Islands and the PRC. It implements the Economic
Summit Focus Group on Financial Services’
recommendation to facilitate listing of overseas
companies which have substantial operations in
the Mainland, and further develops Hong Kong as
an international listing platform for quality
companies from around the world.”
policy statement is intended to ensure listing
in Hong Kong for overseas companies is not overly
burdensome,” said Paul Chow, HKEx’s
Chief Executive. “The roadmap is expected
to facilitate and hopefully reduce the amount
of work required for overseas companies seeking
to list in Hong Kong. It will allow them to focus
attention on fewer but more relevant issues, thereby
streamlining the listing process for overseas
issuers while maintaining the quality of our market
the continuing growth of Hong Kong’s financial
market, we believe more and more companies worldwide,
especially those with business interests or other
ties in Mainland and Hong Kong, will over time
seek to raise funds and be traded here. HKEx is
taking a long-term view and does not expect to
receive a large number of applications from overseas
companies in the near term,” Mr Chow added.
“HKEx has explained the merits of listing
in Hong Kong at events in several overseas markets
over the last few years and those promotional
efforts will continue.”
to improve the registration system for non-Hong
Kong companies were put in place from December
14, 2007, the Financial Services and the Treasury
the Companies (Amendment) Ordinance 2004: the
registration regime for overseas companies will
be modernised; "overseas companies"
will be renamed "non-Hong Kong companies"
and will be obliged to file a full annual return;
a new service of issuing certificates of registration
in respect of non-Hong Kong companies will be
Registrar of Companies has also appointed the
same date to implement the Companies Ordinance
(Amendment of Eighth Schedule) Order 2007, giving
effect to the amended statutory fees for non-Hong
Order replaces the existing filing fees concerning
non-Hong Kong companies with a single filing fee,
and introduces a new fee for the issue of registration
fees for the late filing of annual returns by
non-Hong Kong firms are also being introduced,
to encourage compliance with the filing requirements
under the Companies Ordinance and the timely disclosure
of corporate information.
regards the new single filing fee, it is set on
the basis of the "revenue neutral" principle.
However, according to the announcement, non-Hong
Kong companies, on average, would not pay more
when compared with the fees payable at present
as long as their annual returns are filed within
the deadline prescribed in the Companies Ordinance,
that is, within 42 days after the anniversary
date of registration.
Hong Kong Stock Exchange has adopted measures
to enhance the stock trading suspension mechanism's
transparency, Secretary for Financial Services
and the Treasury Professor KC Chan announced in
measures include publishing the conditions imposed
for resumption, asking the suspended issuer to
publish a regular update, and automatically invoking
the delisting procedure if a security has been
suspended for a prolonged period of time without
the issuer taking steps to achieve resumption.
of the GEM
May 2008, HKEx published its Growth Enterprise
Market Consultation Conclusions. They include
details on the proposed development of GEM as
a second board and as a stepping stone to the
Rules amendments will be introduced to reflect
the new role of the market but GEM will largely
retain its existing structure. The key changes
new quantitative admission requirements, applicants
will need to have achieved positive cash flow
of not less than $20 million in aggregate for
two preceding financial years;
power to approve the admission of new issuers
to GEM will be delegated from the GEM Listing
Committee to the Listing Division, and the GEM
Listing Committee will retain monitoring, appeal
and policy responsibilities;
obligations of GEM listed issuers will be brought
closer to the requirements applicable to the
Main Board requirements;
GEM issuers will be required to comply with
the new rules from their effective date, except
that in the case of the public float requirement
they will be given a three-year grace period;
process for transferring listing from GEM to
the Main Board will be streamlined and there
will be a 50% cut in the Main Board initial
listing fee for all transfer applicants from
Review of Listing Matters
SFC's 2009 Annual Review of the Exchange’s
Performance of its Regulation of Listing Matters
concluded that the operational procedures and
decision-making processes reviewed were appropriate
to enable the Exchange to discharge its statutory
obligation to maintain an orderly, informed and
fair market, and to make rules for the proper
regulation and efficient operation of the market
Brian Ho, SFC’s Executive Director of Corporate
Finance, said: “We are satisfied that the
Exchange has taken steps to address the recommendations
in our 2008 report. The Exchange has also adopted
new measures to canvass views from, and interact
with, the market with a view to strengthening
communication with the market to further enhance
its performance in the formulation of new Listing
the same time, we identified certain areas where
we recommend that the Exchange should continue
its efforts to enhance its performance,”
Mr Ho added.
SFC will continue to discharge its statutory responsibility
to supervise, monitor and regulate the activities
carried on by the Exchange.
a deterioration in standard of listing application
documents, the SFC said in its July 2010 edition
of the Dual Filing Update that sponsors were under
a duty to thoroughly understand their listing
applicants and to critically assess whether the
disclosures in the listing applications are sufficient
in the circumstances.
issue highlights a number of cases in which the
sponsors failed to properly identify and explain
in the draft prospectuses the relationships of
significant stakeholders, such as distributors
and suppliers, to the listing applicants. In one
case, it was only after repeated requests by the
regulators that the sponsor did additional due
diligence work to clarify how the applicant’s
distributors – its former employees –
were able to finance their initial purchases requiring
sizable upfront payments.
issue further points out the need to provide investors
with sufficient disclosure for an informed assessment
of the listing applicants’ financial performance.
In one case, the draft prospectuses and associated
submissions were potentially materially inaccurate
in explaining the applicant’s financial
performance, but the application was withdrawn
upon the resignation of the reporting accountants
and the sponsors, before the SFC could pursue
the matter further.
is the responsibility of the sponsors and other
professional parties, and not the regulators,
to ensure that proper due diligence is conducted
for listing applications,” said Mr Martin
Wheatley, the SFC’s Chief Executive Officer.
“Undue reliance on regulators’ enquiries
in making disclosures would create inefficiencies,
unnecessary delays, and possible material non-disclosures
that cannot be uncovered by the regulators in
reviewing the draft listing documents.”
chronicled in the issue are other disclosure deficiencies
among listing applicants, including some in the
mining industry and others with a place of incorporation
recognised as an acceptable jurisdiction only
Island Companies Approved for Listing
October, 2009, Jersey companies were approved
for listing on the Hong Kong Stock Exchange. The
move is a significant development for Jersey’s
finance industry, which is seeking to increase
business flows from the Asia Pacific region.
formal inclusion of Jersey companies on the Hong
Kong Exchange’s approved list is the result
of more than a year’s negotiation, research
and document preparation involving government
officials in Jersey, representatives from Jersey
Finance, and the finance industry.
Kirkby, Technical Director of Jersey Finance,
commented: “Gaining access to a major capital
market such as Hong Kong is further excellent
news for Jersey and is a step forward in our ability
to attract new business from the region. The move
by the Exchange authorities adds weight to Jersey’s
reputation as a rigorously supervised, highly
regarded jurisdiction and also demonstrates how
the market in Asia views the quality and robustness
of Jersey company law. Moreover it gives further
impetus to the formal opening of our second overseas
office in Hong Kong later this month and is very
May 18, 2011, it was officially confirmed that
companies incorporated in Guernsey has received
the green light from the Hong Kong Stock Exchange
Listing Committee to list on HKEx.
confirmation by the HKEx Listing Committee was
described by Geoff Cook, Chief Executive of Guernsey
Finance, as a "very positive development"
for Guernsey's finance industry.
service providers are seeing continued growth
in terms of the numbers of clients from the Far
East and there has been particular interest in
being able to list Guernsey incorporated companies
on the Hong Kong Stock Exchange," he said.
“Receiving this approval is very much welcomed
because it means that now we will be able to meet
this demand and, indeed, there are opportunities
already in the pipeline."
Kong Exchanges and Clearing (HKEx) introduced
AMS/3, a third generation automatic order matching
and execution system, in late 2000. In February
2001 it added an Order Routing System (ORS). ORS
is an open system that enables investors to place
stock market orders through the Internet, mobile
phones and other electronic channels, which may
be developed by HKEx or vendors. After an order
is placed through an electronic channel connected
to ORS, the system automatically sends the order
to a Stock Exchange Participant for approval and
submission to the market for matching and execution.
than 100 Stock Exchange Participants have so far
connected to ORS, and are able to offer their
clients Internet trading. All Stock Exchange Participants,
including those who have connected to the HKEx
channel, will also be able to offer their clients
electronic trading services, including Internet
and mobile trading, through Proprietary Network
System (PNS) channels provided by vendors.
provides settlement services under which securities
are credited or debited to participants' CCASS
stock accounts and funds are recorded in the participants'
money ledgers on settlement day.
of all Exchange trades, including trade data and
trade amendments, are electronically and automatically
transmitted to CCASS by the Stock Exchange on
each trading (T) day. There is no need for broker
participants to input or further confirm their
trade details in CCASS. Broker participants receive
Provisional Clearing Statements of their stock
and money positions through their CCASS terminals
shortly after 1800 hours on each T day for reconciliation.
Final Clearing Statements are available to broker
participants shortly after 1400 hours on T+1 day
for confirmation purposes.
LLC, a leading independent provider of global,
broker-neutral, multi-asset trading and strategy
systems, announced in August 2007, the opening
of its Hong Kong office to support its growing
client base in the Asia-Pacific region.
Bierman, formerly head of FIX Product Services
at trading solutions provider NYFIX, in Hong Kong,
has been appointed to head up the Portware Hong
Kong office and oversee day-to-day operations.
The office will focus on implementation management
and support, and is staffed by regional specialists
and experienced project managers from Portware’s
has seen a rapid growth in demand from buy- and
sell-side firms for its easily deployed multi-asset
trading and strategy systems. Portware’s
flexible framework offers a full range of components
from ready-to-trade systems through to customizable
enterprise solutions, enabling financial institutions
to quickly integrate execution management tools
and manage complex trading strategies and risk
in one place. Through a combination of Portware’s
open Application Programming Interface (API),
plug-and-play architecture and regional development
support, Portware’s Asia-Pacific customers
are able to achieve a high degree of localization,
tailored specifically to the varied needs of the
Negara Malaysia and the Hong Kong Monetary Authority
(HKMA) announced, in October 2007, the implementation
of a cross-border delivery-versus-payment (DvP)
link between Hong Kong’s US dollar real
time gross settlement (RTGS) system.
DvP link will help eliminate settlement risk for
US dollar bonds issued and traded in Malaysia,
by ensuring simultaneous delivery of US dollars
in Hong Kong and US dollar bonds in Malaysia.
DvP settlement services provide the necessary
settlement infrastructure to support potential
issuance of US dollar bonds in Malaysia, as part
of the initiatives to promote Malaysia as an Islamic
financial centre and Hong Kong as an international
new link builds on the success of the payment-versus-payment
(PvP) link between Hong Kong's US dollar RTGS
system and Malaysia's Ringgit RTGS system that
was established in November 2006.
Hong Kong Monetary Authority (HKMA) has announced
the launch of the electronic trading platform
(ETP) for Exchange Fund Bills and Notes (EFBNs),
which commenced operation on 11 December 2007.
ETP is designed to enhance price transparency
among the market players, and streamlines the
trading process. With the launch of the ETP, market
players can identify their trade counterparties
and conclude deals more efficiently. The ETP is
designed to be flexible enough to allow it to
be set up according to the specific requirements
of individual market players.
launch of the ETP is an endeavour by the HKMA
and the Treasury Markets Association (TMA) to
encourage electronic bond trading, a practice
which has increasingly been adopted by more advanced
bond markets in the world," commented Eddie
Yue, Deputy Chief Executive of the HKMA, and Chairman
of the Executive Board of the TMA.
launch of the ETP is one of the recommendations
arising from the Review of Debt Market Development
completed by the HKMA in late 2006. The ETP provides
the necessary infrastructure to support electronic
trading of other bonds in addition to EFBNs, and
can be extended to cover other financial instruments
available in the market. Besides market players
in Hong Kong, overseas market players are also
encouraged to use this platform when trading bonds
and other financial instruments issued in Hong
ETP is developed and operated by Bloomberg LP,
with advice on functional design and testing provided
by a User Group established by the Treasury Markets
has announced a three-year plan to revamp AMS/3
(end of 2009) and develop the next generation
trading system with enhanced functionality and
October 2010, HKEx published a paper to provide
market participants with information about upgrades
of AMS/3 and Market Data System (MDS). The upgrades,
which are named AMS/3.8 and MDS/3.8 respectively,
are scheduled for completion by the end of 2011.
HKEx says they will increase the market's efficiency
and transparency and pave the way for future growth.
"HKEx is committed to devoting its best effort
and resources to the provision of high quality
market infrastructure and services for the investing
community," said HKEx Chief Executive Charles
Li. “The AMS/3.8 and MDS/3.8 upgrades will
play a crucial role in maintaining the competitive
edge of Hong Kong’s securities market and
helping us capture new growth opportunities.”
AMS/3.8 will essentially operate in the same way
as the current version of the securities market
trading system. However, the system upgrade will
increase the processing capacity over the existing
system by about 10-fold to 30,000 orders per second,
and reduce average latency to 9 milliseconds,
16 times faster than present. Market transparency
will also be improved as AMS/3.8 will display
the 10 best price levels compared to the five
best price levels in the current system. In addition,
some legacy system functions will be streamlined
to improve Exchange Participants’ operational
the rollout of MDS/3.8, throughput for market
data dissemination will be increased to 2,000
stock page updates per second from 1,000 stock
page updates per second, the message rate target
that the existing system will use at the end of
2010. As a transitional arrangement, HKEx will
disseminate market data at both message rates
in the first year following the upgrade.
plans to introduce a new set of real-time market
datafeed products about six to nine months after
the rollout of MDS/3.8 to meet the increasing
demand for deeper and faster market data. Market
users will be provided with more data product
choices and flexibility in choosing the market
datafeed which best fits their needs and reception
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