Over the last few months, the market has seen the Securities and Futures Commission (“SFC”) increasing its direct presence in the regulation of listing matters through the exercise of its statutory powers under the Securities and Futures (Stock Market Listing) Rules (“SMLR”) to object to certain listing applications and to direct suspension of trading in the shares of certain listed companies.

For instance, early last week the SFC objected to the listing of a company on the Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (“SEHK”) due to concerns over extremely high concentration of shareholding despite that its initial public offering (“IPO”) was marketed entirely through a public offer. That was followed by an announcement a few days later by another company that it decided to postpone its GEM IPO comprising public offer and placing on a 50:50 basis due to the regulators’ enquiries on the presence of an open market. So far as listed companies are concerned, the SFC has directed the SEHK to suspend trading in eight stocks this year.

On 13 July 2017, the SFC informed the market, through its new publication “SFC Regulatory Bulletin: Listed Corporations” and the speech of Mr Ashley Alder (SFC’s Chief Executive Officer) at HKSI luncheon, of its new regulatory approach on listing matters which, as described by the SFC, as “front-loaded, transparent and direct” and “real time” regulation.

This client alert summarises the key points of the SFC’s new approach to regulation of listing matters.

Vetting of new listing applications

Historically, when assessing new listing applications, the SFC would pass its comments in writing to the SEHK for it to raise with the applicant and its advisers without direct communication between the SFC staff and the applicant or its advisers.

Under the SFC’s new approach, the SFC will no longer act behind the scene, but instead it will take a focused, front-loaded role when dealing with the more crucial matters that are within the scope of the SMLR:

  • SMLR issues only - The SFC will only consider whether the listing applications raise apparent concerns under the SMLR. It will no longer comment on IPOs that don’t give rise to concerns under the SMLR.
  • Direct communication with applicants - The SFC will be the single point of contact on issues it raises under the SMLR. It will no longer relay its comments via the SEHK.
  • “Letter of mindedness” (“LOM”) - If and when the SFC forms the view that it is likely to raise an objection to a listing section 6(2) of the SMLR, it will promptly issue an LOM directly to the applicant. The LOM will set out the SFC’s substantive concerns along with detailed reasons for those concerns. The applicant will have the opportunity to respond to those concerns before any final decision is made.
  • “Final decision notice” (“FDN”) - If the applicant’s response to an LOM fails to address the SFC’s concerns, the SFC will issue an FDN within the time period specified. The applicant will have a statutory right to appeal to the independent Securities and Futures Appeals Tribunal.

So, how does this new approach interact with the SEHK’s role? The SFC explained as follows:

  • The SEHK will remain the single point of contact on Listing Rules disclosures and issues concerning suitability for listing, but not those in relation to concerns that the SFC raises under the SMLR.
  • Theoretically, it would be open to the SEHK to reject an IPO as being unsuitable even if the SFC has not identified grounds for objection under the SMLR. However, the SFC expects that the basis on which the SFC would object to an IPO would in practice have raised suitability concerns if a listing had reached that stage.
  • Where the SFC issues an LOM to object a listing under the SMLR, the SEHK would have the discretion to continue or suspend its own listing process regardless of whether the SFC’s concerns have been addressed.

Post-IPO matters

Objection to listing applications

For equity offerings by listed companies, consistent with the approach for new listing applications, if the SFC intends to object to a listing application under section 6(2) of the SMLR, it will normally issue an LOM detailing its concerns, and give the listed company opportunity to respond before any final decision is made. The final decision will be appealable.

Direction of suspension of trading

As to the SFC’s power under section 8(1) of the SMLR to direct the suspension of trading of a listed company’s securities, a similar approach will be adopted. Prior to directing a suspension, unless urgent action is required under the particular circumstances, the SFC would normally issue a “show case letter” to the listed company concerned setting out in detail the concerns behind its mindedness to suspend trading and give the company an opportunity to respond. The company can appeal for a resumption for trading.

The SFC explained that most suspensions are a type of exceptional early protective action, usually done during an investigation which in itself may ultimately lead to sanctions and other legal action. During an investigation, it should be noted that the SFC may require a listed corporation and other persons to produce any books and records under section 179(1) of the Securities and Futures Ordinance.


The SFC’s new regulatory approach comes after last summer’s joint consultation by the SFC and the SEHK on proposed enhancements to the SEHK’s decision-making and governance structure for listing regulation. According to Mr Alder, the SFC will continue to work on the final conclusions together with the SEHK, which will take account of the SFC’s new approach as mentioned above.

The final conclusions may or may not lead to a further increase in the SFC’s direct control over listing regulation. What is certain for now is that the SFC has prepared itself to be at the front line in the regulation of listing matters by using its existing statutory powers, and that it will intervene at an early stage in serious cases.