The Hong Kong Stock Exchange (the “Stock Exchange”) and the Securities and Futures Commission (“SFC”) have jointly announced proposals to revamp the regulatory structure for making decisions in listing related matters. New committees, with equal representation by both the Stock Exchange and SFC, have been proposed with mandates to determine listing policy and to oversee decisions on listing matters which raise suitability concerns or have broader policy implications.
The proposals are aimed at achieving closer cooperation between the regulators in determining listing policy and establishing clearer accountability for, and oversight of, decision making in listing regulation. They also aim to streamline the listing process and the decisionmaking process for important or difficult listing decisions.
In this bulletin, we briefly examine the remit of the new committees and their impact on the listing process and listing regulation.
1. What are the new committees and what will they do?
The proposals include the creation of the following new committees:
A. The Listing Policy Committee
This committee will be responsible for listing policy. Its role will include initiating policy proposals, such as for changing the Listing Rules, carry out consultations and reaching conclusions. The Listing Policy Committee will also oversee the Listing Department (in place of the Listing Committee which currently performs the oversight role). Other matters may be referred to the Listing Policy Committee by the Listing Regulatory Committee, Listing Committee, Listing (Disciplinary Review) Committee or the Head of Listing.
The aim of this committee is facilitate coordination and collaboration between the regulators to enable effective joint development of listing policy in response to market developments.
B. The Listing Regulatory Committee
This committee will be responsible for making decisions and providing guidance on listing applications and on matters relating to listed companies where (i) there are issues as to suitability; (ii) there are novel, potentially controversial or sensitive aspects; (iii) there may be policy implications; and (iv) where the decision is intended to have general effect. Routine listing applications and postIPO matters will continue to be handled by the Listing Department and Listing Committee and only a minority of cases are expected to be referred to the Listing Regulatory Committee.
Through its participation in this committee, the SFC will be able to input directly into decision making at an early stage and collaborate with the Stock Exchange in a more efficient way.
The Listing Regulatory Committee will also replace the Listing (Review) Committee to review decisions of the Listing Committee.
C. Listing Regulatory (Review) Committee
This will replace the existing Listing Appeals Committee as the final review body within the Stock Exchange.
D. Disciplinary committees
The proposals also include enhancements to the regime for conducting disciplinary proceedings by providing that disciplinary hearings are chaired by a practicing or retired senior counsel or person with equivalent qualifications. A Listing Disciplinary Chairperson Group is proposed, comprising at least five such persons, who will chair the disciplinary hearings. In the first instance, the Listing (Disciplinary) Committee will determine whether a person has breached the Listing Rules and the appropriate sanction, with appeal to the Listing (Disciplinary Review) Committee.
2. Who will sit on the committees?
The table below summarises the composition of each of the committees, which in each case have equal representation by both the Stock Exchange and the SFC:
Click here to view table.
The Listing Committee’s composition will not change, except that the HKEx’s Chief Executive will no longer be a member.
The Listing (Disciplinary) Committee and Listing (Disciplinary Review) Committee will be chaired by a member of the Listing Disciplinary Chairperson Group and comprise selected members of the Listing Committee.
3. How will the committees reach decisions?
Both the Listing Policy Committee and the Listing Regulatory Committee will be expected to reach decisions by consensus. For matters put to a formal vote, a majority will be required. The Chairperson of the respective committees will not have a casting vote.
Prior to decisions being made by either committee, the Listing Committee will put forward its nonbinding views.
The Chief Executive of the HKEx will consult with the board of directors of HKEx on policy issues and present its views to the Listing Policy Committee.
4. How will matters be referred to the Listing Regulatory Committee?
The Listing Department will determine whether a listing application or postIPO matter is one that should be referred to the Listing Regulatory Committee as a result of suitability concerns or broader policy implications.
Sponsors will also be expected to assess whether a particular IPO raises any suitability concerns. Where appropriate, a listing applicant and sponsor should make a preIPO submission to the Listing Department. Where a listing applicant features factors set out in Stock Exchange guidance as potentially affecting suitability, the matter will not automatically be referred to the Listing Regulatory Committee. The test will be whether the relevant factors give rise to reasonable doubt as to the applicant’s suitability.
The Listing Committee has discretion to refer any listing application or postIPO matter to the Listing Regulatory Committee. The Listing Department will notify the sponsor or listed issuer as soon as practicable of any decision to refer a listing application or matter to the Listing Regulatory Committee.
5. How will this impact the current regime?
The roles of the Listing Department and Listing Committee in reviewing listing applications and postIPO matters will remain largely unchanged. The Listing Committee will still make decisions on the majority of listing applications where there are no suitability concerns or broader policy implications. Similarly, the Listing Department will continue to decide most postIPO matters. Only where there there are suitability concerns or broader policy implications will the matter be referred to the Listing Regulatory Committee.
The Listing Committee will provide its nonbinding views to the Listing Regulatory Committee on referred matters. The views of the Listing Committee will be communicated to the sponsor and listing applicant (in the case of an IPO) or the listed issuer. The sponsor and the listing applicant or listed issuer (as the case may be) will be able to respond to the Listing Committee’s comments and such representations will be considered by the Listing Regulatory Committee. A similar arrangement as currently for attendance at Listing Committee hearings will be applied for hearings of the Listing Regulatory Committee.
As mentioned above, sponsors will be expected to assess whether a particular IPO raises any suitability concerns and will be expected to make a preIPO submission to the Listing Department where appropriate.
The SFC’s powers and functions in relation to listing matters will remain largely unchanged, but will be enhanced by the change in the way those powers are exercised.
By aligning policy decisionmaking amongst the regulators, both the IPO process and decisionmaking in postIPO matters should become more efficient with improved responsiveness. The SFC will no longer routinely issue separate comments on new listing applications.
6. Next steps and further reading
No legislative changes are required to implement the proposals. Any changes to the current regulatory regime will depend on the outcome of the consultation exercise which ends on 19 September 2016. The joint press release issued by the Stock Exchange and the SFC can be found here and the consultation paper setting out further details on the proposals can be found here.