The Progress of Listing Approval
The article misleads readers that HKEx has a serious backlog of listing applications. The IPO progress report issued on 30 September 2002 showed that the Listing Division was processing 40 Main Board and 61 GEM listing applications. As about 48.5 per cent of these applications were submitted in August and September, it is unjustifiable to say there is a backlog since it takes time to process and complete the approval procedures.
It is also incorrect to say that the Listing Division is only able to process 10 or so listing applications each month as the Listing Division's approval procedures begin with the receipt of an application. In other words, the Listing Division was actually processing 101 applications at the same time at the end of September.
The figures quoted by the article also fail to count the companies newly listed in that month. From May 2002 to September 2002, the number of newly listed companies were 11 in May, 13 in June, 13 in July, 9 in August and 6 in September. As at the end of September this year, the number of listing applications cleared by the Listing Division and approved by the Listing Committees amounted to 91 (47 Main Board companies and 44 GEM companies).
The number of listing applications processed by the Listing Division and successfully listed was no fewer than that in previous years. The number of newly listed companies for the past three years were 88 in 2001 (32 on Main Board and 56 on GEM), 93 in 2000 (46 on Main Board and 47 on GEM) and 38 in 1999 (32 on Main Board and 6 GEM) (Note: GEM was introduced in November 1999). The number of newly listed companies in 2002 is expected to exceed the number of the previous three years.
The allegation that HKEx failed to process listing applications efficiently because of inadequate manpower is not supported by fact.
Human Resources of the Regulatory Function
HKEx has repeatedly stressed that though it has become a listed company, its objectives to seek profits or commercial benefits are built on the long-term interests of Hong Kong markets. That is why HKEx is committed to improving the quality of its markets and will not seek to increase the number of listed companies at the expense of market quality.
HKEx has devoted considerable regulatory resources over the past two years in order to raise the standard of market regulation. Though the number of staff of the HKEx group has been reduced by more than 25 per cent compared with the pre-merger figures, the Listing Division had been recruiting additional staff over the past few years to fill vacancies. New posts have also been created to meet the increasing regulatory workload. Early this year, HKEx strengthened the manpower of the Listing Division by creating a senior position. In July HKEx announced the appointment of Richard Williams as senior vice president of the Listing Division. Mr. Williams formerly worked in the Financial Services Authority in the UK. He reported duty last week.
To ensure its regulatory functions are performed effectively, HKEx is also concerned with human resources support at its regulatory units. There are currently 100 staff in the Listing Division, 84 of them are professionals and 16 are clerical staff. This compares with the 68 professionals and 20 clerical staff at the Listing Division at the end of March 2000 and the 75 professionals and 20 clerical staff at the end of 2001. Of the existing 84 professionals, 51 are qualified accountants and 18 are lawyers and the rest come from finance-related backgrounds.
Like other professional organisations, HKEx has to address the issue of staff turnover. The turnover rate for mid and high level listing staff usually goes up when the market is bullish. However, the turnover of Listing Division staff was not as severe as the article suggested. The turnover has steadily improved from 34 per cent in 2000 to 13 per cent at the end of September 2002.
Out of the 84 professional staff of the Listing Division, 23 have worked in the Division for five years or more and 5 of them for 10 years or more. Among the 31 staff of senior manager grade or above, 18 have been with the Division for over five years. There are 22 professional staff who have worked for the Division for two to five years. In summary, professional staff with over two-year working experience represent 53 per cent of the Division's total staff. This does not include their professional experience prior to joining HKEx.
Commitment to improving efficiency in listing approval
To ensure that both listing approvals and disclosure in prospectuses are of high quality, HKEx reviews the listing approval procedures from time to time to improve efficiency.
To this end, the study of integrating Prospectus Vetting and Accountancy teams under the Corporate Finance team began early this year. Following recruitment and training during the year, the new listing procedures are expected to the implemented in the fourth quarter.
The Corporate Finance team has been the Listing Division's core unit in vetting listing applications. The team is responsible for ensuring that applicants meet the listing requirements and are suitable for listing. As the disclosure requirements for listing prospectuses prescribed by the Companies Ordinance are very much the same as in the Listing Rules, and financial disclosures are also among the basic requirements in the Listing Rules, it is reasonable as well as feasible for the Corporate Finance team to process listing applications at one stop.
As diverse expertise is required in the daily operations of the Listing Division, finance-related professional qualifications would be taken into account when recruiting staff for the Division in order to achieve a balanced mix of talent in accounting, finance and the legal professions.
HKEx believes all listing professionals could have a good knowledge of the Listing Rules including the financial disclosure requirements and the basic provisions of company law. To support the implementation of the new listing process, HKEx commissioned in February a renowned legal firm and a leading international accounting firm to provide training to the professionals at the Division on issues related to prospectus vetting, the Companies Ordinance and accounting practices in general. Issues that would be frequently encountered were also discussed.
Through the training, HKEx is not demanding an employee of a particular profession to turn into a specialist in another. For example, a specialised team led by experienced accountants has been established under the Listing Division to deal with more complicated issues involving accounting standards and to provide accounting support to the Corporate Finance team when needed.
HKEx emphasises that each listing application is handled by a working team so that team members of different expertise can supplement each other. The listing vetting work is not handled by any single person as suggested in the article.
Sufficient Internal Checks and Balance
Like other operation units under HKEx, the Listing Division is subject to the periodic review of HKEx's Group Internal Audit unit, which reports to HKEx's Audit Committee that is comprised of non-executive directors. Furthermore, the operation of the Listing Division is also subject to the regulation of the SFC.