HKEx: Status Report On New Product And Market Development Initiatives

1.  

Consultation on Periodic Financial Reporting

The Listing Committee has decided that now is the appropriate time for Hong Kong to follow the example of Mainland China by establishing requirements for mandatory quarterly financial reporting albeit with less onerous report content and a more generous reporting timescale. The content of the condensed quarterly financial reports will be along the lines of requirements proposed in the August 2007 consultation paper with certain modifications to take into account comments from respondents. The planned requirements for quarterly financial reporting are proposed to take effect for financial reporting periods ending on or after 31 December 2011 . The rules to implement these proposals are being finalised.

To ensure a regular flow of timely information concerning issuers' financial performance and position, the Listing Committee believes that the Listing Rules should be enhanced to require issuers to report to the market on a quarterly basis. Under such a regime the Listing Committee views quarterly financial reporting as a long term goal.  As an interim enhancement the Stock Exchange will explore alternative approaches and undertake a further consultation with stakeholders on the alternatives to quarterly financial reporting. The Listing Committee notes and welcomes the Securities and Futures Commission (SFC) Executive's support for further engagement on this important topic.

2.

Combined Consultation on Proposed Changes to the Listing Rules

Consultation Conclusions in respect of 15 issues were published on 28 November last year. Rule amendments pertaining to these issues took effect on 1 January this year, except for the extension of the black out period, which has been deferred to 1 April this year. The other three issues remain under assessment and separate conclusions will be published in due course.

The Listing Committee decided to modify the rule changes that were announced on 28 November last year and due to come into effect on 1 April this year. The modification extended the black out period applicable to the publication of an issuer's annual financial results from one month to 60 days, and the black out periods for half year and other interim periods were set at 30 days, in line with the previous requirement of one month. The SFC approved the relevant rule amendments and they took effect on 1 April this year.

Consultation conclusions in respect of the three issues that remain under assessment will be published in due course.

3. 

Web Proof Information Pack (WPIP)

The Stock Exchange and the SFC are working to finalise the joint review of the pilot scheme for posting a WPIP on the HKEx website prior to the issue of an IPO prospectus with a view to codifying the requirement to post a WPIP in the Listing Rules.

In progress. Revised logistical arrangements have been introduced to enable WPIPs to be submitted through the e-Submission System.

4. 

Strategic Review of the Listing Rules

HKEx is reviewing a report by the consultant engaged by the Board to conduct a strategic review of the Listing Rules and their application. The objective of the project is to identify possible means of enhancing the competitiveness of the Stock Exchange as an international listing venue while taking into account the need to maintain the quality of Hong Kong 's securities market.

An action plan has been drawn up for the Listing Committee to consider in detail the recommendations of the consultant. Initiatives endorsed by the Listing Committee will be pursued as a high priority.   

5.

Review of Chapter 18 of the Listing Rules

External mineral consultants engaged by HKEx to study Chapter 18 of the Listing Rules and comparable rules and practices in other jurisdictions relating to listing requirements and continuing disclosure obligations applicable to mineral and exploration companies are finalising their report. The Listing Division will review the consultants' recommendations and prepare for market consultation on proposed amendments to Chapter 18 in the first half of this year. 

The external mineral consultants have finalised their report. The Listing Committee is reviewing the consultants' recommendations, which will form the basis of market consultation. Market consultation materials are targeted for publication in the first half of this year.

6.

Exploration of New Financial Products / Services and Review of Existing Products / Services

Options with flexible features
HKEx plans to accept the booking of options with contract specifications that provide flexibility, which are common among over-the-counter options, to HKATS. As with all products booked on HKATS, the options would be cleared and settled at an HKEx clearing house, with the clearing house taking on the counterparty risks. HKEx executives are now in the process of devising an execution model to facilitate such booking.

HKEx has started the preparatory work to enhance the system for the proposed facility.  HKEx will discuss its proposal with target market participants with an aim to verify the feasibility and to refine the draft operational model.  HKEx will seek SFC approval at the appropriate time for the necessary rule amendments.

Emissions Products
HKEx plans to introduce a Certified Emission Reductions (CER) futures contract in its derivatives market as a first step into the emissions trading business.

HKEx is discussing with international emissions market participants contract design ideas and models for clearing and settlement.

HKEx has started discussions with Tianjin Climate Exchange, a joint venture of the Chicago Climate Exchange, China National Petroleum Corporation Assets Management and the City of Tianjin , on possible collaboration in environmental emissions markets.

HKEx plans to conduct a public consultation this year and invite comments on questions about the possible introduction of CER futures and other issues. 

7. 

Review of Auction Trading Mechanism in the Securities Market

HKEx issued a consultation paper on 28 November last year to solicit market comments on the introduction of a price control mechanism during the Closing Auction Session (CAS) in its securities market. It also solicited the market's views on whether HKEx should suspend the CAS and consider re-introducing it when there is a market consensus on enhancement measures. The consultation period ended on 31 December last year and HKEx is now analysing 101 submissions it received.

HKEx suspended CAS in its securities market from 23 March this year due to concerns about any appearance of abuse during the CAS and the need to maintain public confidence in the orderliness, fairness and transparency of the market.  Same as the pre-CAS arrangement, the securities market now closes at 4 pm and the calculation of closing prices for securities is based on the median of five snapshot nominal prices taken during the last minute prior to market close. In the derivatives market, the trading arrangement for stock index futures and options is now the same as before the CAS was introduced in the securities market (suspension of the CAS did not affect the trading arrangement for the derivatives market's other futures and options).

8. 

Provision of Free Real-time Last Trade Prices on Websites

HKEx has short-listed 12 candidates from the 34 respondents to the Request for Expression of Interest. A request for proposals was issued to the short-listed candidates on 11 December last year. The deadline for submission of proposals was 12 noon , 6 January this year. Twelve proposals were received and are now being reviewed.

Evaluation of the 12 proposals has been completed. HKEx executives are having further discussion with the short-listed companies with a view to finalising the terms of the service in the next few months. It remains HKEx's aim to launch the new service in the second half of this year.

9.

T+2 Finality for Stock Exchange Trades and Settlement Instructions

Not included in this issue.

HKEx plans to introduce a "T+2 Finality" model for the money settlement of Stock Exchange trades and settlement instructions in CCASS. The objective is to complete both securities and money settlement on the same settlement day so as to reduce the settlement risk. HKEx is preparing a consultation paper to solicit market comments and the paper is tentatively set for release in the second quarter of this year.

10. 

Provision of Custody and Nominee Services for Unlisted Equity Linked Notes (ELNs)

Not included in this issue.

HKEx conducted a study on over-the-counter market, or OTC, clearing late last year and some market participants indicated that there may be demand if HKEx provides custody and nominee services for unlisted ELNs with Hong Kong-listed securities as underlying assets. HKEx is now in the process of exploring the idea in more detail with ELN issuers.  

11. 

Admission of share registrars as CCASS Participants

Not included in this issue.

HKEx is studying the feasibility of admitting share registrars as CCASS Participants to enhance market efficiency and reduce the number of physical certificates printed for new issues.  HKEx is now working with the Federation of Share Registrars to explore a feasible working model.