A further description of the respective roles of the SFC and the Exchange is set out in the January 2003 Memorandum of Understanding Governing Listing Matters that is available on the websites www.sfc.hk and www.hkex.com.hk.
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The Exchange takes the leading role in regulating companies seeking admission to the Hong Kong markets and supervising those companies once they are listed. The Exchange is responsible under statute for ensuring, so far as reasonably practicable, that the Hong Kong markets are fair, orderly and informed (the Exchange's statutory duty). The Exchange 's role is not exclusive.
The Hong Kong Securities and Futures Commission (the SFC) performs a lead role in market regulation and certain areas of listing regulation and a complementary role through the exercise of its statutory powers of investigation and enforcement in cases involving corporate misconduct.
The SFC has a statutory duty to supervise and monitor the Exchange's performance of its listing-related functions and responsibilities. The staff of the Exchange and the SFC meet regularly to discuss listing-related matters. The SFC also conducts a periodic audit of the performance by the Exchange in its regulation of listing-related matters.
The Exchange's listing-related functions are discharged by the Listing Division and the Listing Committee and fall into two broad categories: (a) the establishment and promulgation of rules (the Listing Rules) prescribing listing requirements for listing applicants and listed issuers; and (b) the fair and impartial administration of the Listing Rules.
The Listing Division is the primary point of contact for all listing applicants and their advisers. The Listing Division vets materials submitted by listing applicants for compliance with Listing Rules and prospectus requirements under the Companies Ordinance and together with the Listing Committee administers the listing approval process. Under the dual filing regime, the Exchange passes copies of materials submitted by listing applicants to the SFC. The SFC may object to a listing if the disclosure in the listing materials appears to the SFC to contain false or misleading information.
One of the ways in which the Exchange addresses its statutory duty is to seek to ensure compliance by listed companies and their directors with the provisions of the Listing Rules. The Exchange adopts a number of practices to achieve this including: monitoring share price movements and media coverage; vetting important draft announcements and documents; and setting and monitoring standards and guidance on corporate governance for listed companies. The Exchange has sole responsibility for investigating suspected cases of non-compliance with the Listing Rules and, where appropriate, initiating formal disciplinary action. Where a case involves suspected breaches of criminal or civil laws, the Exchange will refer the matter to an appropriate statutory agency and provide co-operation as requested.
The SFC may exercise statutory investigation and enforcement powers in a number of circumstances including where it has reason to believe that the management of a listed company involves defalcation, fraud, misfeasance or other misconduct against its shareholders or that documents filed by a listed company contain information that is false or misleading in a material particular. Where appropriate the SFC will refer matters to other statutory bodies or relevant law enforcement agencies.
Under the current regulatory arrangement the Exchange is responsible for setting the Listing Rules. In developing its proposals for changes to the Listing Rules, the Exchange may consult with the market, including the SFC, as appropriate. The SFC must approve all changes to the Listing Rules and policy decisions that have mandatory effect or general application.
With regard to the regulation of sponsors and independent financial advisers (the IFAs), the Exchange, as a market operator, is responsible for establishing and administering the Listing Rules requirements applicable to sponsors and IFAs, including the practice notes on due diligence. The SFC, as a statutory regulator, is responsible for assessing eligibility, on-going supervision, and discipline and enforcement in respect of corporate finance advisers who discharge the work of sponsors and IFAs. The SFC is empowered under the SFO to set standards, conduct on-site inspections, investigate misconduct and impose disciplinary sanctions on sponsors and IFAs.
The co-operation between the Exchange and the SFC on listing-related matters is embedded in the various Memoranda of Understanding signed between the two parties which also serve to minimise any potential conflict of interests of the Exchange, to delineate the Exchange's and the SFC's respective roles under the dual filing system and to prevent, as far as reasonably practicable, any duplication or vacuum in the regulatory process.
