Listing Rules with Teeth

Following a lengthy consultation process, SFC eventually concluded on the proposals to extend the market misconduct regime to cover breaches of new statutory listing requirements.

The listing requirements which will be removed from SEHK's Listing Rules to the subsidiary legislation under SFO comprise:

• Periodic financial reporting
• Disclosure of price sensitive information
• Notifiable and connected transactions which require shareholders' approval

In balancing legal certainty against flexibility, SFC has taken a revised approach to address the market concerns that a breach of minor detailed requirements might attract statutory sanctions. SFC's revised approach is actually a principles-based approach with the following features:

• A set of general principles enshrined in SFO
• A new schedule to SFO to explain the general principles, including the definitions and factors in determining compliance
• A non-statutory Listing Code to set out the detailed and technical provisions

Non-compliance with the general principles will then be regarded as market misconduct. Serious cases are subject to either SFC disciplinary action, MMT proceedings or criminal prosecutions. Non-compliance with relatively detailed and technical provisions would not of itself lead to enforcement action, but may be of evidential value in any proceedings for a breach of general principles.

Certain administrative arrangements to facilitate a smooth transition to the new regime are mentioned in the Consultation Conclusions:

• Grant of statutory waivers under SFO
• Issue of rulings on interpretation which will be binding on SFC
• Provision of informal consultation on a non-binding basis in order to assist compliance
• Pre-vetting of announcements and circulars on a voluntary basis
• Publication of written rulings and waivers to enhance transparency of decisions and provide guidance to the market

Overall, I think SFC's revised approach to giving statutory backing to major listing requirements are quite considerate and flexible. Unfortunately, such a user-friendly approach is not extended to the intermediary supervision regime!