Last week SFC started a two-month public consultation on proposals to expand the scope of the present requirements governing conflicts of interest for analysts so that not only research reports on listed securities but also those on IPOs are covered.
The proposed changes to existing regulatory requirements are summarized in SFC's consultation questions below. My initial comments are also provided.
1. Do you agree that the requirements in paragraph 16 of the Code of Conduct should be extended to cover research analysts in relation to Pre-deal Research reports?
Jack: It makes sense for paragraph 16 to cover analysts issuing pre-deal research reports as well.
2. Do you agree that the requirements of paragraph 16 of the Code of Conduct should be extended to cover research analysts covering proposed listings of and listed SFC-authorised REITs in Hong Kong?
Jack: It makes sense for paragraph 16 to cover research reports on REITs as well.
3. Do you agree that the firm employing research analysts preparing pre-deal research reports on a Applicant should be required to establish, maintain and enforce a set of written policies and control procedures to ensure that these analysts are not provided by the firm with any material information or forward looking information (whether qualitative or quantitative), concerning the Applicant that are not: (a) reasonably expected to be included in the prospectus; or (b) publicly available?
Jack: Agree, but SFC should issue some guidelines on (i) the benchmark for such policies and control procedures (e.g. additional Chinese Wall procedure); and (ii) what constitutes material information or forward looking information that will not be included in the prospectus or publicly available. Also, SFC should specify which party can make the final judgement on such unprovided information.
4. Do you agree that a research analyst preparing a research report on an Applicant should not seek to obtain from the Applicant or its advisers, any material information or forward looking information (whether qualitative or quantitative), that are: (a) not reasonably expected to be included in the prospectus; or (b) publicly available?
Jack: Ditto
5. Do you agree that the proposed amendments to Paragraph 16 of the Code of Conduct set out in Appendix 1 implement the above proposals?
Jack: The proposed amendments are not adequate. See above comments.
6. Do you agree that sponsors should take steps to ensure that all material information or forward looking information (whether qualitative or quantitative), disclosed or provided to analysts is contained in the relevant prospectus or where the proposed listing does not involve a prospectus the relevant listing document, offering circular or similar document?
Jack: Agree in principle, but what steps should be taken by sponsors? Shall a sponsor review the pre-deal research reports to ensure that all material or forward looking information provided to analysts is contained in the prospectus. If the reports contain information gathered by the analysts through their own due diligence, how can the sponsor confirm that such information is not obtained from the Applicant? If the sponsor reviews the research reports, would the independence of analysts be compromised?
7. Do you agree that the proposed amendments to the CFA Code of Conduct set out in Appendix 2 implement the above proposal?
Jack: The proposed amendments are not adequate. See above comments.
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