Hong Kong stock market set for regulatory shake-up

New proposals call for two new watchdogs and a legal committee to help forge closer cooperation between SFC and HKEX

An overhaul of Hong Kong’s initial public offering (IPO) regime has been unveiled in proposals to create two new watchdog divisions and an additional legal unit.

Following a joint review of the current system, the Hong Kong Securities and Futures Commission (SFC) and Hong Kong Exchanges and Clearing (HKEX) decided that many of the issues they now face – such as stock-price manipulation, corporate-governance shortfalls, disclosure problems and misconduct incidents that prejudice investors – would be better addressed by adopting a more coordinated approach.

With that in mind, the bodies plan to set up:

1. A Listing Policy Committee that will initiate, steer and decide lines on core listing issues; and
2. A Listing Regulatory Committee that will rule on specific IPO and post-IPO matters that have suitability concerns or broader policy impacts.

Each division would include equal numbers of staff from the Commission and Exchange. To ensure procedural fairness within and between them, an impartial Listing Disciplinary Chairperson Group – comprised of former senior legal counsel – would also be established.

Through those measures, the SFC and HKEX aim to:

• achieve closer cooperation in the area of policymaking;
• enable the SFC to provide earlier, and more direct, input on listing-based policy matters and regulation;
• streamline the processes for making important or difficult listing decisions;
• simplify the system for handling IPO applications, so that they can be vetted and approved more efficiently;
• establish clearer accountability for decision-making within HKEX; and
• enhance administrative oversight of the Listing Rules.

HKEX chief executive Charles Li said that, up to now, the existing decision-making structure for listing regulations had served the market well. “We have a unique model that reflects Hong Kong’s good balance between market development and a trusted regulatory regime,” he commented.

“However,” he explained, “as the market has become increasingly large and complex, and the global landscape has become more competitive, coordinated regulatory efforts and foresight in policy formulation are required to address new market developments.”

Li added: “The proposed enhancements would streamline the processes for making important or difficult listing decisions, and enable the SFC and the Exchange to better coordinate and address future regulatory needs while maintaining Hong Kong’s competitiveness as an international financial centre.”

SFC head Ashley Alder said: “These enhancements mean that the SFC – working closely with the Exchange through two newly established committees – will concentrate on those listing policies and decisions which are important for market quality, competitiveness and development.”

He added: “Listing regulation will be more proactive and efficient, while the listing process for most companies will be simpler.”

The Commission and Exchange have invited stakeholders to comment on the plans in a formal consultation, ending on 19 September. To read the full consultation document and find out how to respond, click here.