Regulation of the Hong Kong Market

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In what way is the regulatory role of HKEX different from that of the Securities and Futures Commission?

The Securities and Futures Commission (SFC) is an independent statutory body responsible for regulating the market, safeguarding market integrity, and enforcing securities and futures market legislation. Parties regulated by the SFC include Hong Kong Exchanges and Clearing Limited (HKEX) and its subsidiaries (including the stock and futures exchanges and associated clearing houses), financial market intermediaries (namely securities dealers which include Exchange Participants; sponsors; share registrars; fund managers; and investment advisers) and investors.

The SFC’s statutory regulatory objectives are:

to maintain and promote the fairness, efficiency, competitiveness, transparency and orderliness of the securities and futures industry;
to promote understanding by the public of the operation and functioning of the securities and futures industry;
to provide protection for members of the public investing in or holding financial products;
to minimise crime and misconduct in the securities and futures industry;
to reduce systemic risks in the securities and futures industry; and
to assist the Financial Secretary in maintaining the financial stability of Hong Kong by taking appropriate steps in relation to the securities and futures industry.

Regulation of takeovers, share repurchases and privatisations, which may involve investor conduct, is also the responsibility of the SFC.

HKEX is the operator of Hong Kong’s central securities and derivatives marketplace and the front-line regulator of listed issuers (including listed companies). In this role, HKEX regulates listed issuers; administers listing, trading and clearing rules; and provides services at the wholesale level to customers of the exchanges and clearing houses, including issuers and intermediaries (namely investment banks or sponsors, securities and derivatives brokers, custodian banks and information vendors) who service investors directly. Services provided by the exchanges and clearing houses include trading, clearing and settlement, depository and nominee services, and information services.

For more SFC and HKEX regulatory information, please visit the SFC website at www.sfc.hk and the “How We Regulate” section under "Listing Regulations" of the HKEX website.

How does HKEX enforce the Listing Rules?

HKEX is the operator of the central securities and derivatives marketplace and the front-line regulator of listed issuers. HKEX carries out regulation of listed issuers and any relevant party in accordance with the Listing Rules. A listed company shall comply (and undertakes pursuant to its application for listing to comply) with the Listing Rules. Each director of a listed company is required to use his/her best endeavours to abide by the Listing Rules and procure the listed company’s compliance with the Listing Rules pursuant to a Director’s Undertaking.

HKEX’s regulatory functions in respect of listed companies are carried out by the Listing Division and the Listing Committee. Their responsibilities mainly include: (1) the formulation and administration of Listing Rules, which set out listing requirements for listing applicants and obligations of listed companies and the relevant parties; and (2) the impartial enforcement of the Listing Rules.

HKEX is committed to closely monitoring compliance with the Listing Rules. Measures include the monitoring of share price movements and media reports, and the vetting of important announcements and documents. Potential Listing Rule breaches are investigated by the Enforcement Department of the Listing Division and disciplinary actions may then be commenced against any relevant parties (including the listed company and any responsible individuals). Both listed companies and their directors have an obligation to cooperate with an investigation carried out by the Listing Division. In cases where the conduct may amount to possible breaches of law, the Listing Division will refer those cases to the appropriate law enforcement authority.

The “Listing Regulations” page on the HKEX website contains useful references including the Listing Rules and latest updates in the “Rules and Guidance” section and details and information about the Listing Regulation and Enforcement Department's work and enforcement policy in the “Disciplinary & Enforcement” section.

How does regulation differ between companies incorporated in Hong Kong and those which are not?

All companies seeking a primary listing in Hong Kong, regardless of their place of incorporation, are subject to the Listing Rules, the SFC’s Codes on Takeovers and Mergers and Share Repurchases and other applicable regulations. The Listing Rules apply as much to overseas companies listed in Hong Kong as they do to companies incorporated and listed in Hong Kong. The overseas companies may also be subject to additional requirements, modifications or exceptions set out in the Listing Rules.

Which organisation is responsible for the regulation of takeovers, mergers, privatisations and share repurchase activities?

The Codes on Takeovers and Mergers and Share Repurchases govern takeovers, mergers, privatisations and share repurchases. The SFC is responsible for administering these two Codes. For details of regulation of takeovers and share repurchase, please visit its website on www.sfc.hk.

Can HKEX stop the management of listed companies from proposing or conducting transactions considered "unfavourable" to minority shareholders?

Terms of a listed company's transactions are commercial decisions for its board and shareholders. As the frontline regulator of listed companies, HKEX cannot know more about a company's business development and capital needs than its directors, management and shareholders. If HKEX interferes with the commercial decisions of listed companies, the companies may miss opportunities for investment and business development. Therefore, HKEX cannot and should not intervene in commercial decisions made by directors and shareholders of a listed company. However, listed companies must adhere to the general principles of the Listing Rules such that all holders of listed securities are treated fairly and equally and that directors of a listed company act in the interests of its shareholder as a whole, particularly where the public represents only a minority of the shareholders. Directors of listed companies also have an obligation and fiduciary duty to ensure transactions are fair and reasonable, and are in the interest of the listed company and its shareholders. The Listing Rules include provisions to ensure that shareholders have the appropriate opportunity to vote on major decisions made by the management of listed companies. The Listing Rules also include provisions requiring shareholders who may have a potential conflict of interest in a transaction to abstain from voting at general meetings where shareholders are asked to approve the transaction.

What should an investor do if he/she has queries about the conduct of brokers or other intermediaries?

Investors who have opened a securities account at a brokerage house should seek assistance from the Securities and Futures Commission (the SFC, www.sfc.hk) if they have queries on brokers' conduct. Investors who trade through banks should contact the Hong Kong Monetary Authority (the HKMA,www.hkma.gov.hk).

What protection is there for an investor who suffers monetary losses as a result of "default" by an intermediary such as a broker?

Investors can claim compensation from the Investor Compensation Fund. The fund is administered by the Investor Compensation Company, a wholly-owned subsidiary of the Securities and Futures Commission. The fund will pay compensation to investors of any nationality who suffer pecuniary losses as a result of default of a licensed intermediary or authorised financial institution in relation exchange-traded products in Hong Kong. The compensation is applied on a per-investor basis. There is a compensation limit of $150,000 for trading of securities and $150,000 for trading of futures contracts. For details, please visit the website of the Investor Compensation Company at: www.hkicc.org.hk.

What information do I need to provide in my complaint?

The Exchange can best review a complaint if it receives accurate and complete information from the complainant. The following information should be included in a written complaint so that we can properly and effectively address it:

Name of the party or parties involved, and where your complaint relates to listing matters, the name of the issuer or listing applicant, or individuals (e.g. directors, substantial shareholders) associated with either the issuer or listing applicant of which the complaint relates;
Details of any alleged breaches of our rules, regulations or practices which undermine investor confidence in our markets. Please include dates and parties involved, where relevant;
Copies of any documents that provide evidence that supports the complaint; and
Name, mailing address, email address and telephone number of the complainant.

We require solid information (substantiated with sufficient details) on the alleged wrongdoing before taking follow-up action. In addition, complainants should be prepared to answer follow-up questions from us. If we are not able to obtain the information we need, it creates difficulties for us to follow up on a complaint.

We discourage anonymous complaints or comments. Although anonymous complaints or comments will be noted, we may not be able to proceed with them further because we may need to contact the complainant to seek substantiation of the alleged matters, request clarification of facts or seek further information. Unsubstantiated and/or anonymous complaints will severely constrain the Exchange's ability to pursue the complaints.

How does the Exchange review my complaint?

We are committed to dealing with complaints quickly. However, the period of time required for following up on the complaints depends on the circumstances of each case.

We acknowledge receipt of complaints and review them for possible follow-up action. Complaints stemming from commercial disputes or containing elements of bad faith will not be pursued.

In confidence

All complaints will be treated in strict confidence although the Exchange may need to disclose information to other regulators and agencies to properly pursue the complaints. Such disclosures would however be made under the confidentiality provisions of the Securities and Futures Ordinance.

The Exchange may have to disclose details to the listed company to allow it to respond to the Exchange on the issues raised. The Exchange is mindful of the need to protect the identity of individual complainants and where circumstances allow and it is in its view appropriate the Exchange will discuss with the complainants the extent of disclosures it may need to make.

The Exchange adopts a risk based approach

The Exchange reviews and evaluates each complaint to determine what action to take. The Exchange will decide to take no further action on complaints. Typically these will be complaints which are anonymous or where insufficient or inaccurate contact details are provided. Other complaints may not be pursued because they appear groundless, are trivial, contain too few details or are unrelated to breaches of the Listing Rules or practices which undermine investor confidence in the markets. Complaints designed to pursue commercial disputes or which contain elements of bad faith will not be pursued.

Feedback

Upon receipt of a complaint the Exchange will issue an acknowledgement to the complainant.

It is the Exchange's general policy not to comment on individual companies, individuals, or cases. This policy enables the Exchange to conduct its enquiries and investigations on a confidential basis to preserve the integrity of its process as well as to protect listed companies and their directors against whom unfounded accusations may be made or where the Exchange determines that further regulatory action is not necessary or appropriate. In certain exceptional circumstances, it may be appropriate for the Exchange to comment about specific matters. The key reasons why the Exchange may adopt this approach are to maintain public confidence in the regulation of the market or to maintain a fair, orderly and informed market for the trading of securities; to protect investors; to prevent widespread malpractice; or, help the investigation process.

For these reasons and to ensure that the Exchange meets its statutory obligation to maintain confidentiality it will not respond to complainants with a detailed account of how their concerns have been addressed or what it has discovered during the process. The Exchange may however, to the extent permitted by law, inform complainants about the status of a case at appropriate times and may provide brief reasons when it closes a case without regulatory actions. Where the regulatory action the Exchange takes results in a public statement by either the Exchange or an issuer there will be greater transparency about the outcome.

How will you deal with my whistleblowing report?

Genuine whistleblowing reports about relevant matters will be investigated promptly. If contact details are provided or the electronic system is used, we will acknowledge receipt of your report. All whistleblowing reports will be treated confidentially. HKEX will not divulge your identity unless it is required by the relevant regulatory or enforcement authority.