The Stock Exchange of Hong Kong Limited (the Exchange), a wholly owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), is launching two initiatives this month to promote transparency of its listing enforcement actions and facilitate the discharge of its statutory duty.
The Exchange is publishing the first instalment of a series of listing enforcement guidance letters on the HKEx website today as part of its ongoing efforts to provide more transparency in the decision making process relating to listing enforcement matters and the interpretation given to various provisions of the Listing Rules by the Listing Division. The letters are designed to be for the benefit, information and guidance of listed issuers.
To facilitate the Exchange in pursuing enquiries and enable the Exchange to better discharge its statutory duty to ensure, as far as reasonably practicable, an orderly, informed and fair market for the trading of securities, the Exchange is also posting Request for Assistance Announcements (RFA Announcements) on the HKEx website. An RFA Announcement will inform the market that the Exchange has an interest in contacting the named individuals in relation to facts or issues already publicly known but that attempts to do so have been frustrated for reasons which may include deliberate avoidance of the Exchange’s enquiries or the director simply being unaware that his response is being sought by the Exchange.
“The publication of the guidance letters will assist listed issuers and their advisers in their understanding and application of the Listing Rules, particularly from the enforcement perspective, and support the improvement of corporate governance in Hong Kong,” Richard Williams, HKEx’s Head of Listing, said. “We also believe that the posting of RFA Announcements will assist to enhance transparency in the Listing Division’s enquiry and investigation process.”
More information about the publication of the listing enforcement guidance letters and RFA Announcements is available on the HKEx’s website.
Notes to the Editor
Publication of Listing Enforcement Guidance Letters
Background and Objective
It has been the experience of the Exchange that cases referred for possible enforcement action may not, following investigation, be properly the subject of disciplinary action. However, the case itself may have features which carry wider regulatory implications in terms of, for example, the interpretation of the rules or the actions which the Exchange expects to have been taken in the circumstances of the case. Consequently, while no disciplinary action may be appropriate on the facts of the case, it may be that the communication of the Exchange’s interpretation or expectations as to an issuer’s conduct in the circumstances which were the subject of investigation may be the proper regulatory action and benefit not only the issuer in question but also the market as a whole.
Implementation
Clearly in the circumstances mentioned above, it would be inappropriate to name the particular company or individuals who were the subject of investigation. Therefore, where guidance is to be published it will be done on an anonymous and redacted basis. The recipient of the advice will be consulted and notified before publication is made. The Exchange has also developed internal procedures to ensure, amongst other things, that appropriate levels of internal approval are obtained before publication.
The guidance letters will be located on the HKEx website, under “Regulatory Framework and Rules” and may also be published in the quarterly “Exchange”.
The published guidance letters will be reviewed on a regular basis to ensure that the guidance given remains relevant and reflects the prevailing interpretative practices and the expectations of the Exchange’s staff.
Posting of Request for Assistance Announcements
Background and Objective
Situations have arisen where regulatory issues or concerns have emerged, for example by announcements or media reports, on which the Exchange wishes to make enquiries of an issuer’s directors. There are also situations where facts, rumours or speculation in the public domain would raise a reasonable expectation on the part of the investing public that the regulator should be making enquiries. In these circumstances, attempts to locate certain directors, particularly former directors of listed issuers, have on occasions been frustrated. The Exchange believes that in some cases avoiding the regulator is deliberate but equally it is possible that the director may simply be unaware that his response is being sought by the Exchange. In these cases, publicity is a valuable tool to locate directors who may be able to assist the Exchange in its efforts to clarify facts and to inform the market.
The objective of the RFA Announcements is to inform the market that the Exchange has an interest in contacting the named individuals in relation to facts or issues already publicly known but that attempts to do so have been frustrated.
Implementation
The scope of the RFA Announcements will be strictly limited in that the wording used will be neutral and factual, accompanied by an express statement that when publishing the relevant material, no adverse findings as regards any of the named directors or former directors have been made.
The Exchange will also ensure that the decisions for publishing an RFA Announcement are only made by senior Listing Division personnel and in accordance with internal process designed to ensure that RFA Announcements are only made in appropriate circumstances.
The RFA Announcements list will contain all the RFA Announcements published. It will be available from the HKEx website, under “Listing Matters and Listed Companies”.
A mechanism will be in place to provide that for situations where directors have responded to the RFA Announcement or where circumstances have changed such that it is no longer necessary for the Exchange to contact any of the named directors, their names will be removed from the RFA Announcements list as soon as possible.