Note to subscribers for the amendments to the rules governing the listing of securities (the "Listing Rules")
Update No. 81
1 December 2004
Amendments to the Listing Rules relating to the regulation of sponsors and independent financial advisers
We enclose reprinted pages of the Main Board Listing Rules incorporating amendments regarding the regulation of sponsors and independent financial advisers (IFAs).
The rule amendments were announced in the news release published jointly by The Stock Exchange of Hong Kong Limited (the Exchange) and the Securities and Futures Commission (the SFC) on 19 October 2004 (the "News Release").
We also enclose filing instructions for the reprinted pages.
Key objectives of the rule amendments
The Exchange's primary objectives in introducing these amendments are to:
• ensure sponsors, post-listing advisers (to be known as compliance advisers) and IFAs are clear about what is expected of them, in particular, in performing due diligence;
• enable sponsors, compliance advisers and IFAs to participate in the market on a level playing field; and
• minimise the regulatory risk that sponsors, compliance advisers and IFAs will not discharge their responsibilities in a way that commands market confidence.
Overview of the amended rules
The amended rules address, amongst other things:
Sponsors and compliance advisers
• when an issuer must appoint a sponsor or compliance adviser;
• independence requirements for sponsors and compliance advisers;
• the roles and responsibilities of sponsors and compliance advisers including the due diligence the Exchange expects sponsors should typically perform;
• the responsibilities of issuers to assist sponsors and compliance advisers;
• undertakings and declarations required to be given by sponsor and IFA firms to the Exchange;
• independence requirements for IFAs;
• the roles and responsibilities of IFAs including the reasonable steps an IFA will typically perform in order to be able to make the statements required by rule 14A.22
, dealing with the letter setting out its independent financial advice;
• the responsibilities of issuers to assist IFAs it appoints; and
• undertakings and declarations required to be given by IFAs to the Exchange.
The key amendments are set out below.
Sponsors and compliance advisers
• The rules will include an amended definition of "sponsor" in rule 1.01
• Compliance advisers will be included in the list of parties the Exchange may impose sanctions against as set out in rule 2A.10
• Rules 3.01
relating to sponsors will be repealed.
• A new chapter, Chapter 3A
, will set out most of the roles and obligations of sponsors and compliance advisers including as follows:
• the current rules require that a new applicant appoint a sponsor to assist it through the listing application process. In some cases the rules also require that the new applicant continue to retain a sponsor after they are listed. Under the amended rules, new applicants (including issuers deemed to be new applicants pursuant to rule 14.07
(2)) will continue to be required to appoint (at least) one sponsor to assist with their initial applications for listing. Additionally, all listed issuers will have to appoint a compliance adviser for the period commencing on initial listing and ending on publication of financial results for the first full financial year after listing, and for any further period directed by the Exchange;
• the current rules provide that sponsors should be able to satisfy themselves that they will be capable of giving the issuer by whom they are appointed impartial advice. The amended rules will provide expressly that sponsors and compliance advisers must perform their duties with impartiality and that at least one sponsor appointed by a new applicant must be independent. Compliance advisers need not be independent;
• the independence test will be set out in the amended rules. To provide clarity to issuers the independence test will be a bright-line (or black letter) test;
• sponsors will be required to give the Exchange a statement addressing whether they are independent and, if they are not, how their lack of independence arises. (The prescribed form for that statement will be set out in Appendix 18
.) Sponsors will also have to advise the Exchange if there is any change to the information in the statement after it is given;
• sponsors and compliance advisers will have to give undertakings to the Exchange in the forms prescribed in Appendix 17
and Appendix 20
, respectively. The undertakings will provide, for example, that the sponsor or compliance adviser will comply with the Listing Rules and cooperate in any investigation conducted by the Listing Division and/or the Listing Committee of the Exchange;
• sponsors will have to conduct due diligence, having regard to a new practice note , Due diligence by sponsors in respect of initial listing applications, dealing with due diligence by sponsors in respect of initial listing applications including the Exchange's expectations of due diligence sponsors will typically perform to meet their obligations under the rules;
• after undertaking the necessary due diligence, sponsors will have to make a declaration to the Exchange concerning the new applicant. The declaration must be in the form prescribed in Appendix 19
• compliance advisers will only be required to provide advice and guidance if they are asked for it by the issuer by whom it is appointed. Listed issuers will have to consult with and, if necessary, seek advice from their compliance advisers on a timely basis in the prescribed circumstances, for example, before publication of any regulatory announcement, circular or financial report; and
• issuers will be required to assist sponsors and compliance advisers. For example, new rule 3A.05
will provide that a new applicant and its directors must assist the sponsor to perform its role and must ensure that its substantial shareholders and associates also assist the sponsor.
• There will be amendments to Chapter 19A
regarding the rule modifications that apply to PRC issuers.
• The Model Code for Sponsors, which is currently set out in Appendix 9
, will be repealed.
• The rules will include a new definition of "IFA group" in rule 1.01
• New rules 13.80
will set out most of the roles and obligations of IFAs.
• IFAs will be required to perform their duties with impartiality and be independent. The independence test will be set out in the rules. As with the sponsor independence test, to provide clarity to issuers the independence test will be a bright-line test.
• IFAs will be required to give the Exchange a declaration of their independence in the prescribed form to be set out in Appendix 21
. IFAs will also have to advise the Exchange if there is any change in the circumstances set out in the independence declaration.
• As with sponsors and compliance advisers, IFAs will have to give an undertaking to the Exchange in the form prescribed in Appendix 22
. The undertaking will provide that the IFA will comply with the Listing Rules and cooperate in any investigation conducted by the Listing Division and/or the Listing Committee of the Exchange.
• IFAs will have to take all reasonable steps to satisfy themselves that there is a reasonable basis for making the statements required by rule 14A.22
(1) to (5) and that there is no reason to believe any information relied on by the IFA in forming its opinion or any information relied on by any third party expert on whose advice or opinion the IFA relies in forming its opinion, is not true or omits a material fact.
• A note to rule 13.80
will set out the due diligence steps the Exchange expects an IFA will typically perform.
• The amended rules will also set out the responsibilities of issuers to assist IFAs. That is, rule 13.81
will provide that, for example, an issuer must keep the IFA informed of any material change to any information previously given to or accessed by the IFA.
Coming into effect
Subject to the transitional arrangements described in the News Release, the rule amendments will come into effect on 1 January 2005.
The amendments to the relevant sections of the Main Board Listing Rules have been marked-up for your ease of reference. Please click HEREHERE to see the amendments to the respective chapters. The revised version of the entire Main Board Listing Rules is located in the section headed "Listing Rules (Main Board)".
For and on behalf of
The Stock Exchange of Hong Kong Limited
Head of Listing