Consultation Paper on Proposed Amendments to the Securities and Futures (Stock Market Listing) Rules
Release Date: 2025-04-08
| The Securities and Futures Commission | By email |
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Re: Consultation Paper on Proposed Amendments to the Securities and Futures (Stock Market Listing) Rules
Question 1:
Please comment on the proposal to allow for the imposition of continuing conditions on a listing applicant which will be applicable upon and after listing. Please state and provide reasons for your views.
Answer:
Under the current listing application approval system, the Hong Kong Stock Exchange has publicly released listing rules and various guidelines to ensure that listing applicants have a basis to comply with. This also provides a reference for professional intermediaries offering listing services, such as sponsors, lawyers, and accountants, enabling them to offer appropriate advice to listing applicants.
If the Securities and Futures Commission (SFC) considers imposing conditions that are applicable both at the time of listing and on an ongoing basis, it should strictly refer to the publicly released listing rules and guidelines of the Hong Kong Stock Exchange. Alternatively, the SFC should publish new relevant listing rules and guidelines, providing a basis for listing applicants and professional intermediaries. This approach avoids the market being left in uncertainty due to the SFC imposing conditions based on "subjective" judgments. If conditions are too detailed (such as interfering with business decisions), it may effectively grant the SFC excessive discretionary power, raising concerns about "administrative intervention" and effectively increasing the listing threshold.
Furthermore, it is essential to consider whether the additional conditions imposed create an unnecessary burden on enterprises. For smaller or emerging companies, meeting the ongoing conditions may increase their costs and burdens. For example, strict information disclosure requirements might necessitate more resources in terms of personnel, materials, and finances to prepare the necessary documentation, potentially impacting the company's day-to-day operations.
It is recommended that when the SFC imposes new conditions, it should balance market supervision with the cost of entry to avoid overregulation, which could impede new listings. This, in turn, might deter market participants, reduce trading volume, and affect liquidity.
Question 2:
Please comment on the proposal to allow for a withdrawal of an objection notice under section 6(2) of the SMLR. Please state and provide reasons for your views.
Answer:
The agreement aims to reduce the time and increase the efficiency of the listing process. Under the current system, once an objection notice is issued, the issuer must resolve the dispute through a lengthy appeal process, such as the Listing Review Committee. Allowing regulatory bodies to withdraw the notice upon discovering new evidence or after the applicant rectifies the information could prevent unnecessary waste of administrative resources and expedite the listing process for compliant companies.
Question 3:
(a) to add a new section 7A to the SMLR pursuant to which the SFC may impose conditions on a listed issuer; and
(b) the grounds under which conditions could be imposed on a listed issuer under the new section 7A.
Answer:
Under the current system, the Securities and Futures Commission (SFC) can instruct the Stock Exchange to suspend trading of certain securities based on Rule 8(1) of the Securities Market Listing Rules. This can occur, for example, when the SFC believes the public might make investment decisions based on information that is false, incomplete, or misleading in material respects, or when it is necessary or appropriate for maintaining an orderly and fair securities market. One reason for issuing a suspension of trading order is to prevent potential investors from becoming victims of corporate misconduct.
The introduction of the new Rule 7A is seen as enhancing regulatory flexibility. When potential issues are identified, issuers can be required to enhance disclosure or take remedial actions instead of direct suspension, thus reducing market volatility. On the other hand, it also helps in reducing the risk of investor losses by safeguarding investors' right to information through immediate corrective measures, such as independent valuation reports or additional disclosures, thereby preventing liquidity freezes caused by suspensions.
The addition of Rule 7A allows the SFC to impose conditions on listed issuers, clearly outlining the basis for the SFC's follow-up actions. However, it is recommended that before imposing conditions on relevant listed issuers, the SFC should provide specific "factual basis" and "impact assessment" to enhance transparency and help the public understand the context for imposing such conditions.
Question 4:
Do you think that the explanatory note in Appendix 2 will help issuers and their advisors to understand the scope and purpose of the proposed amendments to the SMLR? Please provide any comments on the draft explanatory note in Appendix 2 to this Consultation Paper.
Answer:
Appendix 2 primarily outlines the scope and purpose principles and suggests the following:
1. Consider organizing more examples and scenarios into a guidance document, as referenced in paragraphs 37 and 38 of this consultation paper, to make it easier for issuers and their advisors to understand.
2. Add definitions of terms and case studies to reduce ambiguities.
3. Publish a consultation feedback version with public comments to ensure the final text incorporates market opinions.
4. Simultaneously release Frequently Asked Questions (FAQs) or guidance to assist small and medium-sized issuers in understanding the new regulations.
Question 5:
Please comment on the proposals to add new sections 6(3A)(a), 7A(3) and 9(2)(a) to the SMLR pursuant to which the SFC may amend or revoke any conditions imposed by it and new sections 6(3A)(b) and 9(2)(b) to allow the SFC to impose new conditions. Please state and provide reasons for your views.
Answer:
Allowing the Securities and Futures Commission (SFC) to amend or revoke any conditions it has imposed can enhance flexibility and efficiency in practical implementation. However, it is essential to consider an appropriate appeal mechanism to address disputes arising when listing applicants or issuers disagree with the conditions imposed by the SFC or its decision not to revoke them.
If the terms do not clearly specify the criteria for amending or adding conditions, it may lead to selective enforcement. This could include imposing different conditions on issuers with similar issues or frequently changing requirements, thereby increasing market uncertainty.
Question 6:
Please comment on the proposals to add a new section 7B to the SMLR under which the SFC may require listed issuers to supply information to the SFC that it may reasonably require for the performance of its functions. Please state and provide reasons for your views.
Answer:
Agreed. Currently, the Securities and Futures Commission (SFC) can already invoke various regulations to request information from listing applicants and issuers during the listing application process or after listing. With the introduction of the new Rule 7B, the SFC can directly request information under administrative rules such as the Securities Market Listing Rules, rather than relying on securities laws like the Securities and Futures Ordinance. This change is expected to enhance the efficiency of information provision for both parties.
Question 7:
Please comment on the following proposals:
(a) amendments to sections 9 and 10 to (i) simplify and streamline the procedures for lifting a suspension (with or without conditions); and (ii) provide an issuer with a reasonable opportunity of being heard before the SFC makes a decision leading to the refusal of trading resumption or cancellation of listing; and
(b) removing the restriction under the current section 9(6) of the SMLR on non-delegability of the SFC’s powers under section 9.
Please state and provide reasons for your views.
Answer:
Agreed. Under the current trading resumption and re-listing procedures, a listed company is expected to estimate the resumption time when announcing the reasons for suspension. For companies with prolonged suspensions, such as Main Board companies with securities suspended for 18 consecutive months or GEM companies for 12 months, the Stock Exchange may delist the company. Additionally, there are clear stages and timelines for companies entering the delisting process. For instance, if a Main Board company's securities are suspended for 6 months or more and do not meet the requirements, they enter the second stage of delisting, with 6 months to submit a resumption proposal. If not submitted, they enter the third stage with another 6 months, failing which the company will be delisted.
The lengthy resumption process traps investors' funds for extended periods, partly due to delays caused by companies submitting additional documents and awaiting regulatory approvals, impacting market efficiency. Therefore, (i) simplifying the procedure for lifting suspensions (whether with or without conditions) and (ii) allowing the SFC Board to delegate decision-making authority (such as determining compliance with specific objective conditions for resumption) to, for example, the SFC's Executive Directors or an executive committee, can help shorten the resumption process, improve procedural efficiency, and provide listed companies with more time and opportunities to address resumption.
Question 8:
Please comment on the proposal for the SFAT to assume the role of the review body for the SFC’s decisions under the SMLR as set out in paragraphs 52 and 53 above. Please state and provide reasons for your views.
Answer:
Under the current system, if a listed company is delisted by the Hong Kong Stock Exchange (HKEX) or the Securities and Futures Commission (SFC), the company can apply for a Judicial Review at the Hong Kong High Court to challenge the decision.
Legal Basis for Judicial Review
1. Applicable Law
- High Court Ordinance (Cap. 4): Grants the court the power to review decisions of public bodies, including the HKEX and SFC.
- Securities and Futures Ordinance (Cap. 571): Source of regulatory powers for the SFC and HKEX.
- Listing Rules: While not statutory, courts consider their reasonableness.
2. Scope of Judicial Review
Judicial Review primarily examines whether the regulatory decision is:
- Ultra Vires: Beyond legal authority.
- Procedural Impropriety: Not following due process, such as failing to allow a fair hearing.
- Irrationality: Decisions that are clearly illogical or factually incorrect.
Key Cases of Judicial Review by Listed Companies
1. Successful Case: China Forestry (2017)
- Background: Delisted due to financial fraud, the company sought judicial review.
- Court Ruling: HKEX did not adequately consider new evidence, leading to an unfair process, and the delisting decision was overturned.
- Impact: Established that HKEX must ensure procedural fairness and cannot make arbitrary decisions.
2. Unsuccessful Case: Hanergy Thin Film (2019)
- Background: Delisted due to prolonged suspension and failure to publish financial reports, sought judicial review.
- Court Ruling: HKEX’s decision was in line with rules, and the company could not prove regulatory overreach or irrationality.
- Impact: Courts generally respect HKEX’s professional judgment unless there is clear non-compliance.
3. Recent Case: China Evergrande (2023)
- Background: Delisted for failing to release financial reports, did not seek judicial review, but similar cases are closely watched.
- Trend: Courts favor regulatory bodies unless there are significant procedural flaws.
Challenges and Limitations of Judicial Review
1. Court Deference to Regulatory Expertise
- Courts typically do not overturn HKEX or SFC decisions unless procedural unfairness or extreme irrationality is proven.
2. No Review of Business Decisions
- Courts do not decide "whether a company should be delisted," but rather if the decision-making process was legal.
3. Time and Cost Intensive
- Judicial reviews can take months or years and incur high legal and litigation costs, with stocks remaining suspended, affecting shareholder liquidity.
4. Success Does Not Guarantee Relisting
- Even if a delisting decision is overturned, HKEX or SFC may still require the company to meet listing conditions again, not guaranteeing immediate resumption.
Therefore, appointing an appeals tribunal to review decisions made by the SFC under the Securities and Futures (Stock Market Listing) Rules could be a reasonable suggestion, saving time and costs. However, it requires more public guidance and interpretation of the Securities and Futures (Stock Market Listing) Rules, along with transparent appointment of tribunal members and decision-makers to enhance credibility and acceptance across sectors.
Question 9:
Please comment on the proposal to remove the circumstances relating to pre-emptive issuance pro rata to existing shareholders and exercise of options under employee share option schemes under sections 4(b) and 4(d) of the SMLR so that they would fall within the scope of a “listing application”? Please state and provide reasons for your views.
Answer:
Agreed. The SFC should minimize interference in company and employee stock option plans, as well as rights issues where securities are issued in proportion to existing shareholdings. These scenarios typically present a lower risk of harming shareholder interests. By reducing unnecessary regulatory intervention in these areas, the SFC can allow companies greater flexibility to manage their capital structures and employee incentives, thereby aligning with shareholder interests and fostering a more efficient market environment.
Question 10:
Please provide comments on the proposed amendments to the SMLR in the indicative draft at Appendix 1 to this Consultation Paper.
Answer:
No comment.
If you have any questions or need further information, please feel free to contact me (Phone: / Email: ) or Officer, Mr. Archie Fong (Phone: / Email: ).
Your sincerely,
Mofiz Chan
Chairman
Hong Kong Securities and Futures Professionals Association