Hong Kong Securities and Futures Ordinance - subsidiary legislation consultation

Profession:Herbert Smith

Since the enactment of the Securities and Futures Ordinance (the "SFO") in March this year, the Securities and Futures Commission (the "SFC") sped up the public consultation process for many pieces of subsidiary legislation to be enacted under the SFO. The new regulatory regime under the SFO is expected to be launched early next year.

The following is a highlight of some major SFO subsidiary legislation put to public consultation by the SFC in the past quarter.

ï Increased SFC governance over listed companies

The Securities and Futures (Transfer of Functions - Stock Exchange Company) Order sets out increased SFC involvement in the listing process and governance over listed companies.

Under the new regime, listed companies disseminating information to the public under applicable rules will have to file a copy of the disclosure materials with the SFC. The requirement extends to prospectuses and listing documents. In practice, however, there will be a "deemed filing" procedure whereby companies submitting documents to the Stock Exchange with an authorisation to forward them to the SFC will be deemed to have complied with the SFC filing requirement.

The SFC will also reserve the power to comment on a draft prospectus, and object to a company's listing if the company does not make sufficient disclosure or fails to observe all applicable rules, or if the listing would not be in the interests of the investing public.

ï Price stabilisation

Under the SFO, carrying out price stabilisation or creating a false market in securities constitutes market misconduct and, potentially, a criminal offence. The Securities and Futures (Price Stabilising) Rules, however, provide a "safe harbour" for price stabilisation activities carried out in connection with certain types of offers, which satisfy certain requirements.

For the safe harbour provisions to operate, there must be a public offer with a Hong Kong tranche of not less than HK$ 100 million in size. Both primary and secondary offers can qualify if certain conditions are met.

For permissible stabilisation activities, a stabilising manager must be appointed, who will have oversight and record-keeping responsibilities. Also set out are operational rules, such as the setting of upper limits for stabilising bids, the time period during which stabilisation is allowed and requirements to disclose information about the stabilisation activities.

ï Short selling

"Naked" short selling of securities (i.e. selling of...

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