Exchange wants SFC to be sole regulator of listing sponsors

PUBLISHED : Wednesday, 24 December, 2003, 12:00am
UPDATED : Wednesday, 24 December, 2003, 12:00am

The stock exchange wants the Securities and Futures Commission (SFC) to be the sole regulator of listing sponsors to resolve investment bank concerns about double regulation, according to exchange sources.

'The SFC is the one which issues licences to the sponsors and it would be natural for the commission to handle the regulation of sponsors,' the sources said.

A source told the South China Morning Post yesterday Hong Kong Exchanges and Clearing (HKEx) had put the suggestion to the government and the SFC for consideration and had received positive responses from both.

HKEx and SFC spokesmen declined to comment yesterday, only saying they were still reviewing comments gathered in a consultation exercise earlier this year on the regulation of sponsors.

At present, sponsors are licensed by the SFC as financial advisers and also need to meet requirements set by HKEx to be sponsors in the Growth Enterprise Market.

Sponsors of main board companies are not subject to any specific requirements from the HKEx.

The Euro-Asia Agricultural (Holdings) scandal last year led to proposals to tighten regulation of sponsors after allegations that the sponsors of the Shenyang orchid grower did not conduct due diligence to ensure information provided by the company was accurate.

The company collapsed one year after its HKEx listing in 2001.

In a consultation conducted in the middle of this year by HKEx and the SFC, a name-and-shame method was suggested, with HKEx to keep a list of qualified sponsors and a blacklist of those which had breached the rules and would be disqualified.

The exchange source said it had received many complaints from investment banks saying the proposed measures amounted to double regulation.

An SFC source told the Post the commission was still considering the HKEx suggestion, but said SFC regulation would not mean a more relaxed regime.

'Under the licence requirement, the SFC could also use the name-and-shame method to penalise sponsors which breach the rules,' the SFC source said.

In response to a continuing government consultation on the listing process, the HKEx and SFC have staked claims for the role of vetting new listings.

HKEx has made it clear it would like to maintain the dual filing system and share vetting with the SFC.

The SFC has not yet given its view, although many market participants want to see the SFC take over the role of front-line regulator for listed companies from the HKEx.