The Stock Exchange of Hong Kong is considering requiring major shareholders of listed companies to disclose if they have pledged their shareholdings as collateral for bank loans, chairman Lee Hon-chiu said yesterday. The proposal is part of a wide range of reforms to exchange listing rules which aim at tightening up on disclosure and regulating issue sponsors. Exchange executive director Lawrence Fok Kwong-man said the review would the biggest since 1994. A consultation paper will be issued by the end of the year. The existing listing rules do not require major shareholders to make a disclosure when they pledge their shares to banks for funding. Under existing rules, small shareholders would be unaware of such activities unless major shareholders could not repay the loans and banks sold the shares, resulting in sharp price falls. In some cases, such falls have led to financial crises at companies. 'Disclosure of the pledging activities of major shareholders would increase market transparency,' Mr Lee said. 'This information would be useful to the market as it is related to the share price of the companies.' Mr Lee said major shareholders would have to make it clear whether they had pledged shares for their own use or the company's. The review would also add a new chapter to the requirements of sponsors. 'Hong Kong does not have particular criteria for sponsors, and there are no controls on the quality of the merchant bankers who act as sponsors,' Mr Fok said. Hong Kong should follow Britain in having a clear set of criteria, he said. Mr Fok said the exchange was working with the Securities and Futures Commission to seek statutory backing for the listing rules, in a bid to add some 'teeth'. The changes would allow the exchange to seek court orders against those who had given misleading information to the market, or who had refused to follow other rules. Exchange chief executive Alec Tsui Yiu-wa said: 'It is important for listed companies to give correct information to the public. 'The seeking of statutory backing for the listing rules would empower the exchange to take tougher action against those who have given misleading information.' The exchange is also considering whether to require companies to report their results quarterly instead of twice a year. Mr Fok said the requirement would apply only to the proposed second board. 'Only the US and Australia require companies to issue their financial reports four times a year,' he said. 'European countries require only that companies issue financial statements twice a year.' On the regulation of warrants, Mr Fok said the exchange might further tighten requirements for issuers. Under the proposals, when issuers face a risk of their credit ratings being downgraded below minimum exchange requirements, the exchange could ban them from issuing new warrants.