1. 1 Regulation of Sponsors and Independent Financial Advisers Joint HKEx / SFC Press Conference 19 October 2004

2. 2 Today, we are pleased to announce: consultation conclusions rule amendments (commence 1 Jan 2005 – subject to transitional arrangements)

3. 3 Agenda: Introduction  process  key objectives  key aspects Ashley Alder, SFC Detail:

4. 4 Conclusions informed by extensive market consultation THE PROCESS: In conjunction with May 2003 consultation paper Conclusions and rule amendments approved by SEHK and Commission

5. 5 KEY OBJECTIVES: Sponsors play an important role in HK. Variance of expectations To address expectation gap:  clear framework for role of sponsors, compliance advisers and IFAs  make it abundantly clear what is expected of them and issuers that appoint them

6. 6 KEY ASPECTS: Conclusions and amended rules: WILL clearly set out:  when sponsors, CAs and IFAs must be appointed WILL codify current expectations  when sponsors, CAs and IFAs must be independent and what is independence

7. 7 KEY ASPECTS: (cont’d)  role of sponsors, CAs and IFAs including due diligence  role of issuers in assisting sponsors and CAs

8. 8 WILL NOT expect sponsors to verify expert reports/ be experts WILL allow engaging of 3rd party professionals (but sponsor must ensure work not substandard) KEY ASPECTS: (cont’d) WILL make it clear that sponsors, CAs and IFAs can only do what is reasonable and appropriate WILL NOT shift obligations from directors/experts to sponsors

9. 9 Ashley Alder Executive Director Corporate Finance Division Securities and Futures Commission

10. 10 Patrick Meaney Vice President Listing Enforcement Listing Division Hong Kong Exchanges and Clearing Limited

11. 11 THE RULE CHANGES: include new rules re IFAs include new chapter re sponsors and CAs To implement policy, rules amended to: include new PN re due diligence by sponsors address incidental amendments

12. 12 THE RULE CHANGES: (cont’d) Rule amendments will cover:  (at least) one sponsor to assist new applicant with IPO appointment  if > one sponsor, all responsible

13. 13 THE RULE CHANGES: (cont’d)  SEHK may direct appointment of a CA at other time  listed issuers must appoint CA from initial listing to: -MB: 1+ year -GEM: 2+ years

14. 14 THE RULE CHANGES: (cont’d)  sponsors, CAs and IFAs must perform duties impartially impartiality and independence  at least one sponsor and all IFAs must be independent

15. 15 THE RULE CHANGES: (cont’d)  listing documents must disclose whether sponsor is independent and if not, how  independence tests = bright-line tests  sponsors and IFAs must give SEHK statement re independence and advise if change

16. 16 THE RULE CHANGES: (cont’d)  firms must undertake to SEHK to e.g. comply with rules and cooperate in investigation role and responsibilities: sponsors  sponsors must: -comply with undertaking

17. 17 THE RULE CHANGES: (cont’d) -be closely involved in new applicant’s preparation of listing document -conduct reasonable due diligence and declare to SEHK re same

18. 18 THE RULE CHANGES: (cont’d)  have regard to new PN re what is reasonable due diligence  new PN: -applies only to sponsor firms; not CAs/IFAs/individuals -not checklist of minimum steps

19. 19 THE RULE CHANGES: (cont’d) -is SEHK’s expectations of typical steps -is subject to reasonableness

20. 20 THE RULE CHANGES: (cont’d)  declaration will cover due diligence re: -director’s declaration(s) -compliance with basic listing conditions -sufficiency of listing document -new applicant’s systems and controls

21. 21 THE RULE CHANGES: (cont’d) -directors’ collective experience, qualifications and competence -directors’ individual experience, qualifications and competence -expert sections of listing document including whether:

22. 22 THE RULE CHANGES: (cont’d)  factual information relied on by expert is true and complete (unless verified by expert)  all bases and assumptions = fair, reasonable and complete  expert appropriately qualified, experienced and resourced

23. 23 THE RULE CHANGES: (cont’d)  expert scope of work appropriate  expert independent  listing document fairly represents expert views

24. 24 THE RULE CHANGES: (cont’d)  firms must undertake to SEHK role and responsibilities: CAs  CAs need only provide advice and guidance if asked by issuer  listed issuers must consult and, if necessary, seek advice from CAs on timely basis in prescribed circumstances e.g. before publication of announcement

25. 25 THE RULE CHANGES: (cont’d)  when CA is consulted, it must e.g. ensure issuer properly guided and advised

26. 26 THE RULE CHANGES: (cont’d)  firms must undertake to SEHK role and responsibilities: IFAs  must take all reasonable steps to be satisfied: -reasonable basis for making statements required -no reason to believe any information relied on is not true/omits material fact

27. 27 some limitations re termination and resignation of sponsors and CAs THE RULE CHANGES: (cont’d)

28. 28 Amended rules commence 1 Jan 2005 TRANSITION TO THE NEW RULES Press release sets out transitional arrangements