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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

24. THE RULE CHANGES: (cont’d)
role and responsibilities: CAs
firms must undertake to SEHK
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. THE RULE CHANGES: (cont’d)
when CA is consulted, it must e.g. ensure issuer properly guided and advised

26. THE RULE CHANGES: (cont’d)
role and responsibilities: IFAs
firms must undertake to SEHK
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. THE RULE CHANGES: (cont’d)
some limitations re termination and resignation of sponsors and CAs

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