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7/29/2019 Hongkong Stock Exchange Assignemnt
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
Hong Kong Stock
Exchange
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
Acronym
AMS Automatic Order Matching and Execution System
DIs Delivery Instructions
DRs Depositary Receipts
DVP Delivery Versus Payment
CCASS Central Clearing and Settlement System
CNS Continuous Net Settlement
ETFs Exchange Traded Funds
FOP Free of Payment
GEM Growth Enterprise Market
HKEx Hong Kong Stock Exchange
HKFE Hong Kong Futures Exchange Limited
HKICL Hong Kong Interbank Clearing LimitedISI Investor Settlement Instruction
NAV Net Asset Values
RDP Realtime Delivery Versus Payment
REIT Real Estate Investment Trust
SEHK Stock Exchange of Hongkong
SFC Securities and Futures Commission
SFC Securities and Futures Commission
SFCO Securities and Futures Commission Ordinance
SI Settlement Instruction
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Introduction
The Hong Kong Stock Exchange (SEHK) is a stock exchange located in Hong Kong. It is Asia's
second largest stock exchange in terms of market capitalization behind the Tokyo Stock Exchange,
and the fifth largest in the world. As of 30 November 2012, the Hong Kong Stock Exchange had
1,477 listed companies with a combined market capitalization of HK$16.985 trillion. Hong Kong
Exchanges and Clearing is the holding company for the exchange.
HKEx is the holding company of The Stock Exchange of Hong Kong Limited, Hong Kong Futures
Exchange Limited and Hong Kong Securities Clearing Company Limited. It brings together the
market organizations which have transformed Hong Kong's financial services industry from a
domestically focused market to become a central market place in Asia attracting investment funds
from all over the world.
HKEx was listed in June 2000 following the integration of Hong Kong's securities and derivatives
markets. As a market-driven organization, answerable to its shareholders, HKEx competes
vigorously for opportunities in the region and around the world.
HKEx's operations are organised into focused units, directly supervised and controlled by
management and the board of directors. The board, the highest decision-making body, determines
HKEx‟s objectives, missions, strategies, policies and business plan and monitors their
implementation by management.
In its role as the operator and frontline regulator of the central securities and derivatives marketplace
in Hong Kong, HKEx regulates listed issuers; administers listing, trading and clearing rules; and
provides services, primarily at the wholesale level, to customers of the exchanges and clearing
houses, including issuers and intermediaries investment banks or sponsors, securities and derivatives
brokers, custodian banks and information vendors who service the investor directly. These services
comprise trading, clearing and settlement, depository and nominee services, and information
services.
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
CHAPTER 1
H istory / Background
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History/ Background
The history of the securities exchange began formally in the late 19th century with the first
establishment in 1891, though informal securities exchanges are known to have been in existence
since 1861. The exchange has predominantly been the main exchange for Hong Kong despite co-
existing with other exchanges at different points in time. After a series of complex mergers and
acquisitions, in the twenty first century, HKSE remains the core. From 1947 to 1969 the exchange
monopolized the Hong Kong market.
Since Great Britain‟s return of Hong Kong‟s sovereignty to the Chinese government in 1997,
attention has been increasingly directed at the degree of market efficiency in the post-handover Hong
Kong stock market. This study uses a sample of 542 corporate news announcements from January
1994 through December 2000 of Hong Kong and China-affiliated firms that are listed on the Stock
Exchange of Hong Kong. I examine the efficiency of the Hong Kong stock market by investigating
the abnormal price and volume performances surrounding the corporate news announcements. Data
of U.S. stocks are also used and serve as benchmarks for a comparative analysis of the relative
market efficiencies. This paper finds that there is very little unusual price and volume behavior for
both Hong Kong and U.S. stocks. There exists, however, strong evidence that points towards
suspicious insider-trading activities among the Red-Chips and H-share stocks of the China-affiliated
firms that are listed in Hong Kong, where significant abnormal returns abound prior to the arrival of good news announcements.
Brief chronology
On 2 April 1986: a new trading hall is opened. At that time, a total of 249 companies were listed
on the Exchange, total market capitalization was HK$245 billion
6 October 1986: Stock Exchange grand opening
October 1987: The Stock Exchange is closed for four days in an attempt to stop losses during
Black Monday global equities market crash
May 1988: The Ian Hay Davison Report, commissioned to investigate practices on the exchange
in the lead-up to its closure, is released, resulting in significant market reforms - although many
took years to finally implement
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
On 24 June 1992, the Central Clearing and Settlement System (CCASS) is introduced
On 15 July 1993, in the Tsingtao Brewery became the first Chinese enterprise to list its H
shares on the exchange.
On 1 November 1993, a new "Automatic Order Matching and Execution System", AMS/1, was
introduced on the exchange; later, in January 1996, the second phase AMS/2 was introduced,
becoming the basis of off-floor trading.
On 12 November 1999, the Tracker Fund of Hong Kong, created by government intervention
during the 1997 Asian financial crisis, had its introduction on the exchange.
25 November 1999, two companies were jointly listed on the newly created Growth Enterprise
Market (GEM)
On 6 March 2000, The Stock Exchange, Futures Exchange and the Hong Kong Securities
Clearing Company all became wholly owned subsidiaries of HKEx, which was in turn listed on
27 June 2000.
On 23 October 2000, AMS/3 was implemented on the exchange.
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
Exchange history and predecessors
Association of Stockbrokers
in Hong Kong (Founded1891)
(1914) Renamed to Hong
Kong Stock Exchange
(1947) A merger is madeafter World War II with Hong
Kong Stock
Exchange retaining the name
Hong Kong
Stockbrokers
Association(Founded1921)
Hong Kong Stockholders
Association Ltd (Founded1956) allow info sharing between HKSE and other exchanges
Far East ExchangeLtd(Founded 1969)
Kam Ngan Stock
ExchangeLtd(Founded1971)
Kowloon Stock
ExchangeLtd(Founded1972)
(1986) HKSE merges withother exchanges and retain thename but also presentedas Stock Exchange of Hong
Kong
(2000) Hong Kong Exchangesand Clearing becomes theholding company for Hong
Kong Stock Exchange
Hong Kong Futures
Exchange Ltd(Founded1976)
Hong Kong
Securities
Clearing
Company
Ltd(Founded1989)
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CHAPTER 2
Products & Services
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A variety of securities and derivatives such as shares, Exchange Traded Funds, structured products,
futures and options can be bought and sold through HKEx‟s markets. Comprehensive pre-trade and
post-trade services, primarily at the wholesale level, are also available through HKEx.
Securities Products
Equity securities
Equity securities, generally referred to as shares, comprise ordinary shares and preference shares.
Most of the equity securities listed on the Exchange are ordinary shares that account for most of the
turnover of the Exchange.
Ordinary shares and preferred shares are equity shares issued by the company to shareholders.
Ordinary or common shareholders (i.e. holders of ordinary shares), being owners of the company,
have voting rights and receive dividends at the discretion of the company. However, the payment of
dividends is not mandatory even if a company records a profit in the year.
Preferred shareholders are entitled to a preferential distribution out of profits prior to any distribution
to the ordinary shareholders. Preferred shareholders have no voting rights and
receive fixed dividends (i.e. the dividend does not increase even if the company's profit increases).
Preferred shareholders also have a claim on corporate assets, in the event of liquidation, which ranks
ahead of ordinary shareholders, but behind that of the company's creditors. Participating preference
shareholders may receive additional dividends if the profits are sufficient.
Meanwhile, cumulative preference shares carry forward the right to profits to following years, if
there are insufficient profits to pay the holders in any one year.
Depositary Receipts (DRs)
Depositary receipts (DRs) are securities issued by a depositary representing underlying shares of a
corporation which have been placed with the depositary or its nominated custodian. DRs are purchased by investors (DR holders) in accordance with the terms of the deposit agreement. The
depositary acts as a bridge between the DR holders and the issuer.
DRs are issued to investors in the target market (the host market) where they are traded, cleared and
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
settled in host market currency in accordance with host market procedures. One DR will represent a
number of underlying shares (or a fraction of a single share), according to the DR ratio. The
depositary converts dividends into the host market currency and pays the amounts (net of its own
fees) to the DR holders. The depositary also transmits other entitlements and corporate
communications from the issuer to the DR holder, and transmits the DR holder‟s instructions back to
the issuer. The respective rights and obligations of the issuer, the depositary and the DR holders are
set out in the deposit agreement.
„HDR‟ is the informal name for a depositary receipt programme listed on the Exchange.
List of Securities
Remark:
# Admitted to Central Clearingand Settlement SystemH Designated Securities eligiblefor shortsellingO Admitted to Stock OptionsF Admitted to Stock Futures
Sort by Stock Name
STOCK CODE NAME OF LISTED SECURITIES BOARD LOT REMARK
06210 VALE COMMON-DRS
50 #
06230 VALE PREF-DRS 50 #
06388 COACH-DRS-RS 100 #
06488 SBI HLDGS-DRS 500 #
Stapled Securities
Stapled Securities generally refer to an arrangement under which different securities of the issuer are
listed on the basis that they are legally bound together and cannot be transferred or traded
separately. There will only be a single price quotation on the Exchange for Stapled Securities and no
price quotation will be given for individual components forming the Stapled Securities.
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
Exchange Traded Funds (ETFs)
Exchange Traded Funds (ETFs) are passively managed and open-ended funds. All listed ETFs on
the HKEx securities market are authorized by the Securities and Futures Commission as collective
investment schemes.
ETFs are designed to track the performance of their underlying benchmarks (eg an index, a
commodity such as gold, etc) and offer investors an efficient way to obtain cost-effective exposure
to a wide range of underlying market themes. Similar to other securities, investors can buy or sell
ETFs through their brokers anytime during the securities market‟s trading hours.
ETFs can be broadly grouped into two types:
Physical ETFs (ie traditional or in-specie ETFs)
Many of these ETFs directly buy all the assets needed to replicate the composition and weighting of
their benchmark (eg constituents of a stock index). However, some only buy a portion of the assets
needed to replicate the benchmark or assets which have a high degree of correlation with the
underlying benchmark but are not part of it.
Some physical ETFs with underlying equity-based indices may also invest partially in futures and
options contracts. Lending the shares they own is another strategy used by some physical ETFs.
Investors should read the ETF prospectus carefully to ensure they understand how the fund operates.
Synthetic ETFs
These ETFs do not buy the assets in their benchmark. Instead, they typically invest in financial
derivative instruments to replicate the benchmark‟s performance. The ETFs are required to have
collateral when investing in derivatives . An ETF‟s net risk exposure to any single counterparty (ie
net of the value of any collateral provided) cannot be more than 10 per cent of its NAV. Investors
should read the ETF prospectus carefully to ensure they understand how the fund operates
Real Estate Investment Trust (REIT)
A Real Estate Investment Trust (REIT) is a collective investment scheme that aims to deliver a
source of recurrent income to investors through focused investment in a portfolio of income-
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
generating properties such as shopping malls, offices, hotels and service apartments in Hong Kong
and/or overseas.
REITs provide regular income distribution to investors. All or the majority of a REIT‟s net income
after tax is paid to investors in the form of dividends at regular intervals. According to existing SFC
regulations, the dividend payout ratio of a REIT has to be at least 90 per cent. Investors should note
that the amount available for distribution will also be adjusted for losses/gains from real estate
revaluation or disposal.
REITs are mainly regulated by the Securities and Futures Commission (SFC) and must be authorised
by the SFC before they can be listed on the Stock Exchange. An SFC-authorised REIT is governed
by the SFC‟s Code on Real Estate Investment Trusts and the relevant listing rules issued by the
Stock Exchange of Hong Kong.
Since a REIT that is authorized for sale in Hong Kong must be listed on the Stock Exchange of
Hong Kong, investors can buy and sell units of REITs similar to stocks at the Stock Exchange.
However investors should be aware that REITs may trade at a premium or discount to their
respective net asset values (NAV).
Securities Clearing & Settlement Services
Securities Clearing services
CCASS clearing services determine the stock and money obligations of participants to a securities
transaction to deliver or receive either cash or securities.
CCASS provides settlement services under which securities are credited or debited to participants'
CCASS stock accounts and funds are recorded in the participants' money ledgers on settlement day.
Transactions are classified into two categories----Exchange trades (trades in eligible securities
executed on the Stock Exchange) and non-Exchange trades (such as settlement instruction, clearing
agency transactions and investor settlement instruction).
Exchange Trades: Continuous Net Settlement (CNS) and Isolated Trades Systems
Details of all Exchange trades, including trade data and trade amendments, are electronically and
automatically transmitted to CCASS by the Stock Exchange on each trading (T) day. There is no
need for clearing participants to input or further confirm such trade details in CCASS. Clearing
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
participants receive Provisional Clearing Statements of their stock and money positions through their
CCASS terminals shortly after 18:00 and 20:00 hours on each T day for reconciliation. Final
Clearing Statements are available to clearing participants shortly after 14:00 hours on T+1 day for
confirmation purposes.
CNS System
Exchange trades are settled under CNS system on a netting basis, unless isolated for settlement
under the isolated trades system by the clearing participants at the time of the transaction or by
HKSCC for risk management purposes.
Under CNS system, HKSCC becomes the settlement counterparty to both the buying and selling
broker through novation. The single market contract between the clearing participants is novated into
two market contracts, one between the delivering clearing participant and HKSCC; and the other
between the receiving clearing participant and HKSCC. Acting as the settlement counterparty,
HKSCC provides a form of settlement guarantee.
The stock transactions of a clearing participant in the same security on the same day are offset
against each other, resulting in a single net stock position for the day. Any outstanding unsettled net
stock positions of a clearing participant at the end of a settlement day are carried forward to the next
settlement day and continuously netted against any opposite stock positions due for settlement in the
same security.
Isolated Trades System
Isolated trades are settled on a trade for trade basis. HKSCC does not substitute itself as the
settlement counterparty to isolated trades. The Company facilitates but does not guarantee
settlement.
Non-Exchange Trades: Settlement Instruction (SI) , Clearing Agency Transactions and
Investor Settlement Instruction (ISI)
SI Transactions
SIs facilitate broker-custodian transactions, stock borrowing and lending, stock pledging and
portfolio movements. Settlement of SI transactions is conducted on a trade for trade basis. Input of
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
SIs is required from both participants to effect settlement.
Clearing is effected by CCASS daily automatic batch matching of the details from two
corresponding SIs, including the participants' identities, the settlement date, stock code, quantity,
payment instruction, instruction type and if applicable, the amount of payment and settlement
currency. HKSCC facilitates but does not guarantee settlement of SI transactions.
Clearing Agency Transactions
The Stock Exchange of Hong Kong Options Clearing House Limited was admitted as a clearing
agency participant in CCASS in 1995. Transactions resulting from exercised traded options contracts
are also transmitted to and settled in CCASS. Details of Clearing Agency Transactions to be settled
in CCASS will be included in the second batch of Provisional Clearing Statement and Final Clearing
Statement.
ISI Transactions
For transactions between investor participants and brokers or custodians which are CCASS
participants to be settled in CCASS, the brokers or custodians which are CCASS participants must
input ISIs, containing the relevant details required by HKSCC, into CCASS.
ISI transactions may include investor-intermediary transactions, stock borrowing and lending
transactions, stock pledging transactions and portfolio movement.
Securities Settlement Services
Securities Settlement All Exchange trades are required to be settled on T+2. SI transactions are settled on the settlement
day stipulated by both participants. Securities settlement is effected either by scheduled daily batch
settlement runs or immediately on-line by the input of Delivery Instructions (DIs). Provided that
there are sufficient stocks in the stock account of the delivering participants, settlement of ISIs will
be immediately effected on the settlement day specified by the brokers or custodians which are
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
CCASS participants once the investor participants make the affirmation. Otherwise, the ISI
transactions will be settled by multiple batch settlement-runs or the input of DIs.
Both methods enable CCASS to effect electronic book-entries to participants' stock accounts. During
each batch settlement run, delivering participants' stock accounts are debited and the stock accounts
of receiving participants' are credited; delivering participants may choose, or be requested by
counterparties, to settle a position or transaction on-line by initiating DIs. Each DI takes immediate
effect upon input, if there is sufficient stock balance available in the delivering participant's stock
clearing account.
On-line enquiries on settled or unsettled positions are available to brokers and custodians which are
CCASS participants through CCASS terminals and to investor participants via CCASS phone
system or the internet to help them monitor their settlement activities.
Money Settlement
HKSCC provides money settlement services for all transactions settled on a Delivery Versus
Payment(DVP) basis, where payment will follow delivery of securities in CCASS. Trades settled
under CNS system are always on a DVP basis. For isolated trades, SI and ISI transactions,
participants can choose to settle them on a DVP or Free of Payment (FOP) basis. For transactions
settled on a FOP basis, participants make their money settlement outside CCASS without involving
HKSCC. Participants can also elect to settle SI and ISI transactions on a Realtime Delivery Versus
Payment (RDP) basis. Under RDP system, shares are delivered to the stock account of paying
participant upon receipt of payment confirmation from Hong Kong Interbank Clearing Limited
(HKICL).
Each participant establishes an account at a designated bank and authorises HKSCC to initiate
electronic instructions to debit or credit its designated bank account. Book-entry money records are
generated for a participant in its money ledger with respect to its settlement and other financial
obligations due to or from HKSCC. Settlement is processed through the clearing system of HKICL
against participants' designated bank accounts.
Brokers and custodians which are CCASS participants may enquire about their money obligations
for settled or unsettled positions through their CCASS terminals throughout the settlement day.
Investor participant can make enquiry of such information via CCASS phone system or the internet.
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The money positions arising from Exchange trades settled under CNS system in each stock position
are netted, resulting in a single net amount due to or from the participant. This is settled by direct
debit or credit instruction issued by HKSCC to the designated bank of the participant no later than
day-end of the settlement day.
HKSCC acts as a facilitator for isolated trades, SI and ISI transactions settled on a DVP and RDP
basis, and issues electronic payment instructions to the designated banks of the participants
concerned to effect money settlement.
Depository Services
The CCASS Depository accepts deposits of eligible securities from participants for settlement and
safe custody. Participants are responsible to HKSCC for the good title of the securities they deposit
into the CCASS Depository.
Each investor participant is allocated with one “all- purpose” stock account; whereas each participant
other than an investor participant is allocated with one stock clearing account for settlement purpose
and one entitlement account for receiving benefit entitlements. If needed, participants other than
investor participants can request for additional stock segregated accounts for internal record keeping
and reconciliation purposes. All stock balances are recorded electronically. Details of stock movements / balances in these accounts are available for enquiry or in report form through CCASS
terminals.
Shares held in the CCASS Depository are registered in the name of HKSCC Nominees Limited, the
common nominee. They are fungible and not earmarked to any particular participant. This does not
change the beneficial ownership of the shares. Normally, the shares deposited by participants other
than investor participants are credited immediately to their stock accounts in CCASS. With the
immediate credit, participants other than investor participants are able to continue settling their
delivery obligations in CCASS, even when the share certificates have been submitted for registration
into the name of the common nominee.
Participants may withdraw physical share certificates from the CCASS Depository based on their
available stock balances in CCASS.
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
The depository facilities include a service counter hall and a vault with a capacity for over 15 million
share certificates.
Data Products
Real-time Data ProductsHKEx real-time market data products provide information on all instruments listed on HKEx and we
are continuously developing new products and data solutions to meet the market needs.
SECURITIES MARKET DATA
Trading data of allsecurities products tradedon the Stock Exchange of Hong Kong Limited(SEHK)
Products include:
Equities
Warrants
REITs
Debt securities
Exchange-traded funds
Unit trusts/mutual funds
Equity-linked instruments
Structured Products
Datafeed:
MDF3.8
DERIVATIVES MARKET DATA
Trading data of derivatives products traded on theHong Kong FuturesExchange Limited (HKFE)and the stock optionsmarket of SEHK
Products include:
Stock futuresEquity index futures andoptions productsInterest rate and fixed income productsGold futuresStock options
Datafeed:
PRS
PRS Plus
ISSUER NEWS
Trading news andannouncements from listedcompanies and issuers listedon the HKEx SecuritiesMarket
Information includes:
Announcements from listedissuers including news aboutreorganizations, connected
Datafeed:
IIS News
IIS News Headline
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
transactions or notifiabletransactions, change of keyexecutives, board meeting andAGM notifications, dividendannouncements, profit warnings,changes to share capital etc.
Financial reports and annualreports from listed companies, prospectus for initial publicofferings (IPO), allotment resultsof IPO, other documents inconnection with listing such as prospectuses, circulars etc.Trading news from the Exchange
Issuer Services
HKEx is supporting listed companies by introducing issuer services that enable them to enhance
transparency, communication and relations with both existing and potential investors.
Services launched include Market Open Ceremonies and the availability of Real-time Stock Prices
on Issuer Websites.
Other services aimed at assisting listed companies understand the market and investors will be
introduced in due course.
Issuer Services
Market Open Ceremony
Events
Real-time Stock Price on Issuer Websites
Market Open Ceremony
Listed companies, non-listed companies and various professional entities now have the
unique opportunity to host a Market Open Ceremony at HKEx to celebrate special occasions:
IPO Anniversaries
Company Milestones
Product Launches
Founding Anniversaries
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
Corporate Events
This event provides a unique opportunity for all guests to experience the exciting atmosphere
surrounding the market open, live from the Exchange. Directors and VIPs will have the honor of
opening the market to commence the day‟s trading by striking the "Gong". The event will be filmed
live and will provide photo opportunities. In addition, we will issue a photo release to alert the media
of the event, providing extra visibility for your company.
Events
HKEx will periodically host conferences/seminars related to "Listing in Hong Kong". This provides
an opportunity for potential companies to interact with market professionals in one venue.
Real-time Stock Price on Issuer Websites
Listed companies may consider enhancing their market transparency by displaying their real-time
share price on their own company website, including nominal and last traded prices and more.
Interested parties may refer to our “Notes to Listed Companies for enabling BMP Service on their
Corporate Website” for further information regarding installation. The service providers may also
be able to offer an enhanced display of the share price information (e.g. price and volume charts,
etc.) to provide a better understanding of the share price performance.
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
CHAPTER 3
Membership Requirements
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
Qualifications for stock exchange membership ,The qualifications for membership of, and admission into, a stock exchange, shall be as follows
(a) No person shall be eligible to be a member of a stock exchange if
(i) he is less than twenty-one years of age;
(iii) he is a lunatic or a person of unsound mind;
(iv) he has been convicted of an offence involving fraud or breach of trust;
(v) he has been adjudicated as insolvent or has suspended payment or has compounded with his
creditors;
(vi) he has not had experience in the business of securities for a period of not less than two years:
Provided that the regulations of a stock exchange may authorize the governing body thereof to waive
compliance with the foregoing condition relating to experience in the business of securities if such
person is, in respect of means, integrity and background, considered by the governing body to be
otherwise qualified for membership;
(b) A member shall, at all times, maintain a net capital balance of an amount which is ,-
(i) in the case of a stock exchange which in the previous calendar year had on the cash counter a
turnover of securities exceeding fifteen billion, $250000
(ii) in the case of a stock exchange which in the previous calendar year had on the cash counter aturnover of securities exceeding $7.5 billionbut not exceeding fifteen billion, $1.5 million; and
(iii) in the case of a stock exchange which in the previous calendar year had on the cash counter a
turnover of securities not exceeding 7.5 billion, $. 0.75 million; Provided that a member who is also
the member of other stock exchange shall maintain a net capital balance upto aggregate net capital
balance requirement of all such exchanges put together: Provided further that, in the case of
partnership firm, the amount of net capital balance to be maintained shall be the amount obtained by
multiplying the net capital balance required for each member of the stock exchange or
exchanges, as the case may be, by the number of such partners of the firm as are members of the
stock exchange.
(b) A member shall cease to be a member if, at any time,
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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan
he is declared a lunatic or a person of unsound mind; or
he is convicted of an offence involving fraud or breach of trust; or
he has been adjudicated as insolvent or has suspended payment or has compounded with his
creditors;
(d) the membership of a member or members who are
partners in a firm and who are in active business shall become suspended as soon as the net capital
balance falls short of the amount specified in clause
(b) and shall remain so suspended until the net capital balance is increased so as not to fall short of
the amount;
(e) Every member shall report to the stock exchange weekly that he or the firm of which he is a
partner had, at all times during the week to which the report relates, a net capital balance of an
amount not less than that specified in clause (b) and shall forthwith inform the stock exchange
if, at any time, such balance falls short of that amount.
4. Manner of transaction of member’s business.-
(1) All orders to buy or sell securities which a member may receive shall be entered, in the
chronological order, in a register to be maintained by him in a form which shows the name and
address of the person who placed the order, the name and number of the securities to be bought
or sold, the nature of the transaction and the limitation, if any, as to the price of the securities or
the period for which the order is to be valid.
(2) (a) A member who has an “at best” order from a customer to buy a security shall not, while
such order remains unexecuted, buy the same security on the stock exchange for his own
account or for the account of the firm of which he is a partner or for the account of any of the
partners therein or for any account in which he, such firm or partner, directly or indirectly, has
an interest.
(3)
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(b) A member who has an “at best” order from a customer to sell a security shall not, while such
order remains unexecuted, sell the same security on the stock exchange for his own account or for
the account or the firm of which he is partner or for the account of any of the partners therein or
for any account in which he, such firm or partner, directly or indirectly, has an interest.
(c) A member who has a limit order from a customer to buy a security shall not while such
order remains unexecuted, buy the same security at or below the limit price on the stock exchange
for his own account or for the account of the firm of which he is partner or for the account of any of
the partners, therein or for any account in which he, such firm or partner, directly or indirectly, has
an interest.
(d) A member who has a limit order from a customer to sell a security shall not, while such
order remains unexecuted, sell the same security at or above the limit price on the stock exchange for
his own account or for the account of the firm of which he is a partner or for the account of any of
the
partners therein or for any account in which he, such firm or partner, directly or indirectly, has an
interest.
Maintenance of books of account, etc. by members.-
(1) Every member shall prepare and maintain, as required by sub-section (1) of section 6, the
following books of account and other documents in a manner that will disclose a true, accurate and
up-to-date position of his business, namely
(a) journal (or other comparable record), cash book and any other books of original entry, forming
the basis of entries into any ledger, the books of original entry being such as contain a daily
record of all orders for purchase or sale of securities, all purchases and sales of securities, all
receipts and deliveries of securities and all other debits and credits;
(b) ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income and
expense accounts;
(c) ledgers (or other comparable records) reflecting securities in transfer, securities borrowed and
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securities loaned and securities bought or sold, of which the delivery is delayed;
(d) record of all balance of all ledger accounts in the form of trial balances to be prepared at least
once at the end of the six months of every year of account;
(e) record of transactions with the banks;
(f) contact books showing details of all contracts entered into by a member with other members of
the exchange or counterfoils or duplicates of memos of confirmation issued to such other
members;
(g) duplicates or counterfoils of memos of confirmation issued to customers.
(2) The books of accounts and other documents referred to in sub-rule (1) shall be preserved for a
period of not less than five years.
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CHAPTER 4
L isting Requirements
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General Principles for Listing
The listing of securities on the Exchange is governed in such a way as to ensure that investors have
and can maintain confidence in the market. The general principles are set out below:
Applicants are suitable for listing;
The issue and marketing of securities are conducted in a fair and orderly manner and potential
investors are given sufficient information to enable them to make a properly informed assessment of
an issuer;
Investors and the public are kept fully informed by listed issuers, and in particular immediate
disclosure is made of any information, to be evenly disseminated, which might reasonably be
expected to have a material effect on market activity in, and the prices of, listed securities;
All holders of listed securities are treated fairly and equally;
Directors of a listed issuer act in the interests of its shareholders as a whole, particularly where the
public represents only a minority of the shareholders.
Listing Requirements
The Exchange announced that the framework for issuers to list on the Main Board in depositary
receipt (HDR) form. The listing requirements for HDR issuers are generally the same as for issuers
of shares. Any company which can meet the requirements of the Main Board Listing Rules and is in
compliance with its local regulatory regime can apply to list in HDR form.
Basic Listing Requirements for Equities
(I) Financial Requirements:
Main Board GEM
A Main Board new applicant must have a trading record of not less than
three financial years and meet one of the following three financial criteria:
1. Profit Test 2. MarketCap/
3. Market Cap/Revenue/
A GEM new applicant
trading record of at least
financial years comprisi
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RevenueTest
Cashflow Test
Profit
Attributable
to
Shareholders
At least HK$50
million in the last 3
financial years (with
profits of at least
HK$20 million
recorded in the most
recent year, and
aggregate profits of
at least HK$30
million recorded in
the 2 years before
that)
- -
Market Cap At least HK$200
million at the time
of listing
At least HK$4
billion at the
time of listing
At least HK$2
billion at the time
of listing
Revenue - At least
HK$500
million for the
most recent
audited
financial year
At least HK$500
million for the
most recent
audited financial
year
Cashflow - - Positive cashflow
from operating
activities of at leastHK$100 million in
aggregate for the
three preceding
financial years
i. A positive
cashflow
generated from
operatingactivities in the
ordinary and
usual course of
business of at
least HK$20
million in
aggregate for the
two financial
years immediately
preceding the
issue of the listing
document
ii. Market cap of at
least HK$100
million at the time
of listing
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Note: The Exchange may accept a shorter trading record period and/or
may vary or waive the above profit or other financial standards
requirement
(II) Acceptable Jurisdictions:
The Main Board Listing Rules and GEM Listing Rules provide the general framework applicable to
companies seeking a listing on the Exchange. Main Board Rule 19.05(1)(b) and GEM Rule 24.05(1
explanatory notes thereto set out the shareholder protection standards that are expected of an overse
when seeking a primary listing on the Exchange.
Applicants incorporated outside Hong Kong and other recognized jurisdictions seeking a primary lis
Main Board and GEM are assessed on a case-by-case basis and have to demonstrate they are subject
appropriate standards of shareholder protection, which are at least equivalent to those required unde
Kong law. A roadmap that compromises a schedule of shareholder protection matters is set out in t
attachment to the Joint Policy Statement dated 7 March 2007 to distil the key requirements for ensur
appropriate standards of shareholder protection from Exchange's current approach.
(III) Accounting Standards:
A new applicant's accounts must be prepared in accordance with either Hong Kong Financial
Reporting Standards or International Financial Reporting Standards.
Banking companies must also comply with the Financial Disclosure by Locally Incorporated
Authorised Institutions issued by the Hong Kong Monetary Authority.
Main Board GEM
For Main Board new applicants, accounts of an oversea-
incorporated issuer prepared in accordance with generally
accepted accounting principles in the United States of
America (US GAAP) or other accounting standards may be
acceptable by the Exchange under certain circumstances.
For GEM new applicants , accounts
prepared in accordance with US
GAAP are acceptable if the company
is listed, or will be simultaneously
listed, on either the New York Stock
Exchange or the NASDAQ National
Market.
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(IV) Suitability for Listing:
Both the issuer and its business must, in the opinion of the Exchange, be suitable for listing.
An issuer or its group (other than an investment company) whose assets consist wholly or substantia
or short-dated securities will not normally be regarded as suitable for listing, except where the issuer
solely or mainly engaged in the securities brokerage business.
(V) Operating History and Management:
Main Board GEM
A Main Board new applicant must have a trading record period of at least 3 financial years with:
1. management continuity for at least the 3 preceding
financial years; and2. ownership continuity and control for at least the most
recent audited financial year.
Exception:Under the Market Cap/Revenue test, the Exchange mayaccept a shorter trading record period under substantially thesame management if the new applicant can demonstrate that:
1. its directors and management have sufficient andsatisfactory experience of at least three years in the line of
business and industry of the new applicant; and2. management continuity for the most recent auditedfinancial year.
A GEM new applicant must have atrading record of at least 2 fullfinancial years with:
1. substantially the samemanagement throughout the 2 fullfinancial years; and
2. a continuity of ownershipand control throughout thefull financial year immediately preceding theissue of the listingdocument.
Exception:
The Exchange may accept ashorter trading record period andwaive or vary the ownership andmanagement requirements for:
1. newly-formed "project"companies; and
2. natural resourcesexploitation companies,
supported by reasons
acceptable to the Exchange.
(VI) Minimum Market Capitalization:
The expected market capitalization of a new applicant at the time of listing must be at least,
Main Board GEM
HK$200 million HK$100 million
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(VII) Market Capitalization of Public Float:
The expected market capitalization at the time of listing of the securities of a new applicant which are held bythe public must be at least,
Main Board GEM
HK$50 million HK$30 million
(VIII) Public Float:
At least 25% of the issuer's total issued share capital must at all times be held by the public.Where
the issuer has one class of securities or more, the total securities of the issuer held by the public at
the time of listing must be at least 25% of the issuer's total issued share capital. However, the class
of securities for which listing is sought must not be less that 15% of the issuer's total issued share
capital, having an expected market capitalisation at the time of listing of not less than,
Main Board GEM
HK$50 million HK$30 million
The Exchange may, at its discretion, accept a lower percentage of between 15% and 25% in the case
of issuers with an expected market capitalisation at the time of listing of over HK$10 billion.
(IX) Spread of Shareholders:
Main Board GEM
The equity securities in the hands of the public
should be held among at least 300 holders.
The equity securities in the hands of
the public should be held among at
least 100 persons.
Note: Not more than 50% of the securities in public hands at the time of listing can be beneficially
owned by the three largest public shareholders.
(X) Offering Mechanism:
Main Board GEM
A new applicant may not list by way of placing only if
there is likely to be significant public demand for its
A new applicant is free to decide on its
offering mechanism and may list on our
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securities.
The Main Board Listing Rules set out certain
procedures to be adopted in the allocation of shares in
initial public offering.
Exchange by way of placing only.
Special Listing Requirements for Equities
As the Exchange recognises the uniqueness of different companies and industries, additional
requirements, modifications and exceptions to our basic listing requirements are set out in our Main
Board Listing Rules below.
Spin-off of Assets or
Businesses for a
Separate Listing
Where the entity to be spun-off by the existing listed issuer is to be listed on
the Main Board, it must satisfy all requirements of the Main Board Listing
Rules falling on new applicants. However, no spin-off can be effected within
3 years of the parent company's original listing.
Collective Investment
Schemes
The listing of collective investment scheme which have been authorised by
the Commission,
Investment
Companies
The listing of equity or debt securities issued by investment companies,
Newly-formed
"Project" Companies
(Infrastructure
Projects)
The Exchange is prepared to accept a shorter trading record period and/or
may vary or waive the profit or other financial standards requirement for
"infrastructure projects".
"Infrastructure projects" are projects which create the basic physical
structures or foundations for the delivery of essential public goods and
services that are necessary for the economic development of a territory or
country. Examples of infrastructure projects include the construction of
roads, bridges, tunnels, railways, mass transit systems, water and sewage
systems, power plants, telecommunication systems, seaports and airports.
Mineral Companies The Exchange is prepared to accept a shorter trading record period and/or
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may vary or waive the profit or other financial standards requirement for
mineral companies if the Exchange is satisfied that the directors and
management of the issuer have sufficient and satisfactory experience of at
least five years in mining and/or exploration activities.
Mineral companies include those whose activities include exploration for, or
production of, natural resources such as metal ores, mineral concentrates,
industrial minerals, mineral oils, natural gases or solid fuels, as well as
companies engaged in mining, extraction of hydrocarbons, quarrying or
similar activities.
Secondary Listings The Exchange has set out additional requirements, modifications and
exceptions which apply to an overseas issuer whose primary listing is or is
to be on another stock exchange.
Depositary Receipts Companies can apply for a listing on the Main Board of the Exchange in the
form of depositary receipts (HDRs). The HDR framework is formed as an
alternative facility for, among others, issuers from jurisdictions that prohibit
the issuance of shares or the maintenance of a share register overseas.
The listing regime for listing of HDR is generally the same as for listing of
shares on the Main Board of the Exchange. Requirements for admission, the
listing process, and the continuing obligations are generally equivalent.
Listing Process
Listing Process for Main Board
The following chart summarizes the process for a listing application on the Main Board.
(H - stands for the provisional hearing date by the Listing Committee)
Clear Business
Days(Note 1)
Main Board Requirements
H - 25 Application for listing
on the Exchange
Submit the listing application form (Form A1 in Appendix 5 to the
Main Board Listing Rules) with a timetable
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Pay the full amount of the initial listing fee
Documentary requirements under Main Board Listing Rules
9.11(1) to 9.11(5) include:
advanced drafts of the prospectus together with CD-ROMs
containing the same drafts (the accounts of the third financial
year must be in at least the draft form)
drafts of all requests for waiver from the requirements of the
Listing Rules and the Companies Ordinance
any draft statement of adjustments
drafts of the deposit agreement (for HDR listing only)
legal opinion concerning the deposit agreement (for HDR listing
only)
H - 15 Documentary submissions Documentary requirements under Main Board Listing Rule 9.11(10)
include:
A draft of the profit forecast memorandum and the cash flow
forecast memorandum
H - 4 Documentary submissions Documentary requirements under Main Board Listing Rules 9.11(18)
to 9.11(23)
Recommendation/
rejection by Listing Division Rejection Discretionary appeal to Listing Committee
Recommendation
H Hearing by
Listing Committee Rejection Discretionary appeal to Listing (Review) Committee
Approval
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Before bulk-
printing of the
listing document
Documentary submissions Before bulk-printing of the listing document, submission of the
documents under Main Board Rules 9.11(24) to 9.11(28)
On or before thedate of issue of
the listing
document
Documentary submissions As soon as practicable after the hearing of the application by theListing Committee, but on or before the date of issue of the listing
document, submission of the documents under Main Board Listing
Rules 9.11(29) to 9.11(32)
Issue of prospectus
& formal notice
By no later than 11 a.m. on the intended day of authorization of the
prospectus, lodgments of documents with the Exchange pursuant to
Main Board Listing Rule 9.11(33)
After the issue of the prospectus but before dealings commence,
lodgments of documents to the Exchange pursuant to Main Board
Listing Rules 9.11(34) to 9.11(38)
Dealings in sharescommences
Listing Process For GEM
The following chart sets out the process for a listing application on GEM.
(H - stands for the provisional hearing date by the Listing Division)
Clear
Business
Days(Note 1)
GEM Requirements
H - 25 Application for
advance booking to the
Exchange
Submit the advance booking form (Appendix 5A to the
GEM Listing Rules) with a timetable
Pay the full amount of the initial listing fee
Submit the documentary requirements under GEM
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Listing Rules 12.14, 12.17, 12.22 and 12.23.
H Approval/ Rejection :
Hearing prior to 1 July
2008 - by Listing
Committee
Hearing date after 1
July 2008 - by Listing
Division
Rejection Discretionary appeal to GEM Listing
Committee
ApprovalAfter notification of approval in principle but before the
date of issue of the listing document, lodgments of
documents with the Exchange pursuant to GEM Listing
Rule 12.24
Issue of prospectus By no later than 11 a.m. on the intended day of
authorization of the prospectus, lodgment of documents
with the Exchange pursuant to GEM Listing Rule 12.25
After the issue of the prospectus but before dealings
commence, lodgment of documents to the Exchange
pursuant to GEM Listing Rules 12.26 and 12.27
Dealings in sharescommences
Initial Listing Fee
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In the case of an issue of equity securities by a new applicant, an initial listing fee shall be payable
on the application for listing based on the monetary value of the equity securities to be listed. The
initial listing fee is payable at the same time as the submission of the listing application.
Main Board
Monetary Value of Equity Securities to be Listed (HK$ million) Initial Listing Fee (HK$)
Not exceeding: 100 150,000
200 175,000
300 200,000
400 225,000
500 250,000
750 300,000
1,000 350,000
1,500 400,000
2,000 450,000
2,500 500,000
3,000 550,000
4,000 600,000
5,000 600,000
Over 5,000 650,000
Notes:
1. For secondary listings on the Main Board, the initial listing fee is normally 25% of the fees
listed above, subject to a minimum payment of HK$150,000.
2. For transfer from GEM to the Main Board, the initial listing fee payable by GEM listed
issuer is at 50% discount.
GEM
Monetary Value of Equity Securities to be Listed (HK$ million) Initial Listing Fee (HK$)
Not exceeding: 100 100,000
1,000 150,000
Over 1,000 200,000
Parties Involved in a New Listing
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A listing exercise involves various professional parties which have their own unique role in the process.
section aims to explain the key players in a share offering.
1. Sponsors
A company must appoint a suitable sponsor for its listing proposal. A sponsor must be a corporation o
authorised financial institution licensed or registered by the Securities and Futures Commission. The
will be responsible for preparing the company for listing, for lodging the formal listing application an
supporting documents with the Exchange, and for dealing with the Exchange on all matters arising in
connection with the application.
Before you appoint a sponsor, we strongly advise you to speak with a selection of sponsors to assess t
suitability to act as sponsor to your company's listing. You should select a sponsor that is able to offer
comprehensive and impartial advice regarding all aspects of the listing process.
2. Reporting Accountants
All accountants' reports must be prepared by professional accountants who are qualified under the ProAccountants Ordinance for appointment as auditors of a company and who are independent of the issu
Reporting accountants are responsible for reviewing the company's financial records and position, and
preparing the new applicant's group accounts in accordance with relevant accounting standards and re
guidelines. This will enable prospective investors to make informed investment decisions.
3. Legal Advisers
Legal advisers are responsible for ensuring that the new applicant will be in compliance with the laws
of the relevant jurisdictions. They will also work closely with the sponsor and reporting accountants o
restructuring undertaken by the new applicant.
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4. Underwriters/Placing Agents
These are typically securities firms and our Exchange Participants who would be responsible for distrthe securities of the company during a share offering. Underwriters are required to underwrite any sha
taken up by investors.
5. Valuers
Valuers are required to be appointed to attribute a value to a new applicant's properties prior to a listin
Valuers may also be appointed to prepare valuation on other assets of the company.
6. Depositary (for issuance of HDR)
All HDR issuers must appoint a depositary. A depositary is a financial institution acceptable to the E
and appointed and authorized by the HDR issuer to issue or cancel HDR as agent of the issuer. The d
via its appointed custodian, also holds the shares represented by the HDR for the benefit of the HDR h
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CHAPTER 5
Regulatory Framework
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Regulatory Framework
HKEx is the frontline regulator of issuers listed in Hong Kong. It strictly enforces its listing, trading
and clearing house rules in order to maintain open, fair, transparent and efficient markets in
accordance with international standards and best practices.
Introduction to Regulatory Framework
Structure and regulation of Hong Kong's securities and futures markets
(a) Hong Kong Regulatory Structure
(i) Securities and Futures Commission
The principal regulator of Hong Kong‟s securities and futures markets is the Securities and Futures
Commission (SFC), which is an independent statutory body established in 1989 by the Securities
and Futures Commission Ordinance (SFCO). The SFCO and nine other securities and futures related
ordinances were consolidated into the Securities and Futures Ordinance (SFO), which came into
operation on 1 April 2003.
The SFC is responsible for administering the laws governing the securities and futures markets in
Hong Kong and facilitating and encouraging the development of these markets. Its regulatory
objectives as set out in the SFO are:
to maintain and promote the fairness, efficiency, competitiveness, transparency and
orderliness of the securities and futures industry;
to promote understanding by the public of the operation and functioning of the securities and
futures industry;
to provide protection for members of the public investing in or holding financial products;
to minimise crime and misconduct in the securities and futures industry;
to reduce systemic risks in the securities and futures industry; and
to assist the Financial Secretary in maintaining the financial stability of Hong Kong by taking
appropriate steps in relation to the securities and futures industry.
The SFC is divided into four operational divisions:
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The Corporate Finance Division is responsible for the dual filing functions in relation to
listing matters, administering the Takeovers and Mergers Code and Share Repurchases Code,
overseeing the Stock Exchange's listing-related functions and responsibilities, and
administering securities and company legislation relating to listed and unlisted companies.
The Intermediaries and Investment Products Division is responsible for devising and
administering licensing requirements for securities and futures, and leveraged foreign
exchange trading intermediaries, supervising and monitoring intermediaries' conduct and
financial resources, and regulating the public marketing of investment products.
The Enforcement Division is responsible for conducting market surveillance to identify
market misconduct for further investigation, undertaking inquiry into alleged breaches of
relevant ordinances and codes, including insider dealing and market manipulation, and
instituting disciplinary procedures for misconduct by licensed intermediaries.
The Supervision of Markets Division is responsible for supervising and monitoring activities
of the exchanges and clearing houses, encouraging development of the securities and futures
markets, promoting and developing self-regulation by market bodies.
(ii) HKEx
HKEx is a recognised exchange controller under the SFO. It owns and operates the only stock
exchange and futures exchange in Hong Kong and their related clearing houses, namely Hong Kong
Securities Clearing Company Limited (HKSCC), HKFE Clearing Corporation Limited (HKCC) and
The SEHK Options Clearing House Limited (SEOCH).
(iii) The Stock Exchange of Hong Kong Limited (Stock Exchange)
The Stock Exchange, a wholly-owned subsidiary of HKEx, is a recognised exchange company under
the SFO. It operates and maintains a stock market in Hong Kong and is the primary regulator of
Stock Exchange Participants with respect to trading matters and of companies listed on the Main
Board and Growth Enterprise Market (GEM) of the Stock Exchange.
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(iv) Hong Kong Futures Exchange Limited (Futures Exchange)
The Futures Exchange, a wholly-owned subsidiary of HKEx, is a recognised exchange company
under the SFO. It operates and maintains a futures market in Hong Kong and is the primary regulator
of Futures Exchange Participants with respect to trading matters.
(v) Clearing Houses
HKSCC, SEOCH and HKCC, wholly-owned subsidiaries of HKEx, are recognised clearing houses
for the purposes of the SFO. HKSCC and SEOCH provide services for the clearing and settlement of
securities and stock option transactions respectively, including trades and transactions effected on, or
subject to the rules of, the Stock Exchange. HKCC provides services for the clearing and settlement
of transactions on the Futures Exchange.
(b) Regulation of the markets
(i) Legislative framework
The securities and futures markets in Hong Kong are currently governed by the SFO. The SFO
consolidates and modernises the 10 previous ordinances regulating the securities and futures
markets. The primary legislation and the subsidiary legislation commenced operation on 1 April2003.
(ii) Trading Rights
By law, any person carrying on a business of dealing in securities, or carrying on a business of
dealing in futures contracts in Hong Kong, has to be licensed by the SFC or fall within one of the
licensing exemptions.
In addition, the rules promulgated by the Stock Exchange and Futures Exchange require any person
who wishes to trade on or through their respective facilities to hold a Trading Right. The Trading
Right confers on its holder the eligibility to trade on or through the relevant exchange. However, the
holding of a Trading Right does not, of itself, permit the holder to actually trade on or through the
relevant exchange. In order to do this, it is also necessary for the person to be registered as a
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participant of the relevant exchange in accordance with its rules, including those requiring
compliance with all relevant legal and regulatory requirements.
Stock Exchange Trading Rights and Futures Exchange Trading Rights are issued by the Stock
Exchange and Futures Exchange at a fee and in accordance with the procedures set out in their
respective rules. Alternatively, Stock Exchange and Futures Exchange Trading Rights can be
acquired from existing Trading Right holders subject to the rules of the respective exchanges.
(c) Checks and balances in the operations of the HKEx Group
Given HKEx's status as the sole operator of the exchange-based stock and futures markets in Hong
Kong, the need to ensure that HKEx discharges its responsibilities in regard to safeguarding the
integrity of these markets and its strategic importance to Hong Kong‟s success as an international
financial centre, a comprehensive framework of checks and balances has been put in place:
Corporate governance - a corporate governance structure, which is intended to enable HKEx
to balance its public functions and its commercial profit making objectives, has been
implemented.
Status as the sole operator of the exchange-based stock and futures markets in Hong Kong –
the fees imposed by HKEx in its capacity as a recognized exchange controller, the Stock
Exchange and Futures Exchange as recognised exchange companies, and their relatedclearing houses as recognised clearing houses are required under the SFO to be set out in
their respective rules and approved by the SFC. The making of, and changes to, the rules of
HKEx, the Stock Exchange and Futures Exchange and their related clearing houses require
the approval of the SFC. In deciding whether or not to approve a fee or changes to a fee, the
SFC is required by the SFO to have regard to:
The level of competition, if any, in Hong Kong for the matter for which the fee is to
be imposed; and
the level of fee, if any, imposed by another recognised exchange controller,
recognized exchange company or recognized clearing house or any similar body
outside Hong Kong for the same or a similar matter to which the fee relates.
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Risk management –
As required under the SFO, HKEx established a Risk Management Committee to formulate policies
on risk management matters relating to the activities of HKEx, the Stock Exchange and Futures
Exchange and their related clearing houses and to submit such policies to HKEx for its
consideration. The chairman of HKEx is the chairman of the Risk Management Committee.
Restrictions on control
Pursuant to the SFO, no person shall become a minority controller of HKEx, the Stock Exchange,
the Futures Exchange or any of their related clearing houses except with the approval in writing of
the SFC after consultation with the Financial Secretary. A minority controller is a person who,
either alone or with any associated person or persons, is entitled to exercise, or control the exercise
of 5 per cent or more of the voting power at any general meeting of any of these companies. The
SFC shall not give such an approval unless it is satisfied that it is appropriate to do so in the interest
of the investing public or in the public interest.
In addition, pursuant to the SFO, no person shall become or continue to be a controller of the Stock
Exchange, the Futures Exchange or any of their related clearing houses unless that person is a
recognised exchange controller or has been exempted from such prohibition by the Financial
Secretary. HKEx is the only person that has been recognised as a controller of the Stock Exchange,
the Futures Exchange and their related clearing houses. Other relevant members of the HKEx group,
namely, the Stock Exchange, the Futures Exchange, HKEC Nominees Limited and The Stock
Exchange Nominee Limited have been exempted by the Financial Secretary from the prohibition on
their controlling other relevant members of HKEx.
HKEx as a listed company
HKEx, as a listed company on its own stock market, is regulated by the SFC to avoid any conflict of
interest and to ensure a level playing field between HKEx and other listed companies which are
subject to the Listing Rules of both the Main Board and GEM. Regulation by the SFC is imposed
through two sets of provisions, namely, (1) Chapter 38 of the Main Board Listing Rules and Chapter
36 of the GEM Listing Rules which together certain provisions relating specifically to the listing of
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HKEx and set out the requirements that must be satisfied for the securities of HKEx to be listed on
the Stock Exchange as well as the powers and functions of the SFC in the event of a conflict of
interest, and (2) a Memorandum of Understanding dated 22 August 2001 between the SFC, HKEx
and the Stock Exchange which sets out the way the parties to it will relate to each other in relation
to:
HKEx's and other applicants and issuers' compliance with the Listing Rules;
the Stock Exchange's enforcement of its rules in relation to HKEx's securities and those of
other applicants and issuers;
the SFC's supervision and regulation of HKEx as a listed issuer and, where a conflict of
interest arises, other applicants and issuers;
conflicts of interest which may arise between the interests of HKEx as a listed company and
companies of which it is the controller, and the interests of the proper performance of
regulatory functions by such companies; and
market integrity.
Stock Exchange Trading Rights
Compliance with Rules
3A01. These Rules contain provisions affecting holders of Stock Exchange Trading
Rights. A Stock Exchange Trading Right is conferred subject to the rights and
obligations provided in these Rules and any rules, regulations, procedures or
guidelines made hereunder, and any amendments thereto from time to time.
Entitlement to trade
3A02. Subject to fulfilling the conditions required under these Rules, a holder of a Stock
Exchange Trading Right shall be eligible to trade on or through the Exchange.
Stock Exchange Trading Right to be pre-requisite to admission as Exchange
Participant
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3A03. (a) In accordance with the provisions of Chapter 3 of these Rules, no person shall become an
Exchange Participant unless it is a holder of a Stock Exchange Trading Right.
(b) Stock Exchange Trading Rights may be conferred by the Board on such terms and conditions as
it may determine from time to time.
Application Procedures for the Issue of a Stock Exchange Trading Right
3A03A. (a) Any person desirous of applying for a Stock Exchange Trading Right shall
complete, sign and deliver to the Exchange an application in writing in such form as the Board may
from time to time prescribe.
(b) The applicant shall provide the Board with such information as the Board may require for
dealing with the application.
(d) An applicant whose application has been approved by the Board shall not be issued a Stock
Exchange Trading Right unless and until it has paid in full all fees (including the fee for the Stock
Exchange Trading Right) from time to time prescribed by the Board and complied with any other
conditions prescribed by the Board.
(e) The decision of the Board in respect of an application for a Stock Exchange Trading Right shall
be final and conclusive.
(f) The applicant will be notified in writing as soon as its application for a Stock Exchange Trading
Right has been approved. It shall become a holder of a Stock Exchange Trading Right upon its name
being registered in the register of holders of Stock Exchange Trading Rights.
3A-1 (g) The applicant will be notified in writing if its application for a Stock Exchange
Trading Right has not been approved.
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(h) Unless the applicant is already an Exchange Participant, the applicant must simultaneously upon
the issue of a Stock Exchange Trading Right become an Exchange Participant.
Payment of Subscription
3A04. All holders of Stock Exchange Trading Rights shall be liable to pay monthly subscription or
other fees and charges and determined by the Exchange from time to time provided that holders of
Stock Exchange Trading Rights which are Exchange Participants shall only be liable to pay the
monthly subscription applicable to Exchange Participants. Stock Exchange Trading Rights
3A05. All holders of Stock Exchange Trading Rights are bound to observe the provisions
relating to the subsistence and non-transferability of Stock Exchange Trading Rights stated in
Chapter 3 of these Rules.
Suspension of Trading Rights
3A06. The Stock Exchange Trading Right held by a person may be suspended under the
provisions of these Rules.
Disciplinary Matters
3A07. A holder of a Stock Exchange Trading Right who in any manner breaks these Rules, the
Regulations, the Procedures, any conditions imposed on the approval of issue or transfer of a Stock
Exchange Trading Right or any other requirements imposed on a holder of a Stock Exchange
Trading Right may be liable to disciplinary proceedings. The disciplinary proceedings and the
disciplinary powers that may be exercised against Exchange Participants set f shall mutatis mutandis
apply to disciplinary proceedings and disciplinary powers that may be instituted or exercised against
a holder of a Stock Exchange Trading Right.
3A08. The Board may exercise any of the following disciplinary powers against a holder
of a Stock Exchange Trading Right :
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(a) to impose a fine;
(b) to censure and direct whether if so in what manner such censure shall be published;
(c) to revoke his or its Stock Exchange Trading Right as set forth in Rule 3A11;
(e) to suspend or revoke his or its Stock Exchange Trading Right.
3A-2 3A09. A holder of a Stock Exchange Trading Right shall remain bound by these Rules and
the Disciplinary Procedures notwithstanding any disciplinary proceedings being instituted against
him or it, any conditions being imposed upon him or it or any of his or its rights being suspended.
3A10. The Exchange, a recognized exchange controller which is the controller of the Exchange,
their officers, directors, employees, agents or representatives or any other person or entity associated
with them shall have no liability whatsoever for any losses, damages, claims, legal costs or other
expenses that a holder of a Stock Exchange Trading Right may suffer or incur, whether directly or
indirectly (including any loss of profit or any damage or reputation) by reason of any disciplinary
proceedings instituted or disciplinary measures taken pursuant to these Rules.
Revocation of Trading Rights
3A11. If an Exchange Participant is expelled for any reason, the Exchange may revoke the Stock
Exchange Trading Rights of the Exchange Participant subject to the provisions of Chapter 7 in these
Rules.
Liability to contribute
3A12. The repealed Securities Ordinance requires the Exchange to make a contribution in
respect of every holder of a Stock Exchange Trading Right towards the Compensation Fund. A
holder of a Stock Exchange Trading Right shall be liable to make contributions in accordance with
the provisions of Chapter 12 in these Rules. The contribution or security required and the limit of
compensation payable under Chapter 9 by an Exchange Participant shall be construed by reference
to the number of Stock Exchange Trading Rights held.
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Relinquishment of Stock Exchange Trading Right
3A13. (a) A holder of a Stock Exchange Trading Right may, without affecting existing
rights or obligations which have accrued and subject to these Rules, at any time relinquish his or its
Stock Exchange Trading Right without penalty or compensation whereupon his or its name shall be
removed from the register of holders of Stock Exchange Trading Rights.
(b) Notwithstanding Rule 3A13(a), the holder of the Stock Exchange Trading Right whose tender
has been selected under a Tender Process shall relinquish its Stock Exchange Trading Right within
six months from the date of the notice of acceptance of the tender issued by the Exchange and in
accordance with the procedures as from time to time determined by the Exchange. Any payment due
to the holder of Stock Exchange Trading Right will be made by the Exchange as soon as practicable
after he or it has relinquished his or its Stock Exchange Trading Right.
(c) The holder of the Stock Exchange Trading Right shall be deemed to relinquish his or its Stock
Exchange Trading Right at the expiry of six months under Rule 3A13(b) and whereupon the holder
of the Stock Exchange Trading Right shall be removed from the register of holders of Stock
Exchange Trading Rights.
3A13A. (a) Notwithstanding Rule 3A13, a corporate holder of a Stock Exchange Trading
Right which intends to re-organize its business of dealing in securities by having that business being
conducted under one single entity together with that of the business of dealing in futures contracts or
any similar re-organization may, at any time and subject to such conditions from time to time
prescribed by the Exchange, apply to relinquish its Stock Exchange Trading Right to such entity
which shall be a company within its own group of companies.
(b) For the purposes of Rule 3A13A(a), the holder of the Stock Exchange Trading Right shall
complete, sign and deliver to the Exchange an application in writing in such form as the Board may
from time to time prescribe to relinquish its Stock Exchange Trading Right and to nominate a
company within its own group of companies to take up a new Stock Exchange Trading Right to be
issued by the Exchange if its application to relinquish its Stock Exchange Trading Right under Rule
3A13A(a) is approved by the Board. The company so nominated by the holder of the StockExchange
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Trading Right shall simultaneously apply to become an Exchange Participant (if it is not already an
Exchange Participant) in accordance with these Rules. Upon the issue of a Stock Exchange Trading
Right to the company so nominated, it shall simultaneously become an Exchange Participant.
(c) The Board may, if it approves the application of the holder of the Stock Exchange Trading Right
to relinquish the Stock Exchange Trading Right and the application of the company nominated to
take up the Stock Exchange Trading Right to become an Exchange Participant, issue a new
Stock Exchange Trading Right to the company nominated subject to the payment in full of all the
fees and charges from time to time prescribed by the Board in relation to the relinquishment and
issue of the Stock Exchange Trading Right and to the compliance of all conditions prescribed by the
Board in relation to such applications.
(d) The holder of the Stock Exchange Trading Right shall be deemed to relinquish its Stock
Exchange Trading Right when the new Stock Exchange Trading Right is issued to the company so
nominated and whereupon its name shall be removed from the register of holders of Stock Exchange
Trading Rights.
(e) The decision of the Board in respect of an application to relinquish a Stock Exchange Trading
Right under Rule 3A13A shall be final and conclusive.
3A14. No person may relinquish his or its Stock Exchange Trading Right except with the prior
written approval of the Board which may be given subject to any conditions the Board thinks fit.
Pending such approval, these Rules shall continue to bind any holder of a Stock Exchange Trading
Right which has given notice of relinquishment as if such notice had not been given and the
jurisdiction of the Exchange over that Exchange Participant or holder of a Stock Exchange Trading
Right, his or its business, affairs and employees, and persons acting on his or its behalf shall be in no
way affected by such notice.
3A-4 3A15. Without prejudice to the right of the Board to impose any conditions as it thinks fit,
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the Board shall not give approval for relinquishment of a Stock Exchange Trading Right unless it is
satisfied that the holder has discharged all claims and obligations that have accrued prior to the date
at which he or it proposes to relinquish his or its right.
Exchange Trading Right Certificate
3A18. Each holder of a Stock Exchange Trading Right will be issued an Exchange Trading
Right Certificate except that no Exchange Trading Right Certificate (including duplicate Exchange
Trading Right Certificate and replacement Exchange Trading Right Certificate) or any other
instrument will be issued to holders of Stock Exchange Trading Rights from the tenth anniversary of
the Scheme Effective Date.
Conclusion
The Hong Kong Stock Exchange is Asia's second largest stock exchange in terms of market
capitalization. As of 30 November 2011, the Hong Kong Stock Exchange had 1,477 listed
companies with a combined market capitalization of HK$16.985 trillion. A variety of securities and
derivatives such as shares, Exchange Traded Funds, structured products, futures and options can be
bought and sold through HKEx‟s markets. Comprehensive pre-trade and post-trade services,
primarily at the wholesale level, are also available through HKEx. A member has to fulfill the
requirements of membership according to the regulation set by HKEx Regulatory authorities.
The listing of securities on the Exchange is governed in such a way as to ensure that investors have
and can maintain confidence in the market. The general principles are set out below:
Applicants are suitable for listing.The issue and marketing of securities are conducted in a fair and
orderly manner and potential investors are given sufficient information to enable them to make a
properly informed assessment of an issuer.
HKEx is the frontline regulator of issuers listed in Hong Kong. It strictly enforces its listing, trading
and clearing house rules in order to maintain open, fair, transparent and efficient markets in
accordance with international standards and best practices.
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Bibliography
www.hkex.com.hk
en.wikipedia.org
www.bloomberg.com