SFC intervenes directly and at early stage in serious corporate cases

13 Jul 2017



The Securities and Futures Commission (SFC) today published the first issue of its SFC Regulatory Bulletin: Listed Corporations. This series of bulletins provides guidance on the manner in which the SFC performs some of its functions under the Securities and Futures (Stock Market Listing) Rules (SMLR) and the Securities and Futures Ordinance (SFO) in relation to listed corporations and other listing matters.

The inaugural issue explains that, in response to changing market conditions and risks, the SFC is taking steps under the SMLR and more generally under the SFO to intervene in serious cases at an early stage to carry out its statutory objectives, including to protect the investing public and to suppress illegal, dishonourable and improper market practices (Note 1). These actions complement the SFC’s enforcement work to pursue wrongdoers, seek remediation and deter misconduct (Note 2).

The bulletin reports that the SFC may raise objection to any listing application based on one or more of the grounds set out in section 6(2) of the SMLR (Note 3) or direct The Stock Exchange of Hong Kong Limited (the Exchange) to suspend trading in a listed company’s shares under section 8 of the SMLR (Note 4) and outlines the relevant process. In the interests of transparency and to aid the market’s understanding of the SFC’s approach to performing its functions under sections 6 and 8 of the SMLR, the bulletin provides highlights of related SFC actions in the first six months of 2017.

The bulletin further explains that when inquiring into a matter, the SFC may require a listed corporation and other persons to produce any books and records where it appears that one of the grounds set out in section 179(1) exists (Note 5). This power complements section 182 of the SFO which confers more general powers on the SFC to conduct an investigation.

The bulletin is available on the SFC website. Members of the public may subscribe by filling out the form available under the "Subscribe" link.

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Notes:

  1. Under section 5 of the SFO, the functions of the SFC include:
    (a)  to maintain and promote the fairness, efficiency, competitiveness, transparency and orderliness of the securities and futures industry;
    (b)  to secure an appropriate degree of protection for members of the public investing in and holding financial products; and
    (c)  to suppress illegal, dishonourable and improper practices in the securities and futures industry.
  2. See the SFC’s Enforcement Reporter series.
  3. Section 6(2) of the SMLR provides that the SFC may object to any listing application if it appears to the SFC that:
    (a)  the application does not comply with a requirement under section 3 of the SMLR, namely, (i) non-compliance with the Listing Rules except to the extent waived; (ii) non-compliance with applicable law; or (iii) failure to contain such particulars and information which, having regard to the particular nature of the applicant and the securities, is necessary to enable an investor to make an informed assessment of the activities, assets and liabilities and financial position, of the applicant at the time of the application and its profits and losses and of the rights attaching to the securities;
    (b)  the application is false or misleading as to a material fact or is false or misleading through the omission of a material fact;
    (c)  the applicant has failed to comply with a requirement to supply such further information as the SFC may reasonably require for the performance of its functions under the SMLR or, in purported compliance with the requirement has furnished the SFC with information which is false or misleading in any material particular; or
    (d)  it would not be in the interest of the investing public or in the public interest for the securities to be listed.
  4. Section 8(1) of the SMLR provides that the SFC may direct the Exchange to suspend trading in a company’s shares if it appears to the SFC that:
    (a)  any materially false, incomplete or misleading information has been disclosed by the company;
    (b)  it is necessary or expedient in the interest of maintaining an orderly and fair market;
    (c)  it is in the interest of the investing public or in the public interest, or it is appropriate for the protection of investors generally or for the protection of investors in any listed securities; or
    (d)  there has been a failure to comply with conditions imposed by the SFC.
  5. Section 179(1) of the SFO provides that the SFC may require the production of any books and records where it appears to the SFC that there are circumstances suggesting:
    (a)  the business of the corporation has been conducted (i) to defraud creditors, (ii) for any fraudulent or unlawful purpose; or (iii) in a manner oppressive to its shareholders;
    (b)  the corporation was formed for any fraudulent or unlawful purpose;
    (c)  persons involved in the corporation’s listing have engaged, in relation to such process, in defalcation, fraud, misfeasance or other misconduct;
    (d)  persons who managed the corporation have engaged in defalcation, fraud, misfeasance or other misconduct towards it or its shareholders; or
    (e)  shareholders of the corporation have not been given all the information with respect to its affairs that they might reasonably expect.


Page last updated : 13 Jul 2017