Update on Dual Filing

5 Dec 2007

The SFC issues the following update on the operation of the Dual Filing arrangements under the Securities and Futures Ordinance.

Cases handled

In the three months from July to September 2007, the SFC received 32 listing applications via the Stock Exchange. This compares to 26 listing applications in the previous quarter (Note 1). Of the 32 applications received, we commented on 19 cases with an average response time of seven working days. In the previous quarter, we commented on 21 out of the 26 cases received.

As reported previously (Note 2), in the three months from January to March 2007 we commented on 13 out of 23 applications received. Of those 13 cases, 12 have now been listed or approved for listing and one has been withdrawn.

Relationship with customers and suppliers

The success of a business often hinges on how well the company maintains its relationship with customers and suppliers. The SFC has noted serious deficiencies in disclosures, made in listing applications received in the last quarter, regarding matters that may have a significant impact on the listing applicant’s relationship with its major customers and suppliers.

A number of cases identified involved substantial shareholders of listing applicants appointing nominees to hold their equity interests in various companies comprising the listing group. Whilst nominee arrangements are normally entered into for legitimate purposes, they can also be exploited to conceal the identity of beneficial owners. In one listing application reviewed, a group of shareholders appointed a nominee to hold shares in the listing applicant, and this nominee in turn appointed a further nominee to hold the shares on its behalf. Most of the members of this group of shareholders were employees of the major customer of the listing applicant. However, it was only in response to enquiries by the regulators that full disclosure of these relationships was made in the prospectus, and transactions between the listing applicant and the major customer subjected to the scrutiny applicable to related parties transactions. The failure to fully disclose such relationships denies investors information they need to make an informed assessment of the listing applicant, including material factors affecting its historical performance and business prospects.

The second group of cases involved material litigation and disputes with customers and suppliers. In one case, the listing applicant was involved in a major dispute with its largest customer which had made a significant contribution to its track record profits. The listing applicant failed to disclose sufficient information for investors to understand the circumstances leading to the dispute and the implications for the listing applicant’s operations and financial position, both historically and prospectively. In another case, the listing applicant was involved in numerous litigation cases with its customers and suppliers, which raised questions regarding the standard of the applicant’s business practices. Again, the listing applicant failed to disclose fully the causes and consequences of the litigation, and the potential financial impact on the listing applicant.

Mr Brian Ho, the SFC’s Executive Director of Corporate Finance, said: “Investors need a full understanding of the relationship between the listing applicant and its major customers and suppliers in order to make an informed assessment of the listing applicant’s historical and future business performance. Sponsors are responsible for assisting the listing applicant to make proper disclosure of all material features of that relationship, including the implications for the listing applicant’s business of any material litigation or disputes.”

The SFC issues this quarterly update as part of its efforts to ensure the transparency of the Dual Filing regime.



1. Please see SFC press release dated 12 September 2007 for background statistics.

2. Please see SFC press release dated 18 June 2007 for background statistics.

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