Update on Dual Filing

28 Dec 2006

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 2006, the SFC received, via the Stock Exchange, 34 listing applications. This compares to 16 listing applications in the three months from April to June 2006 (Note 1). Of the 34 applications, we commented on 22 cases. Our average response time was seven working days. In the previous quarter, we commented on 10 cases out of the 16 cases received.

As reported previously (Note 2), in the three months from January to March 2006 we commented on eight out of 13 applications received. Of those eight cases, two lapsed due to the expiry of the six-month application period, one was rejected by the Stock Exchange and five have been listed.

Quality of disclosure

In one case reviewed, the company’s customers were distributors which in turn sell the products to retail stores. It was only revealed upon the regulators’ enquiries that some of the distributors, including one of the company’s top five customers, were previously the company’s subsidiaries or associated companies, or were companies held by the company’s senior management during the track record period. The sponsor offered inconsistent explanations when asked about such relationships, which further suggested a lack of due diligence and understanding regarding the relationship between the company and its customers.

In some other cases, we note that the sponsor conducted due diligence into key aspects of the companies’ operations only after the regulators had raised queries, and made no disclosure in the prospectus of material information resulting from the further due diligence until asked to do so.

Quality of disclosure builds on proper understanding and due diligence by the sponsors regarding the businesses and affairs of a listing applicant. The management of a sponsor should ensure that its firm has the relevant expertise and adequate resources to perform its role as a sponsor properly. Sponsors are also reminded that they are required to comply with all relevant codes, guidelines and regulations prescribed by the SFC including, amongst others, the CFA Code of Conduct, and (beginning on 1 January 2007 when they become effective) the Guidelines for Sponsors and Compliance Advisers (Note 3).

Mr Brian Ho, SFC’s Executive Director of Corporate Finance, said: “Quality of information provided to investors in new listings is of critical importance. Sponsors have the responsibility to make sure that sufficient, relevant and accurate information is provided in prospectuses to enable investors to make informed investment decisions.”

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



1. Please see press release of 4 October 2006 for background statistics.

2. Please see press release of 11 May 2006 for background statistics.

3. Please see press releases of 5 October 2006 and 15 December 2006 regarding the new regulatory regime for sponsors.

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