Update on Dual Filing

3 Dec 2008

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

Cases handled

In the six months ending September 2008, the SFC received, via the Stock Exchange, 66 listing applications. They include 12 applications by companies listed on the Growth Enterprise Market (GEM) to transfer to the main board and one application by an investment company to list.

Of the 66 applications, the SFC commented on 43 cases, and the average response time was seven working days.

From October 2007 to March 2008, the SFC had received 76 listing applications and commented on 53 cases (Note 1).

Understanding the business model

Funding requirements for companies may vary significantly among different business models. The SFC observed common deficiencies in a number of listing applications. Some companies failed to explain clearly the listing applicant’s historical financial position and future funding sources, particularly in cases where listing applicants with substantial future funding needs appear to have trouble managing tight cash flow during the track record period.

In several cases reviewed, the listing applicants’ business model demands substantial upfront funding and continuous cash inflow to support future development. In addition, the relevant government authorities have imposed certain restrictions on the use of their business receipts. As a result, these listing applicants experienced negative cash flows and net current liabilities. However, the draft prospectuses failed to demonstrate how the listing applicants have managed to finance their operations and whether they would have sufficient working capital to do so in the future.

In another case, the business model requires the listing applicant to place a certain level of restricted deposits with banks as security for loans extended to its customers, leaving limited cash available for the company to finance new projects. The unique features of the listing applicant’s revenue model, including the fund-flow restrictions, were only added upon the SFC’s repeated enquiries.

Sufficient explanations on future funding requirements and sources of funding are essential for investors’ assessment of listing applicant’s prospects and the relevant business risks. Sponsors play an important role in assisting listing applicants to disclose sufficient relevant information.

Conduct of sponsors

Information disclosed in a listing application must be accurate, complete and not misleading. In assisting the listing applicants, sponsors are expected to make a critical assessment with due care of any information that calls into question the reliability of statements or representations in the listing application. In a number of cases, the sponsors have failed apparently to meet the expectation.

In one case, the sponsor failed to recognize the recent changes to the relevant rules and regulations. The draft prospectus submitted to the regulators was prepared based on various rules and regulations that were recently repealed. It raises concerns as to the competence of the sponsor.

In the case of a listing applicant who manufactures and sells skin care products, the sponsor provided a report by a firm engaged to perform sample checking on the distribution network when addressing the regulators’ comments on the subject. But the report suggested that one of the distributors was engaged in distributing car accessories rather than skin care products while some distributors could not be located. Yet the sponsor failed to follow up this obvious incongruity until requested by the regulators, raising concerns as to whether it has examined with professional skepticism the information given to it by the listing applicant or other parties in the course of its due diligence.

This update is being issued as part of the SFC’s efforts to ensure the transparency of the dual filing regime.



1. Please see press releases dated 27 March 2008 and 17 June 2008 respectively for background statistics.

Page last updated : 1 Aug 2012