Hongkong Stock Exchange Assignemnt

7/29/2019 Hongkong Stock Exchange Assignemnt

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IFTIKHAR AHMED SANJRANI (MBA, M-19) University of Balochistan

Hong Kong Stock

Exchange




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

http://en.wikipedia.org/wiki/Growth_Enterprise_Market





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.

http://en.wikipedia.org/wiki/Stock_exchange

http://en.wikipedia.org/wiki/Hong_Kong

http://en.wikipedia.org/wiki/Asia

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http://en.wikipedia.org/wiki/Tokyo_Stock_Exchange

http://en.wikipedia.org/wiki/Hong_Kong_Exchanges_and_Clearing


http://en.wikipedia.org/wiki/Holding_company

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http://en.wikipedia.org/wiki/Tokyo_Stock_Exchange



http://en.wikipedia.org/wiki/Hong_Kong

http://en.wikipedia.org/wiki/Stock_exchange




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




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.

http://en.wikipedia.org/wiki/Tsingtao_Brewery

http://en.wikipedia.org/wiki/H_share


http://en.wikipedia.org/wiki/Tracker_Fund_of_Hong_Kong

http://en.wikipedia.org/wiki/1997_Asian_financial_crisis





http://en.wikipedia.org/wiki/1997_Asian_financial_crisis

http://en.wikipedia.org/wiki/Tracker_Fund_of_Hong_Kong



http://en.wikipedia.org/wiki/Tsingtao_Brewery




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




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




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.

http://www.hkex.com.hk/eng/market/sec_tradinfo/stockcode/eisdhdr2.htm

http://www.hkex.com.hk/eng/invest/company/profile_page_e.asp?WidCoID=06210&WidCoAbbName=&Month=&langcode=e












http://www.hkex.com.hk/eng/market/sec_tradinfo/stockcode/eisdhdr2.htm




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-




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




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




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




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.




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.




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

http://www.hkex.com.hk/eng/prod/dataprod/rt/rtdatafeed.htm#1













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




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.




CHAPTER 3

Membership Requirements




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,




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)




(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




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.




CHAPTER 4

L isting Requirements




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




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




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.

http://www.hkex.com.hk/eng/newsconsul/hkexnews/2007/070307news.htm

http://www.hkex.com.hk/eng/newsconsul/hkexnews/2007/070307news.htm




(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




(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


(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


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




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




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




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




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




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




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




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.

http://www.sfc.hk/sfc/html/EN/

http://www.sfc.hk/sfc/html/EN/




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




CHAPTER 5

Regulatory Framework




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:




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.




(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




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.




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




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




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.




(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 :




(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.




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




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,




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.









Bibliography

www.hkex.com.hk

en.wikipedia.org

www.bloomberg.com

http://www.hkex.com.hk/

http://www.hkex.com.hk/

Hongkong Stock Exchange Assignemnt

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