Status Report on New Product and Market Development Initiatives

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1 Status Report on New Product and Market Development Initiatives The following initiatives are subject to market support and regulatory approval so they may not be implemented. HKEx will announce further details of these initiatives as they progress. 1 Requirements for Qualified Property Acquisitions and Formation of Joint Ventures published on 10 September 2010 and the deadline for replies is 12 November Responses to the consultation have been posted on the HKEx website. published on 21 January the Minimum Number of Shareholders for the Market Capitalisation/ Revenue Test published on 10 September 2010 and the deadline for replies is 12 November Responses to the consultation have been posted on the HKEx website. published on 21 January Possible changes to the requirements for overseas companies seeking secondary listings in HKEx is considering changes to its requirements for overseas companies seeking secondary listings in to differentiate the requirements for primary and secondary listings as they are currently similar. The listing of Brazil s Vale SA is a pilot which may point to a possible model for an increased-disclosure approach to the listing of overseas companies in appropriate cases. 4 Consultation paper on Review of the Code on Corporate Governance Practices and Associated Listing Rules HKEx expects to consult the market in the fourth quarter of 2010 on possible changes to the Code of Corporate Governance Practices in the Listing Rules. is 18 March HKEx will analyse respondents comments and publish its consultation conclusions in due course. 5 Requirements for the Listing of Debt Issues for Professional Investors Only HKEx expects to consult the market in the fourth quarter of 2010 on possible changes to streamline and simplify the Listing Rules regarding debt securities offered to professional investors only. is 18 February HKEx will 45 Exchange January 2011

2 6 7 Consultation on Acceptance of Mainland Accounting and Auditing Standards and Mainland Audit Firms for Mainland Incorporated Companies Listed in Consultation on the placing of shares at initial public offering (IPO) and pre-ipo investments The timetable is subject to resolution of issues by the Securities and Futures Commission (SFC) on the implementation of the proposals. HKEx issued interim guidance to the market on 13 October 2010 on pre-ipo investments and has commenced soft consultations with the market on the policy matter. The consultation conclusions were published on 10 December The related Listing Rule amendments became effective on 15 December The Exchange has commenced soft consultations with the market on the policy matter and will consider whether to issue a consultation paper Reporting on environmental and sustainability issues Joint Consultation Paper on Property Valuation Requirements Update on SPRINTS, the Structured Products Integrated Transaction System HKEx has commenced soft consultations with listed issuers and professional associations on the matter. HKEx is considering whether to, and if so, how to encourage and educate listed companies to adopt meaningful reporting on environmental and sustainability issues. HKEx is developing a web-based SPRINTS that allows structured product issuers to submit term sheet data electronically to the Stock Exchange in a standardised format (Extensible Markup Language, or XML). HKEx will engage exter nal consultants to organise workshops for issuers in 2011 on how to do environmental, social and gover nance reporting. The workshops will be based on a draft proposed Guide to Environmental, Social and Governance Reporting. The joint consultation paper was published on 3 December 2010 is 11 February HKEx will User acceptance testing of SPRINTS is currently underway and is expected to be completed around the end of January. Details of the user training and rollout arrangement will be provided to issuers in due course, and HKEx will continue to work closely with issuers to achieve successful implementation of the new system in the second quarter of Exchange January 2011

3 Ex-entitlement Trading and Shareholder Approval Study on After-hours Derivatives Trading Exploration of New Financial Products/ Services and Review of Existing Products/ Services HKEx is doing a study on the trading of futures and options after their current market close. Volatility Index-related Products HKEx and an index company have solicited comments from market participants regarding the volatility index calculation methodology and are working on adaptations relevant to the market. is 28 February HKEx will HKEx has been conducting a study and soft consultation with market participants. Initial feedback was positive. After-hours derivatives trading would help improve execution efficiency and trading arrangements. HKEx plans to publish a consultation paper to seek market views on the proposal in the middle of the year. HKEx and an index company have completed the solicitation of comments from market participants regarding the adaptations of volatility index methodology required for the market. Meanwhile, HKEx is exploring with market participants the possibility of introducing a futures contract on the volatility index and its potential design. 14 T+2 Finality for Stock Exchange Trades and Settlement Instructions Dividend Point Index Futures HKEx plans to introduce HSI Dividend Point Index futures and HSCEI Dividend Point Index futures on 1 November 2010, subject to regulatory approval. published on 13 August HKEx aims to implement a T+2 finality arrangement for CCASS money settlement by the third quarter of Trading of HSI Dividend Point Index futures and HSCEI Dividend Point Index futures commenced in the derivatives market on 1 November HKEx has issued a detailed description of the CCASS operational workflow under T+2 Finality to Designated Banks for their preparation for system enhancements. Implementation is tentatively scheduled for July 2011, subject to regulatory approval. 47 Exchange January 2011

4 Consultation on a Scripless Securities Market Derivatives Market System Capacity and Technology Upgrade Securities Market System Capacity and Technology Upgrade (also known as AMS/3.8 and MDS/3.8) Free Prices Website Service to be expanded and repackaged to Basic Market Prices Service published on 21 September The SFC will consult the public in early 2011 on a new subsidiary legislation that will set out in more detail how the scripless environment and those that play a key role in that environment will be regulated. A scripless regime will be implemented in phases following the necessary legislative changes and when the market infrastructure, key operators and market participants are ready. The first phase of the scripless regime is expected to be implemented in late The project is progressing as planned. In Phase 1, launched on 18 October 2010, the order capacity of HKATS was increased to 21,000 order book changes/second (OBC/S) from the original of 8,100 OBC/S. The design of the DCASS software will be enhanced in Phase 2 and rolled out in mid This project aims for 10-fold improvement over the existing securities trading system capacity to achieve an initial capacity of 30,000 orders per second (scalable to 150,000 orders per second if necessary), as well as an average order processing latency of 9 milliseconds. HKEx published its Information Paper on AMS/3.8 & MDS/3.8 System Upgrades on 8 October HKEx expects the upgrades to be completed by the end of The Scripless Securities Market W o r k i n g G r o u p c o n t i n u e s discussions on the details of the proposed operational model. The discussions will facilitate the drafting of the new subsidiary legislations under the Securities and Futures Ordinance by the SFC for consultation in the first half of Phase 2, which upgrades the design of DCASS software, will be rolled out in mid Circulars outlining the changes will be issued to Participants shortly so they will have sufficient details and lead time for their preparations. There will be testing sessions later for those Participants using the DCASS OAPI interface. HKEx expects the upgrades to be completed by the end of Technical specifications have been posted on the HKEx website and HKEx arranged seminars in November 2010 for Participants IT development staff and system vendors. HKEx has reviewed the Pilot Programme for the Free Prices Website Service and decided to open up the service beginning 1 April 2011 in the form of standard service package offered to all its licensed real-time data information vendors. 48 Exchange January 2011

5 19 20 Introduction of PRS Plus a new faster derivatives market datafeed Establishment of Clearing House for Over-the-counter (OTC) Derivatives Traded in HKEx plans to roll out the new and faster real-time datafeed in the second quarter of PRS Plus will be offered as an option alongside the current PRS feed. The datafeeds content and message format will be identical except that PRS Plus will have a shorter price update interval. HKEx plans to shorten the price update interval in HKATS from 1 second to 0.5 second in the first quarter of 2011, which will effect the same change to the current PRS feed. The price update interval of PRS Plus at launch will be 0.1 second, one-fifth that of the PRS feed. HKEx has decided to establish a clearing house by the end of 2012 for derivatives traded in Hong Kong s OTC market. Interest rate derivatives and non-deliverable forwards will be the initial products handled. HKEx is considering different operating models and shareholder structures for the clearing house, which will be run independently of HKEx s other clearing houses. Notes: AMS/3, the Third Generation Automatic Order Matching and Execution System, is the trading system for the securities market. CCASS/3, the Latest Generation Central Clearing and Settlement System, and the Market Data System, or MDS, are the other major market systems supporting the securities market. HKATS, the Futures Automated Trading System, is the trading system for the derivatives market. DCASS, the Derivatives Clearing and Settlement System, and PRS, the Price Reporting System, are the other major market systems for the derivatives market. Information is added after the date at the top of the column from time to time. 49 Exchange January 2011