Status Report on New Product and Market Development Initiatives Initiatives are subject to change and may require broad market support and/or regulatory approval before they can be implemented. HKEx will announce further details of these initiatives as they progress. 1 Possible changes to the requirements for overseas companies seeking listings in Hong Kong HKEx is currently reviewing all requirements for overseas companies, including those seeking secondary listings in Hong Kong, and will consider whether to issue a consultation paper. HKEx is drafting a consultation paper on the proposed changes to the requirements for overseas companies seeking listings in Hong Kong. 2 Review of the Code on Corporate Governance Practices and Associated Listing Rules published on 17 December 2010. HKEx is analysing more than 100 responses received and plans to publish consultation conclusions later this year. Responses to the consultation have been published on the HKEx website. Consultation conclusions will be published later this year. 3 Proposed Changes to Requirements for the Listing of Debt Issues for Professional Investors Only published on 17 December 2010 and the deadline for responses was 18 February 2011. HKEx received six responses, all of which are supportive. HKEx plans to publish the consultation conclusions and proposed Rule amendments in mid-2011. The consultation conclusions and proposed Rule amendments are scheduled to be published in the third quarter of 2011. 4 Consultation on the placing of shares at initial public offering (IPO) and pre-ipo investments H K E x c o m m e n c e d s o f t consultations with the market on the policy matter a few months ago and is considering whether to issue a consultation paper. HKEx is considering whether to issue a consultation paper. 52 Exchange July 2011
5 Reporting on environmental and sustainability issues HKEx will organise a series of training seminars and workshops between May and July 2011 to help equip listed companies with practical tools necessary for environmental, social and governance (ESG) reporting. HKEx will consult the market on a draft ESG Reporting Guide after the training seminar and workshop, which will be based on the draft Guide. Five training seminars were held in May 2011 for over 800 participants and 10 workshops were held in June and July 2011 for about 1,000 participants. HKEx will conduct market consultation on the draft ESG Reporting Guide later this year. Subject to market feedback, the ESG Reporting Guide may be implemented as a recommended best practice. 6 Joint Consultation Paper on Proposed Changes to Property Valuation Requirements The joint consultation paper was published by HKEx and the Securities and Futures Commission (SFC) on 3 December 2010 and the deadline for responses was 11 February 2011. Over 50 responses were received. The responses are being analysed and there are plans to publish consultation conclusions in due course. Responses to the consultation have been published on the HKEx website. Joint consultation conclusions will be published later this year. 7 Update on SPRINTS, the Structured Products Integrated Transaction System User acceptance testing of SPRINTS and the trial test with issuers were completed in the first quarter of 2011. HKEx conducted two user training sessions on 29 and 31 March 2011, with around 70 representatives of structured product issuers participating in the sessions. HKEx plans to launch the new system in May 2011, subject to the successful completion of end-to-end testing with issuers. HKEx launched SPRINTS, as scheduled, in May 2011. 8 Ex-entitlement Trading and Shareholder Approval published on 17 December 2010 and the deadline for responses was 28 February 2011. HKEx received over 40 responses with the majority supporting ex-entitlement trading after shareholder approval. HKEx plans to publish the consultation conclusions and proposed Listing Rule amendments in mid-2011. The consultation conclusions were published on 20 May 2011. The Rule amendments took effect on 20 June 2011. 53 Exchange July 2011
9 10 11 Simplification of prospectuses and related documents Study on after-hours Derivatives Trading Exploration of New Financial Products/ Services and Review of Existing Products/Services H K E x h a s c o m p l e t e d t h e simplification of the formal notice and commenced soft consultations with the market on the simplification of the summary section of prospectuses. HKEx is also considering making amendments to the application forms and relevant application sections in the prospectuses. HKEx is preparing a consultation paper that is tentatively scheduled to be published in the middle of this year. Volatility Index-related Products The HSI Volatility Index (VHSI), which is derived from Hang Seng Index Options prices, was introduced on 21 February 2011. HKEx and Hang Seng Indexes are working together to educate the market about the index and promote public awareness. HKEx is also assessing demand for a futures contract on the HSI Volatility Index. HKEx is in the process of simplifying prospectuses, application forms and relevant application sections in the prospectuses. The consultation period ended on 8 July 2011. HKEx is analysing the comments it received on the proposal. H K E x s p o n s o r e d a n educational Q&A game on the VHSI organised by the Hong Kong Economic Times from May to early July 2011. There were over 6,000 participants involved. The design for VHSI futures and proposed rule amendments have been finalised, pending approval from the SFC. Synthetic Futures HKEx announced that synthetic futures will be introduced in the stock options market on 9 May 2011. Synthetic futures are created with a standard combination trading function comprising two option legs, call and put. Investors can use synthetic futures to gain or hedge delta exposures in stock options portfolios. On 9 May 2011, HKEx introduced synthetic futures trading via a standard combination trading function in its stock options market that allows investors to execute call/put trades simultaneously and manage the delta exposure of their options portfolios. As of the end of June 2011, there were 10 active stock option classes in synthetic futures trading, the complete list of which is available on the HKEx website. RMB denominated Stock Options H K E x c o m p l e t e d s y s t e m preparations for the trading of RMBdenominated stock options in June 2011. Relevant rule amendments are subject to SFC approval and HKEx will introduce the products when demand emerges. 54 Exchange July 2011
12 13 14 15 T+2 Finality for Stock Exchange Trades and Settlement Instructions 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) HKEx has arranged a series of briefing sessions with Designated Banks and CCASS Participants to prepare for a market-wide rehearsal in June 2011 to ensure market readiness before launch. The Scripless Securities Market Working Group (SSMWG) has completed discussions on high level details of the proposed operating model. This will facilitate the drafting of new subsidiary legislation under the SFO by the SFC for consultation around June 2011. The Working Group is continuing discussions on the outstanding issues and technical details to prepare for implementation. Phase 2, which upgrades the design of DCASS software, will be rolled out in mid-2011. Circulars outlining the changes will be issued to Participants shortly so they will have sufficient detail and lead time to prepare. Testing sessions will be held later for those Participants using the DCASS OAPI interface. HKEx expects the upgrades to be completed by the end of 2011. Technical specifications have been posted on the HKEx website. The simulation test package was delivered to participants with Broker Supplied Systems in February 2011 for their software development and testing. The development of AMS/3.8 and MDS/3.8 software by HKEx has been completed and internal testing is in progress. HKEx introduced T+2 Finality on 25 July 2011. The SSMWG has completed the study of the operational details of the proposed model which will form the basis of the SFC s consultation on the new subsidiary legislation under the SFO. The consultation is planned for the second half of 2011. The SSMWG will continue its discussions to resolve outstanding issues, including technical hurdles, to prepare for the implementation of a scripless securities market. User Acceptance testing has proceeded smoothly and HKEx e x p e c t s t o a n n o u n c e t h e implementation schedule in the third quarter of 2011. End-to-end testing with participants and information vendors started on 4 July 2011. The first market rehearsal is tentatively scheduled to be held in September 2011. 55 Exchange July 2011
16 17 Free Prices Website Service to be expanded and repackaged to Basic Market Prices Service Establishment of Clearing House for Over-the-counter (OTC) Derivatives Traded in Hong Kong The Basic Market Prices (BMP) Service was successfully launched on 1 April 2011. HKEx started providing investors with real-time basic prices from the securities and derivatives markets through a wider range of information vendors which can then offer the data on interactive platforms such as websites and mobile applications. As of early April 2011, there were 23 websites and 10 mobile applications offering the BMP Service. 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. The clearing house will be run independently of HKEx s other clearing houses. HKEx is devising the detailed operating model and risk management framework and will start discussions with market participants in the coming months. HKEx has issued a Request for Information inviting IT vendors to submit responses for an OTC clearing system solution. The BMP service has been well received by the market and is currently available through a total of 28 websites and 12 mobile applications. Under the BMP service, listed companies can display their real-time stock prices on their websites. HKEx expects more BMP services to be provided on different platforms in the near future. HKEx is in the process of devising the detailed business model and risk management framework for the clearing of OTC interest rate swaps and non-deliverable forwards. HKEx has developed a master plan for setting up the OTC market infrastructure in conjunction with the Hong Kong Monetary Authority and has begun to meet with OTC market participants in the past few months to outline the service scope and project implementation plan. In early June 2011, HKEx issued a Request for Proposal inviting leading vendors to submit proposals for implementing the core OTC clearing platform. HKEx is also engaging an international law firm to advise on regulatory and legal issues in relation to the OTC clearing initiative. 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 Hong Kong 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. 56 Exchange July 2011