Sponsor Regime Update: Initial 3-Day Check

Exchange Continues Initial 3-day Check of Application Proofs to 30 September 2014 and Publishes Guidance on Failure of Initial 3-day Check

The Hong Kong Stock Exchange (the Exchange) has confirmed that it will continue to conduct an initial 3-day check of application proofs from 1 April to 30 September 2014 to give practitioners more time to become accustomed to the requirements of the new sponsor regime which came into effect on 1 October 2013. The Exchange’s news release (see archive) of 24 March also reminds practitioners of the changes that came into effect on 1 April 2014:

• Application Proofs will be published on the HKExnews website after the Exchange accepts the application for detailed vetting following completion of the Initial 3-day Check (or in the case of a collective investment scheme listing under Chapter 20 of the Main Board Rules, when the applicant notifies the Exchange that the SFC has formally taken up its authorisation application);

• Application Proofs must be submitted to the Exchange in both English and Chinese;

• If a listing application is returned for failing the Initial 3-day Check, or is returned later because the information is found not to be substantially complete, the names of the sponsor and listing applicant and the date of the decision to return will be published on the HKExnews website; and

• If an Application Proof is published on the HKExnews website and the application is later found to not be substantially complete, the Application Proof will be removed from the website.

A new Guidance Letter HKEx-GL74-14 (see archive) has also been published on what constitutes failure of the initial 3-day check. This follows news previously published that of the 18 new listing applications submitted between 1 October 2013 and 31 January 2014, four were returned for failing the 3-day check.¹

Initial 3-day Check

The initial 3-day check (Initial 3-day Check) of Application Proofs² is part of the transitional arrangements the Exchange put in place on commencement of the new sponsor regime. An Application Proof is the draft listing document that is required to be substantially complete when it is submitted to the Exchange with a listing application. The Exchange accepts listing applications for detailed vetting only after completing the Initial 3-day Check. The rationale for conducting it is that an Application Proof cannot be substantially complete if it does not materially satisfy the Initial 3-day Check.

Initial 3-day Checklist

The Initial 3-day Check is based on a prescribed 3-day checklist (Initial 3-day Checklist) in Guidance Letter HKEx-GL56-13 (see archive), as updated in February and March 2014. The Initial 3-day Checklist sets out the extent and nature of the initial check for the sole purpose of determining whether an Application Proof will be accepted for detailed vetting by the Exchange.

If an Application Proof fails the Initial 3-day Check, the listing application will be returned. If a listing application is accepted for detailed vetting, the Application Proof will be posted on the HKExnews website starting from 1 April 2014. Acceptance of a listing application for detailed vetting does not however mean that the Application Proof is substantially complete and the Exchange or SFC may still return a listing application if the Application Proof is found not to be substantially complete after a more qualitative assessment.

If a listing application is returned, either on failing the Initial 3-day Check or later, the listing application will be returned and may only be re-submitted eight weeks after the date of the decision to return the application. From 1 April 2014, the names of the listing applicant and sponsor of a returned listing application and the return date will be published on the HKExnews website.

Failure of the Initial 3-day Check

The Exchange’s Guidance Letter provides the following guidance on what constitutes a failure of the Initial 3-day Check:

• The Exchange will return an Application Proof only if the deficiencies in the Initial 3-day Checklist are sufficiently material to result in the Application Proof being not substantially complete;

• If the Application Proof is otherwise substantially complete, omission of certain matters under the Initial 3-day Checklist will not in itself result in the return of the application;

• In general, failure to include any one single matter in the Initial 3-day Checklist is unlikely to result in a return of the Application Proof, unless the omission is material;

• Materiality will be determined by the specific facts and circumstances of each application;

• An example of a material omission of an Initial 3-day Checklist item is where financial information in the Application Proof did not comply with Main Board Rules 4.04 and/or 8.06 and Guidance Letter HKEx-GL6-09A (see archive).

Revised Initial 3-day Checklist

In February and March 2014, the Exchange revised the Initial 3-day Checklist in Guidance Letter HKEx-GL56-13 (see archive) to require additional details in the following sections of the Application Proof.