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Hong Kong Strengthens Research Analyst Rules

Wednesday, July 6, 2011

Hong Kong’s Securities and Futures Commission (SFC) has published the consultation conclusions on proposals to expand the scope of conflicts-of-interest requirements governing research analysts.

One of the new requirements stipulates that sponsors of listing applicants are to take reasonable steps to ensure that all material information, including material forward looking information, disclosed to analysts is contained in prospectuses or listing documents.

Changes will be made to the code of conduct for persons licensed by or registered with the SFC, as well as the corporate finance adviser code of conduct, to implement the proposals. The changes will be implemented with effect from September 1, 2011, except for the requirements in relation to new listings. In the case of a new listing applicant, the new requirements will apply to any new listing where the listing application is submitted to the Stock Exchange of Hong Kong on or after August 1, 2011.

The new requirements will enhance the integrity and objectivity of pre-deal research reports and prevent them from being used by listing applicants to disseminate information without formal prospectus liability. The SFC will proceed to extend to real estate investment trusts (REITs) and listing applicants the requirements governing analyst conduct in preparing investment research reports.

In light of the recent interest in listing business operations that are not established in a corporate form, such as business trusts, the SFC also will extend the conflicts-of-interest requirements to analysts conducting research for business operations that are constituted in a form other than a corporation or a REIT.

“Ensuring equal dissemination of information flow is a key function in maintaining Hong Kong’s status as an efficient and successful capital market,” said Alexa Lam, the SFC’s Acting Chief Executive Officer.