Proposed Amendments to the Securities and Futures (Stock Market Listing) Rules ("SMLR")

The SMLR provides the Securities and Futures Commission (the “SFC”) with key regulatory tools to address false or misleading corporate disclosures and to prevent listings that are not in the interests of investors or the public. The SMLR supplements Hong Kong’s statutory listing framework alongside the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). The SMLR has been effective since 1 April 2003 but has not been amended since then.

On 28 March 2025 the SFC issued a consultation paper on “Proposed Amendments to the Securities and Futures (Stock Market Listing) Rules” (“Consultation Paper”), the conclusion of which currently is still pending. The Consultation Paper primarily proposes the addition of new sections 6(3B) and 7A, along with revisions to section 9.

A.             IPO matters – new section 6(3B)

For initial public offerings (“IPOs”), the SFC reviews all listing applications to determine whether any concerns arise under the SMLR and/or the Securities and Futures Ordinance (“SFO”). The review also ensures that disclosures are sufficient for investors to understand the applicant’s business and to make informed investment decisions.

During the vetting process, if the SFC considers there may be grounds for objection to a listing of securities, section 6(2) of the SMLR empowers the SFC to do so and section 6(3)(b) of the SMLR empowers the SFC to impose conditions on a listing application. However, section 6(3)(b) does not explicitly provide that the conditions imposed can continue to have effect after IPO.

For example, if a director of a listing application was convicted of criminal offenses related to financial misconduct, even if that individual had ceased to be the director of the listing applicant, he or she potentially can exert influence over the company's ongoing management and operations after IPO via his or her established relationships within the company. Moreover, there is nothing to prevent the issuer from appointing that individual to the board after IPO.

Therefore, the SFC proposes the introduction of a new section 6(3B) to the SMLR to clarify that conditions imposed under section 6(3)(b) of the SMLR may continue to apply upon and after listing. This would enable the SFC to require enhanced, ongoing disclosure where particular concerns merit regulatory oversight, and a breach of which after listing would enable the SFC to take actions against the issuer.

B.             Post-IPO matters – new section 7A

Currently, under section 8(1) of the SMLR, the SFC can direct the Stock Exchange to suspend trading in a particular security based on certain grounds. These include instances where the SFC determines that the public may be making investment decisions based on materially false, incomplete, or misleading information, or where such action is necessary or expedient to maintain an orderly and fair market in securities. A trading suspension is usually regarded as disruptive to the market and only imposed when the SFC views it as necessary to protect the public investors from becoming victims of corporate misconduct.  

Accordingly, the SFC proposed a more proportionate and less disruptive alternative to suspension under the new section 7A. The new section 7A will enable the SFC to impose conditions on the listed issuers with which they must comply for dealings in their securities to continue. This new section is designed to be a less disruptive alternative, allowing listed issuers to address SFC concerns that might otherwise lead to trading suspensions imposed by the SFC.

C.             Resumption of trading – revised section 9

In regard to the resumption of trading after a trade suspension under section 8(1) of the SMLR, section 9(3) of the SMLR currently allows the SFC to permit trading to recommence subject to whatever conditions it considers necessary, or to direct the Stock Exchange to cancel the listing of the shares of the company. The current section 9(6) of the SMLR requires such decision to be made by the SFC Board in a meeting. It is found that a considerable investment of time and resources is required for any application to resume trading following an imposed suspension because of an extensive procedure involving written representations or even oral representations at a hearing.

Therefore, the SFC proposes to simplify the procedures under sections 9 and 10 to avoid delays in the resumption of trading. In some uncontroversial cases, the SFC Board may delegate the decisions to an Executive Director or an Executive Committee of the SFC. Delegating the authority to make resumption decisions is expected to improve flexibility and efficiency in handling cases, ultimately reducing suspension times.

Next Steps

Conclusion to the Consultation is currently pending. Upon completing the review of different stakeholders’ feedback on the Consultation, the SFC will publish its conclusion and implement any changes.

Upon implementation of the above changes, the SFC will issue an explanatory note to clarify the circumstances in which it will be able to exercise its powers under sections 6(3)(b) and 7A(1) of the SMLR. It is expected that the new amendments will allow the SFC to launch investigations  early to regulate abusive practices and improve disclosure provided by listing applicants and listed companies. Overall, the amendments will hopefully lead to greater operational efficiency and prevent serious market misconduct and adverse financial effects. The implementation of the amendments will not have significant impact on listed companies that have been compliant with its disclosure obligations thus far.

Members of Seyfarth’s International Commercial and Corporate Practice will continue to monitor developments relating to this Proposal. We are available to assist in reviewing the listing applicant’s internal compliance framework to ensure alignment with applicable regulatory requirements. Please feel free to get in touch should you wish to discuss these SFC proposals.