Improving Issuer Information Dissemination Regime

1
Improving Issuer Information Dissemination Regime
Paul Chow Chief Executive, HKEx Presentation at
the luncheon hosted by The Chamber of Hong Kong
Listed Companies 16 May 2006
2
Key messages

• Reliable and efficient issuer information
  dissemination regime helps establish a fair and
  sound securities market.
• HKEx is committed to revamp and improve the
  issuer information dissemination regime.
• Major directions Automation, Paperless, Reduce
  pre-vetting and Support Listing Regulatory
  Function.
• The revamp will benefit issuers, investors and
  the whole market.

3
Types of issuer information
Listed issuer information

• Regular disclosures (e.g. annual reports,
  financial results, AGM notices)
• Ad hoc disclosures (e.g. price-sensitive
  information, unusual price or turnover movements,
  suspension notices, corporate changes)
• Issuer profile (e.g. listing date, place of
  incorporation, business classification, director
  list, address of principal office)
• Price and trade data, dividend history
• Regulatory records (e.g. notices of delay in
  issuing result announcements, high concentration
  of shareholdings)

Provided by issuers
Provided by HKEx
Coverage of issuer information dissemination
regime
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Importance of issuer information

• Fundamentals of price discovery mechanism in the
  stock market
• Disclosure of information to support investment
  decisions
• The basis for shareholders to supervise the work
  of corporate management and corporate governance
  practices
• The tools for academics and general public to
  grasp economic and industrial trends
• The source for media to monitor corporations
  business practices and social responsibilities

5
Development of issuer information dissemination
regime

• 1999 Issuer documents displayed at HKEx websites
• 2001 Launch of e-Submission System
• 2003 Launch of Disclosure of Interests Filing
  System
• 2003 Introduction of Issuer Information Feed
  Services (IIS)

2006 Provision of hyperlinks to Documents of
Display under Takeover Code on SFC website
Further Revamp in 2006/2007!
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Rapid growth of issuer information
Increasing number of issuers and tightened
disclosure regulation led to continuous growth of
issuer information for dissemination
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Existing issuer information dissemination regime
???
Issuer documents, press releases and paid
advertisements (Main Board Issuers and certain
documents only)
Issuers
?
?
Screened by ISD
?
?
?
HKEx websites
ePublication System (EPS)
eSubmission System (ESS)
WORD/PDF format (covers all announcements
No
Yes
Vetting?
or
?
Issuer Information Feed (IIS)
Information vendors
?
?
ESS
?
??
ASCII-Text format (only covers pre-vetted
announcements and preliminary results
announcements)
?
?
?
Market Data Feed (MDF)
?
CD-Rom /diskette
Clearance
Input and uploaded by ISD
AMS/3
Trading terminals
or
?
?
?
?
???
Listing Division
Fax
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How issuer provides issuer documents?

• To HKEx
• E-Submission System (ESS)
• CD-Rom or computer diskette delivered to HKExs
  designated collection box
• By fax (only limited types of documents)
• To other parties
• Press release sent to media
• Published on one Chinese and one English local
  newspaper in the form of paid advertisements
  (Main Board issuers only)
• Mailed to shareholders (only shareholder
  corporate communications)

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How to obtain issuer documents?

• HKEx
• HKExs official website (www.hkex.com.hk)
• GEM website (www.hkgem.com)
• AMS/3 trading terminals
• Information vendors terminals
• Others
• Paid advertisements on local newspapers
• News reported by printed and broadcasted media
• Shareholder circulars (for existing shareholders
  only)

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Areas for improvement and directions
Areas for improvement
Paperless

• Paid advertisement on newspaper very costly
• Reliance on paid ad mechanism results in more
  frequent suspensions
• Consumption of resources (i.e. papers,
  manpower,CD-Roms, computer diskettes)
• Manual uploading slows down the pace of
  dissemination
• Absence of any categorisation makes searching of
  issuer documents difficult
• Low usage of eSubmission System for publication
  of documents
• AMS/3 is not designed for display of lengthy
  issuer documents
• Pre-vetting of issuer announcements before
  dissemination slows down the pace of dissemination

Automation
Reduce pre-vetting
Support listing regulatory function
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Revamp - Paperless

• Short-term goals
• Abolition by phases of the requirement for
  publication of issuer documents in the form of
  paid advertisements on newspapers
• Continuous promotion of electronic version of all
  shareholder documents (e.g. annual reports)
• Central depository of issuer information
• Long-term goals
• Electronic members list to facilitate share
  registration and exercise of shareholder rights
• Electronic submission of proxy form and
  electronic voting
• On-line submission of IPO white form
  (subscription form)

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Revamp - Automation

• Short-term goals
• Mandatory use of eSubmission System for
  publication of documents
• Straight-through publication of issuer documents
  by listed issuers with minimal human intervention
• Long-term goals
• e-Forms (e.g. capital change monthly returns)
• On-line listed issuer profiles
• Study on the application of XBRL

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Revamp Reduce pre-vetting

• Short-term goal
• Reduce the types of issuer announcements which
  need to be pre-vetted by Listing Division before
  dissemination
• Long-term goals
• Majority of issuer announcements can be
  disseminated without pre-vetting
• Dissemination to the market at any time during a
  day (including trading hours) so as to reduce the
  need for suspension

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Revamp - Support listing regulatory function

• Short-term goal
• Headline categories chosen by listed issuer in
  uploading a document for dissemination will be
  used to facilitate searching
• Long-term goals
• Integration of issuer information dissemination
  system and issuer regulatory system
• Support Management Information System within
  Listing Division (e.g. Precedent cases database)

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Proposed issuer information dissemination regime
Issuers
Shareholder circulars and press releases
??
?
?
?
?
PDF format
eSubmission System (ESS)
No
Yes
ePublication System (EPS)
Vetting?
?
Information vendors
Issuer Information Feed (IIS)
?
?
?
ESS
?
Market Data Feed (MDF)
Clearance
News alerts
AMS/3
Trading terminals
?
?
?
Listing Division
???
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Impacts on market - Issuers

• No longer required to publish announcement in the
  form of paid advertisements on newspapers,
  reducing continuous listing costs
• Automation of issuer information dissemination
  process, facilitating timely dissemination of
  issuer information
• Mandatory use of ESS for submission of documents
  for dissemination on HKEx websites. Issuers must
  become registered users of ESS and ascertain that
  their staff are fully equipped on the uploading
  of documents via the system
• Issuers must display the document on their own
  websites or a third-party website, otherwise they
  must publish paid advertisements on local
  newspapers for an interim period. Ultimately
  issuers must have their own websites.
• Issuers must upon request provide copies of the
  documents to shareholders and the general public
  at a reasonable cost

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Impact on the market - Investors

• All investors will enjoy faster release of issuer
  information
• Investors familiar with newspapers paid
  advertisement as a major source to access issuer
  announcements will need to adjust their behavior
  if they wish to obtain authentic regulatory news
  and use alternate sources
• HKEx websites
• Listed issuers own websites or a third-party
  website
• News reporting of mass media
• Services provided by information vendors
• Investors can make use of the Issuer News Alerts
  Services provided by Investor Services Centre on
  HKEx website

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Impact on the market - Stockbrokers

• AMS/3 will no longer provides full text of issuer
  announcements. Brokers have to rely on HKEx
  website or information vendors services for
  access to issuer announcements
• HKEx will introduce a News Alerts Service so that
  AMS/3 traders will be alerted whenever a listed
  issuer announcement or document is published
• Floor traders at the Trading Hall have to bring
  their own portable PC for access to Internet, or
  use the online facilities available at back-up
  trading booths

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Impact on the market Information Vendors

• Information vendors now receiving issuer
  documents in ASCII-text format (prepared for
  dissemination on AMS/3 terminals) will no longer
  have such information for distribution to their
  customers
• They can shift to subscribe IIS which covers more
  comprehensive issuer announcements/documents
• A few information vendors with low-tech
  facilities will have to upgrade their systems in
  order to distribute IIS information

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Other ideas
Issuer information provided by HKEx

• Consolidation of current online SEHK Regulatory
  Records
• Exploring the business opportunities of valued
  added listed issuer information products and
  services
• Online corporate action event calendar and
  corporate action database

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Conclusion

• Issuer information dissemination must catch up
  with the development of the society and the
  market
• The forthcoming revamp of issuer information
  dissemination regime will reduce continuing
  listing costs, support faster dispatch of issuer
  news, improve market efficiency and help retain
  the competitiveness of the Hong Kong securities
  market
• HKEx will seek the support and cooperation of
  listed issuers and other market participants to
  improve issuer information dissemination regime
  continuously