EXPLANATORY MEMORANDUM
The following is an explanation of the effect of the changes to the Articles of Association (the "Articles") of the Exchange proposed pursuant to the resolution set out in the foregoing Notice of Extraordinary General Meeting. The changes are to implement, in so far as is practicable, the recommendations set out in Chapter 4 of the Report dated May, 1988 of the Securities Review Committee and in particular the recommendations contained in paragraphs 4.28, 4.34, 4.36, 4.38, 4.40, 4.42, 4.49, 4.51, 4.52, 4.56, 4.57, 4.59, 4.63, 4.64-4.67, and 4.78. Some of the recommendations contained in Chapter 4 have not been fully implemented as it was not thought appropriate for them to be included in the Exchange's constitutional documents.
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The explanations given presume that the changes will be approved.
Each numbered paragraph corresponds to the appropriate numbered paragraph of the aforesaid resolution. Some of the amendments are not explained either because they are self-explanatory or are relatively minor.
1.
The changes to the definitions are to reflect the change of name of the existing Committee to the Council, the election of members of the Council and appointment of independent lay members to the Council and the establishment of a Nominating Committee, all as further explained below.
2.
Articles 87 to 95 will replace the existing provisions with regard to membership of the Committee with new provisions relating to membership of the Council, the holding of elections at the Annual General Meeting to elect members of the Council and the establishment of a Nominating Committee whose function it will be to propose certain candidates for election to the Council (although members of the Exchange will confirm to be entitled to nominate certain of the candidates).
The amended Article 87 provides that the number of members of the Council shall be 22 instead of the existing Article which imposes a minimum number of 12 and a maximum number of 21 members of the Committee. If the number falls to below 22 however the Council will still be able to act. New Article 94 sets out the mechanism for filling casual vacancies, as further described below.
New Article 87A(a) lays down the numbers of members of the Council to be drawn from individual members, corporate members and lay persons unconnected with the Exchange or its members. (At present all the members of the Committee are individual members of the Exchange.) Four members of the Council have to be individual members, four have to be directors of corporate members, eight can be either individual members or directors of corporate members and five have to be lay persons unconnected with the Exchange or its members. These four categories of persons together with the Chief Executive of the Exchange make up the 22 members of the Council. The first two categories are proposed by the Nominating Committee (as further described below), and the third by members of the Exchange or the Nominating Committee and all three categories will be elected by members. Lay members will be appointed by the Council and will not be elected.
New Article 87A(b) is a transitional provision whereby the existing members of the Committee and the Chief Executive will hold office as members of the Council until the conclusion of the next Annual General Meeting of the Exchange. An election will be held at the Annual General Meeting in 1988 to elect the new Council and the persons elected will take office from the conclusion of such Annual General Meeting. The persons to be elected will be proposed by the Council and not the Nominating Committee such persons, the first lay members of the Council and the Chairman of the Council to be elected following such Annual General Meeting have to be approved by or on behalf of the Governor of Hong Kong.