ENG-2005 — Page 113

Financial and Monetary Affairs 83

warrants and released a report in November. The report reviewed market characteristics and practices, assessed the impact of derivative warrant activities on stock market stability and investor education needs. It also identified areas of regulation that could be strengthened and proposed a six-point plan to improve market operations.

The SFC carried out a consultation on possible reforms to the prospectus regime in the Companies Ordinance (CO) in August. The consultation was the final phase of a three-phase exercise to review the existing regulatory framework for offers of shares and debentures. The SFC's consultation paper contained 21 wide-ranging proposals such as unifying the offering regimes for all investments currently regulated under the CO and the SFO, extending prospectus liability to sponsors of a public offering and shortening prospectuses by allowing information to be incorporated by reference. The consultation ended in December and the SFC is analysing the submissions received.

In August, the SFC issued a consultation conclusions paper on the review of the Codes on Takeovers and Mergers and Share Repurchases. The main revisions that took effect on October 1, 2005 included new provisions barring 'low-ball' offers, new restrictions to prevent an existing board from taking frustrating action against a successful offeror, a broad framework for dealing with telecom mergers and changes to shorten the document-vetting process. The remaining revisions under Notes 1 and 2 to Rule 8 provide that a copy of each document required to be displayed under Note 1 also be provided in electronic form for display on the SFC website. These revisions were to become effective on January 1, 2006 and apply to transactions announced on or after that date.

As part of its efforts to raise the standards of intermediaries, the SFC consulted the public in June on a proposed set of specific entry criteria for sponsors and ongoing compliance obligations on sponsors. It is the second part of a two-stage initiative adopted by the SFC and HKEX to raise the overall sponsor standards. HKEX concluded the first stage with Listing Rules amendments and the introduction of the Practice Notes on Due Diligence which came into effect on January 1, 2005. On completion of the second stage, the SFC will administer and enforce a specific regulatory regime on sponsors. The consultation ended in August 2005.

In April, the SFC consulted the public on proposed revisions to the Prevention of Money Laundering and Terrorist Financing Guidance Note in order to bring Hong Kong's regulatory requirements in line with international standards set by the Financial Action Task Force on Money Laundering and the IOSCO and to give guidance on areas of practical application. The consultation conclusions were published in October. The Revised Guidance Note is to become effective on April 30, 2006.

The guidelines to address analyst conflicts of interest came into effect in April 2005. The guidelines aimed to remove, reduce and manage conflicts of interest faced by analysts and their firms. The SFC monitors licensees' compliance with the requirements.