ENG-2006 — Page 107

Financial and Monetary Affairs | 79

In July, the SFC approved HKEx's rule amendments on the reduction of minimum spreads for shares trading between $2 and $20. This was the second phase of HKEX's reduction of minimum spreads, which sought to enhance the competitiveness, efficiency and liquidity of the market. The new trading spreads came into effect on July 24.

Pursuant to a review report of the derivative warrants market released by the SFC in November 2005, which identified certain areas of regulation that could be strengthened, a six-point plan to improve market operations was proposed. In March 2006, the SFC announced the paper 'Hong Kong's Derivative Warrants Market the Way Forward, Results of the Consultation on the SFC's Six-Point Plan' setting out how it would take forward the six-point plan. Most of the proposals, which included facilitating further and identical issues, banning commission rebates and other incentive schemes offered by issuers, and enhancing investor education and information dissemination, have largely been implemented. The new marketing guidelines, whose overriding principle was that marketing materials should not be false, biased, misleading or deceptive and should include appropriate risk warnings, also came into effect in October. The SFC is working with HKEX and the market to make progress with the remaining two proposals to tighten liquidity provisions and to require the use of plain language and summaries for listing documents.

In September, the SFC published the consultation conclusions. on the consultation paper on possible reforms to the prospectus regime in the Companies Ordinance (CO). The consultation conclusions laid down SFC's responses to the submissions received on the 21 reform initiatives put forward in the consultation paper published in August 2005, which marked the final phase of a three-phase exercise to review the existing regulatory framework for offers of shares and debentures. Implementation of the initiatives proposed to be taken forward in the consultation conclusions would more closely align Hong Kong's public offering regime with that of other leading jurisdictions and would also support Hong Kong's continuing role as an international financial centre. The SFC would discuss with relevant stakeholders to refine details of specific initiatives proposed to be taken forward, with a view to consulting the public on the proposed legislative amendments.

In April 2006, the SFC released the consultation conclusions on the regulation of sponsors and compliance advisers. This completed the second part of a two-stage initiative adopted by the SFC and HKEX to raise overall sponsor standards. The consultation conclusions introduced the Guidelines on Sponsors and Compliance Advisers, which set out the eligibility criteria and ongoing obligations for sponsors. The new sponsor regime and the Guidelines on Sponsors and Compliance Advisers would become effective on January 1, 2007. Only those intermediaries that had met the stringent eligibility requirements were allowed to continue their sponsor/compliance adviser work. As at year-end, 183 of the 267 intermediaries licensed or registered for Type 6 regulated activity had been imposed with licensing conditions restricting them from acting as sponsors/compliance advisers from January 1, 2007.