HKEX Rules of the Exchange: A Comprehensive Guide

The Hong Kong Exchanges and Clearing Limited (HKEX) is a major financial market operator that provides a platform for trading a diverse range of financial products. The rules governing HKEX are designed to ensure market integrity, transparency, and fairness. This article provides a comprehensive overview of the key rules and regulations that shape trading and listing activities on the HKEX.

2. Listing Rules

2.1. Initial Listing Requirements

To be listed on the HKEX, a company must meet several initial listing requirements. These include:

• Financial Requirements: Companies must demonstrate a certain level of profitability, revenue, and net assets. The exact figures vary depending on the board (Main Board or GEM).
• Business Track Record: The company must have a proven track record of at least three years in its core business.
• Management Expertise: A company must have a competent management team with experience in its industry.

2.2. Ongoing Obligations

Once listed, companies must adhere to ongoing obligations, including:

• Disclosure Requirements: Regularly disclose financial statements, significant transactions, and any material changes in business operations.
• Corporate Governance: Maintain a board of directors with a proper balance of executive and independent directors, and establish audit and remuneration committees.
• Compliance with Regulations: Adhere to various compliance regulations, including those related to market manipulation and insider trading.

3. Trading Rules

3.1. Market Structure

The HKEX operates various trading boards, including the Main Board and the GEM Board. Each board has specific trading rules:

• Main Board: For established companies with a track record of profitability and stability.
• GEM Board: For emerging and high-growth companies, often with less stringent requirements compared to the Main Board.

3.2. Trading Mechanisms

HKEX uses a price-time priority trading mechanism, which means that orders are executed based on the best price and the order of submission. Key trading rules include:

• Order Types: Includes limit orders, market orders, and stop orders.
• Trading Hours: Regular trading sessions typically run from 9:00 AM to 12:00 PM and 1:00 PM to 4:00 PM, with pre-market and after-hours sessions available.
• Short Selling: Short selling is allowed but subject to specific regulations and reporting requirements.

4. Clearing and Settlement Rules

4.1. Clearing Process

The clearing process involves verifying and settling trades. The HKEX employs a central clearing counterparty (CCP) to ensure that trades are settled efficiently. Key aspects include:

• Trade Confirmation: Trades must be confirmed by both parties before settlement.
• Margin Requirements: Traders must maintain a margin to cover potential losses and ensure trade integrity.
• Settlement Cycles: Trades are typically settled on a T+2 basis, meaning settlement occurs two business days after the trade date.

4.2. Settlement Process

Settlement involves the transfer of securities and cash between parties. The HKEX uses an electronic settlement system to facilitate this process. Key components include:

• Securities Transfer: Securities are transferred electronically between accounts.
• Cash Settlement: Cash payments are made through the Hong Kong Monetary Authority's clearing system.

5. Market Surveillance and Enforcement

5.1. Market Surveillance

To maintain market integrity, HKEX employs a robust market surveillance system to monitor trading activities. Key aspects include:

• Real-time Monitoring: Surveillance systems monitor trading activities in real-time to detect suspicious behavior.
• Data Analysis: Analysis of trading patterns and anomalies to identify potential breaches of rules.

5.2. Enforcement Actions

When breaches of rules are detected, HKEX can take various enforcement actions, including:

• Fines and Penalties: Financial penalties imposed on violators.
• Suspensions and Delisting: Temporary or permanent suspension of trading or delisting of companies from the exchange.
• Legal Actions: Legal proceedings against individuals or entities involved in serious breaches.

6. Regulatory Framework

6.1. Regulatory Bodies

HKEX operates under the oversight of various regulatory bodies, including:

• Securities and Futures Commission (SFC): Regulates and supervises the securities and futures markets in Hong Kong.
• Hong Kong Monetary Authority (HKMA): Oversees monetary policy and financial stability in Hong Kong.

6.2. International Standards

HKEX aligns its rules with international standards and practices to ensure global competitiveness and compliance with best practices.

7. Recent Developments

7.1. Rule Updates

HKEX periodically updates its rules to reflect changes in the market environment and regulatory landscape. Recent updates include:

• Enhanced Disclosure Requirements: Increased transparency for listed companies.
• New Trading Mechanisms: Introduction of new trading mechanisms to improve market efficiency.

7.2. Future Trends

Looking ahead, HKEX is expected to focus on technological advancements and regulatory enhancements to further strengthen market integrity and investor protection.

8. Conclusion

The rules of the HKEX play a crucial role in maintaining a fair and transparent trading environment. By understanding these rules, market participants can better navigate the exchange and contribute to its overall stability and growth.