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Management Approach

Updated: 24 Oct 2016
Maintain Fair, Transparent and Orderly Markets

HKEX works closely with the Securities and Futures Commission (SFC), the principal regulator of Hong Kong’s securities and derivatives markets, to administer the laws governing the markets, and to facilitate and encourage the development of the markets. Bi-monthly tripartite meetings between the SFC, the Financial Services and the Treasury Bureau and HKEX are held to consider market regulatory issues and matters affecting the development of the markets. Pursuant to the Memorandum of Understanding (MOU) signed with the SFC on matters relating to market surveillance, HKEX refers cases to the SFC for it to conduct the appropriate enquiries and investigations. Since 2007, HKEX has made an annual contribution to support the Financial Reporting Council (FRC), an independent statutory body established for the purposes of handling complaints and conducting investigations and enquiries into audit irregularities and non-compliances with financial reporting requirements of listed entities in Hong Kong. One of the HKEX’s Directors is also appointed as a member of the FRC.

HKEX plays an active and leading role in setting and articulating corporate governance standards in the marketplace so as to secure market confidence and protect investors. The Stock Exchange of Hong Kong Limited (SEHK), a wholly owned subsidiary of HKEX, conducts regular review of the corporate governance practices of the companies listed in Hong Kong for the purpose of determining the effectiveness of the implementation of the Corporate Governance Code in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (Listing Rules). To discharge part of its regulatory function, SEHK has a Financial Statements Review Programme under which the periodic financial reports published by issuers are reviewed by sampling. The objective of the programme is to monitor compliance with the disclosure requirements of the Listing Rules and accounting standards. In order to enhance transparency and encourage high standards of financial disclosure, key findings and observations from its review are regularly released.

Risk Management and Internal Controls

HKEX is required to prudently manage risks associated with its business and operations. Both HKEX and LME have their own Enterprise Risk Management (ERM) Framework. The Risk Management Committee (statutory), established under Section 65 of the Securities and Futures Ordinance (SFO), consists of members appointed by the Financial Secretary of the Hong Kong Special Administrative Region (HKSAR). It reviews and advises on policies formulated by HKEX and its recognised exchanges and clearing houses with respect to risk management matters relating to their respective activities. A Risk Committee is established under the Board to oversee the Group’s enterprise-wide risk management including overseeing the relevant risk management systems and ensuring that they are compatible with the Group’s strategy and risk appetite. The Audit & Risk Committee of LME regularly reviews the corporate risk profile and the underlying departmental and risk profiles on a cyclical basis.

HKEX has implemented an ERM Framework to ensure that all material risks of varying nature faced by HKEX are identified and assessed in terms of their likelihood and potential impact if realised. HKEX took into consideration a broad range of standards applicable to various existing ERM models when establishing the HKEX ERM Framework. The risk factors covered under the HKEX ERM Framework include both financial and non-financial. Financial risks include credit risk, market risk and liquidity risk. Non-financial risks include operational risk, regulatory risk and strategic risk.

According to the HKEX ERM Framework and Risk Oversight Structure, the Group Risk Report is reviewed by HKEX’s Management Committee, Risk Management Committee (statutory) and the Board on an annual basis. The Group Risk Report is usually compiled after business divisions and departments within HKEX and its subsidiaries (Group) have undertaken a risk assessment, taking into account risks and potential risk issues that may be associated with their daily operations or business. Key controls relating to the identified risks are assessed by senior management for their adequacy and where applicable action is taken to contribute to ensuring that such risks are appropriately managed.

The Internal Audit Department (IAD) monitors and reviews the execution of and compliance with HKEX’s established policies, procedures, rules and manual by the employees. It also performs assessment of the risks inherent in particular business or functional areas, including fraud or corruption risk, and conducts reviews or audits to provide reasonable assurance that adequate governance and controls are in place to address such risks. It conducts regular audits using a risk-based approach to ensure a systematic coverage of all operational units. HKEX's internal control and risk management system is on a par with the COSO (Committee of Sponsoring Organizations of the Treadway Commission) standards and is effective in detecting and rectifying fraud and irregularities. The auditors from the IAD exercise their due care and professional judgment in performing the necessary review and testing. In the event that they uncover or become aware of any actual or suspected fraud or corruption incidents, they will immediately report to the appropriate level of management and consider conducting further investigation where appropriate.

Anti-bribery and Anti-corruption

The Group management supports a culture of integrity, ethical conduct, fairness, honesty and openness when doing business, and zero tolerance of bribery. The business benefits of rejecting bribery are manifold and include reputational, customer, and business partner confidence. The Group is committed to ensuring that no bribes, kickbacks or similar gifts, payments or advantages are solicited from or given or offered to any person, whether in the public or private sector, for any purposes.

All employees (including temporary, contract, seconded or work experience staff) and consultants of the Group, directors and members of committees of the Group are required to adhere to high standards of business and professional and ethical conduct. A Group Anti-Bribery and Anti-Corruption Policy is in place to set out minimum standards to assist such persons in recognising circumstances which may lead to or give the appearance of involving corruption or unethical business conduct, to avoid conduct which is clearly prohibited, and promptly to seek guidance where it is not. Such persons should adhere to all applicable anti-bribery legislation, in particular the Hong Kong Prevention of Bribery Ordinance and the UK Bribery Act 2010.

The Group Anti-Bribery and Anti-Corruption Policy prohibits all employees, directors, committee members, officers and consultants of the Group from offering, promising, giving or authorising, directly or indirectly, any bribe or kickback or facilitation payment to or for the benefit of any person in order to obtain any improper business or other advantage for the Group, for themselves, or for their family, friends, associates or acquaintances; or soliciting, accepting or receiving any bribe or kickback from any person in return for providing any improper business or other advantage. The Policy also sets out procedures for the handling of gifts, entertainment, sponsored travel, retaining third parties, political contributions and charitable donations; guidelines on assessing corruption risks presented by third parties (eg, agents, suppliers and service providers) and mitigation steps (eg, additional due diligence work) to be undertaken when high risk relationships are identified; and procedures for the reporting of bribery cases and the monitoring of compliance with the Policy. The Audit Committees of HKEX and LME Clear and the Audit and Risk Committee of LME are responsible for the Policy and its application to their respective group company(ies).

The Group’s directors and entire workforce are made aware of the Policy which is available on the HKEX intranet. Seminars on integrity and corruption prevention conducted by the Independent Commission Against Corruption are organised regularly to ensure that all employees, particularly new joiners, are familiar with the relevant laws and regulatory requirements. The Group’s stakeholders, such as suppliers, business partners and issuers are invited to attend seminars on anti-bribery or anti-corruption from time to time. Although there is no record of the number of our suppliers and business partners to whom anti-corruption policies and procedures have been communicated, we have always drawn their attention by referring them to the readily available and relevant information such as HKEX’s Supplier CSR Code of Conduct or the relevant provisions requiring compliance with anti-bribery laws in standard procurement agreements or contracts or service engagement contracts.

HKEX’s community investment covering charitable donations and corporate sponsorships should be made in accordance with its Anti-Bribery and Anti-Corruption Policy and Community Investment Policy. Human Resources Division and Corporate Communications Department shall respectively monitor and ensure that the donations and sponsorships made are effective.

A Group Whistleblowing Policy is in place to facilitate internal reporting of employees’ misconduct. The policy applies to all employees of the Group and non-employees such as consultants and contractors who are engaged by a member of the Group. Employees can contact the designated officer(s) on matters relating to inappropriate and unlawful behaviour or organisational malpractice, or if they wish, on confidential and anonymous bases, communicate directly with the chairman of HKEX Audit Committee, LME Audit and Risk Committee or LME Clear Audit Committee, without fear of reprisal or victimisation.

Anti-competition

As HKEX and its exchanges and clearing houses are subject to Section 76 of the SFO, any introduction of new fees and amendment to fees is subject to the approval of the SFC. In accordance with a regulatory MOU signed between HKEX and the SFC in February 2001, any fee proposal submitted to the SFC must be supported by a comparison of the fees charged by exchanges and clearing houses in the United States of America, the UK, Germany, Singapore and Australia and such other markets as the SFC and HKEX may agree in a particular case. The MOU specifically states that the primary concern of the fee mechanism is to ensure that HKEX does not abuse a monopoly position by charging excess or predatory fees or by otherwise discriminating against a particular participant. LME and the UK-incorporated subsidiaries of the Group are subject to the UK competition regulation.

Public Policy

HKEX keeps track of the key development of changes in public policies which may have significant impact on the Group’s sustainability development and strategies and the financial industry in Hong Kong. HKEX takes a neutral stance in political matters and does not make donations to any political parties.

Commitment to Product and Service Responsibility

Under the SFO, any amendments to the rules of the recognised exchanges and clearing houses require the SFC’s approval. Typically, prior to any new or amended rules becoming effective or the launch of any products or services, relevant information is published under the News & Consultations (News Releases) section of the HKEX website and the News & events section of the LME website. Relevant information is also set out in the appropriate sections such as Listing Matters and Products & Services sections of the HKEX website and under the Regulation (Notices) section of the LME website.

Before any market initiative is recommended, HKEX will consider the potential impact on relevant stakeholders and the market in general by soliciting views from the relevant Consultative Panels which comprise selected representatives of market participants and industry experts, and make reference to the practices and experience of other exchanges and clearing houses which have implemented similar initiatives. Public consultation is sought on major initiatives to collect interested parties’ views and comments which are then thoroughly analysed and considered. The responses to consultations and the consultation conclusions are posted on the HKEX website for the public’s information.

In addition, for the introduction of any new product or service design which requires amendments to the existing rules, regulations or procedures, formal approval from the SFC is obtained on those amendments prior to the launch. Internal briefings are conducted to ensure that employees understand the new product or service and to provide guidance on proper conveyance of the related information to market participants. Marketing materials, such as product information sheets, are compiled in accordance with the relevant guidelines issued by the SFC, eg, the Guidelines on Marketing Materials for Listed Structured Products, and approved by the SFC before publication. The profiles of HKEX’s products and services are available on the HKEX website.

To ensure customer satisfaction, apart from our regular engagement with listed issuers, Exchange Participants (EPs) and Information Vendors to collect their views on HKEX's policies, products and services, we adopt a comprehensive and robust approach to handling day-to-day enquiries and complaints from market participants, investors and the general public through dedicated hotlines and email communication. The hotline numbers and email addresses are posted on the HKEX website. For example, our Derivatives Trading Department has set up a HKATS hotline for EPs to make enquiries and complaints in relation to the derivatives market operations. All calls received via the HKATS hotline are logged in the “Issue Management System” which records the number of calls, their individual nature and status to ensure all calls are promptly and properly handled. Any suggestions received from EPs are analysed internally and consolidated in a “Market Intelligence” report which is reviewed monthly by management to facilitate better understanding of the latest market needs and to consider areas for improvement in future planning. Any complaints received from EPs will be brought to the management’s attention immediately and investigation and follow-up actions will be conducted as appropriate. Our Listing Department has progressively established, reviewed and refined service standards to measure the timeliness of its monitoring and guidance actions as well as its subsequent responses to issuers’ actions. The overall response time and efficiency in bringing cases to resolution is tracked.

Our Corporate Communications Department conducts Market Transaction Surveys annually on the trading activities of the Hong Kong securities and derivatives market. A Retail Investor Survey is also conducted periodically in order to understand more about the trends and characteristics of retail participation in the stock and derivatives markets and investors’ perceptions of the markets.

HKEX respects intellectual property rights and has a policy of not using infringing articles in its business. The General Guidelines on Compliance with Copyright Ordinance, as included in the HKEX Human Resources Manual (see Key Policies and Guidelines for HKEX Employees), outline the provisions of the Copyright Ordinance for the information of employees when discharging their duties.

Marketing Communication

Marketing communication covers all kinds of information about the Group’s products and services, information of which is set out under the Products & Services section of the HKEX website, and the Trading and Metals sections of the LME website. A variety of securities and derivatives such as shares, Exchange Traded Funds, structured products, futures and options can be bought and sold through HKEX’s markets. Comprehensive pre-trade and post-trade services, primarily at the wholesale level, are also available through HKEX.

We publish news releases on the HKEX Group website and press releases on the LME website to provide the public with updates on the Group’s activities, decisions and changes to practice and policy in a timely manner. As the frontline regulator of listed issuers, HKEX publishes regulatory news and updates as soon as practicable after disciplinary actions have been taken against listed issuers. Reports on IPO applications, delisting and suspensions are published on a monthly basis under the News & Consultations (News Releases) section of the HKEX website. A Stock Options Corner on the HKEX website is established which provides investors with a comprehensive platform to obtain Hong Kong stock options information. A China Stock Markets Web is also established which provides the information about the Shanghai-Hong Kong Stock Connect. We also issue circulars and notices to our Exchange/Clearing Participants/Members to inform them of new policies and procedures or changes in our products and services.

Education and roadshows are effective means of communicating our products and services to market participants and users around the world. Our executives act as speakers at training courses organised by different industry associations and institutes from time to time on the Group’s products and services.

Maintain System Stability and Reliability

To maintain the stability and reliability of all major trading, clearing and settlement platforms and market data dissemination systems is of paramount importance for reinforcing investors' confidence in the Hong Kong financial markets. Other than periodical technology and capacity upgrades and assessments by independent consultants, regular market rehearsals and business recovery drills are carried out to ensure system and market readiness before the launch of new products or services and prompt recovery from any system failover. Details of our market systems, including information paper and technical documents on system upgrades, are available on the HKEX website.

Customer Privacy

In our daily operations, personal data from our stakeholders is collected from time to time for different purposes. HKEX recognises its responsibilities in relation to the collection, holding, processing, use and/or transfer of personal data. Personal data is collected only for lawful and relevant purposes and appropriate steps are taken to ensure that personal data held by HKEX is accurate. The Group’s Privacy Policy Statement is published on the HKEX Group website and the Group’s Personal Data Privacy Policy is also posted on the intranet. The Group will use the personal data collected in accordance with the Privacy Policy Statement published on the HKEX Group website and the Privacy statement on the LME website.

We strive to protect personal data from unauthorised access and abuse. Our Code of Conduct sets out employees’ contractual responsibility to safeguard any confidential or sensitive information to which they have had access during their employment. Seminars on “Personal Data (Privacy) Ordinance and the latest amendments” delivered by the Office of the Privacy Commissioner for Personal Data were given to employees regularly to enhance awareness on personal or business data privacy. Our Enterprise Data Centre and Hosting Services attained ISO27001 information security management system certification for the purposes of protecting customer information and managing risks to information security effectively.

Enhance Investor Education and Financial Literacy

Investor education and financial literacy is a key component of sustainable financial markets. Understanding the potential risks associated with different financial products, such as price and liquidity risks, and having access to up-to-date and comprehensive market information are essential for making investment decisions. Information such as trading statistics, rules and regulations in respect of listing, trading and clearing, market research and survey results, help investors to understand market operations and trends. In this respect, the HKEX website, in particular the Investment Service Centre, serves as an effective platform to convey educational and regulatory information to the public, and the HKEXnews website is a dedicated issuer website which provides the investing public with convenient online access to issuers’ latest published information. Publications such as HKEX surveys and research papers are also useful materials for understanding the prevailing securities and derivatives market conditions.

Our Stock Market Information Donation Programme enables the public to view listed issuer documents and market information at a number of public libraries and universities and technical college libraries in Hong Kong. In addition, a 50% discount is offered to academics for the subscription of historical securities market data. Online payment and download are available for easy access. Our own Exchange Exhibition Hall is enriched with exhibits of the development of the financial markets and is open to interested group at request.

HKEX regularly provides educational programmes on futures and options to EPs, conducts seminars and workshops for industry associations and retail investors, as well as provides speakers for Hong Kong Securities and Investment Institute’s educational courses.

Promote ESG Reporting and Responsible Investment

In view of the growing importance of environmental, social and governance (ESG) performance and reporting globally, and the welcoming responses to the market consultation, the Exchange introduced the ESG Reporting Guide in 2012 for companies listed in Hong Kong as a recommended practice under the Listing Rules. In view of the strong market support to the proposals for the market consultation in July 2015, we have amended the Listing Rules to upgrade certain recommended ESG disclosures to “comply or explain”. The revised ESG Guide comes into effect in two phases, for financial years beginning on or after 1 January 2016 and 1 January 2017.

Noting the growth of the responsible investment market and our responsibility as a company with a significant amount of investment assets, we have adopted the following key principles of the United Nations Principles for Responsible Investment (UNPRI) as part of our Investment Policy and Guidelines:
  • We regard ESG issues of companies which we invest in as important.
  • When evaluating companies for investment, we will consider their ESG policies which we believe will affect their prospects for long term investments.
  • We will assess and consider the capabilities of external investment managers based on their commitment to incorporate ESG issues.
We endeavour to work with our investment service providers and other relevant stakeholders in implementing these principles going forward.

Economic Performance

HKEX embraces high corporate governance standards and publishes financial results on a quarterly basis. The Board has adopted a policy of providing shareholders with regular dividends with a target payout ratio of 90 per cent. HKEX, since its listing in Hong Kong, has not received any financial assistance from any governmental bodies. The Group has sponsored a defined contribution provident fund scheme for the benefits of its employees in Hong Kong and a defined contribution pension scheme for all employees of the LME Group aged over 25. Details of these schemes are included in the Notes to the Consolidated Financial Statements in the annual report.

We aim to (i) continue leveraging our core competencies to achieve organic growth; (ii) evaluate business propositions in terms of costs and benefits to ensure commercial viability; and (iii) achieve sustainable profit growth through sound commercial and responsible practices. To achieve these objectives and in accordance with the initiatives identified under the Strategic Plan, we conduct an extensive, comprehensive annual operating budget exercise in the latter part of each year. The budget preparation process includes details consultation with individual divisions/departments as well as collective discussions with management.

Supply Chain Management

We engage supply chains that reflect our values and commitment. As an infrastructure provider delivering trading, clearing and settlement, depository and nominee services, and information services along the core part of the securities and derivatives transaction chains, HKEX is essentially an Information Technology (IT)-based enterprise in a capital-intensive industry. To maintain the stability and reliability of our platforms and market systems and to build HKEX into a leading global vertically-integrated multi-asset class exchange, we have invested a substantial amount of resources in developing our IT infrastructure that meets international standards.

Based on the nature of our business and strategic pursuits, our most significant suppliers are IT companies and professional service providers. Other key suppliers include companies that provide services supporting HKEX’s infrastructure and human resources management, and other services such as management, security, electrical and mechanical engineering, construction and renovation, media-related and insurance. Based on the location and nature of our business, we acquire the majority of goods and services from suppliers and service providers in Hong Kong except when the goods and services are not available locally. Our procurement guidelines stipulate that the selection of suppliers should take consideration of, but not limited to, price competitiveness, quality, fulfilment of specifications and logistics services.

A set of Supply Chain Management guidelines, which form part of the CSR Management System, was developed to address the significant social and environmental impacts arising from HKEX’s key suppliers. The guidelines advocate the collection of CSR information from potential suppliers during the tendering process and the inclusion of environmental specifications for products and services in the tender invitation documents whenever applicable and economically viable. Key suppliers are required to comply with basic CSR requirements according to our Corporate Suppliers Policy Statement and Supplier CSR Code of Conduct where possible and appropriate when doing business with HKEX. The requirements cover legal and regulatory compliance, business ethics (including anti-corruption), community development, human rights, labour practices, and environmental protection. HKEX’s key suppliers and business partners are invited to attend seminars organised by HKEX on various CSR-related topics as part of its stakeholder engagement programme.

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