Chapter 25

Due Diligence Guidelines –

Record Keeping

2. Documenting Transaction Team Composition

2.1 Standards

In respect of each listing assignment, a sponsor should keep records, including relevant supporting documents and correspondence, within its control, relating to: … the Transaction Team under paragraph 17.11(c) and any subsequent variations within the Transaction Team; [Paragraph 17.10(c)(i) of the Code of Conduct]

2.2 Guidance

2.2.1 For guidance on complying with the requirements set out in Paragraph 17.11(c) of the Code of Conduct in relation to the appointment of a Transaction Team, please refer to Chapter 26 “Due Diligence Guidelines – Sponsor Appointment, Fees, Staffing and Controls”.

2.2.2 Records in relation to compliance with Paragraph 17.11(c) of the Code of Conduct should be retained. In particular, the sponsor should prepare a list of members appointed to establish the Transaction Team together with their details, as well as a structure chart of the Transaction Team showing the reporting line of each member.1 A member of the Transaction Team should be designated to update the structure chart whenever there is a change (whether addition or removal) in personnel within the Transaction Team.

2.2.3 Records of the internal checks conducted to assess whether members of the Transaction Team would impact the independence of the sponsor to act on the listing assignment and the conclusions of such assessment should also be retained.2

2.3 Recommended Steps

2.3.1 The sponsor should periodically review and assess the sufficiency of staff and resources applied to carry out the sponsor’s work for the subject listing assignment regularly during internal meetings of the Transaction Team and the determination of such sufficiency should be recorded in the internal meeting minutes and be retained.

2.3.2 During the course of the listing assignment, if there is any change to the Transaction Team, the sponsor should follow the sponsor firm’s internal checks and procedures to ensure such change would not impact on the independence of the sponsor to continue to act on the listing assignment. Records of compliance with such internal checks should be retained.

2.4 Standards

Upon completion of a listing transaction, a sponsor should submit to the SFC, within 2 weeks after the first day of dealings, its team structure chart in respect of that listing transaction countersigned by a Principal who supervised the transaction. The chart should show the reporting line of each of the licensed or registered staff within the team together with their respective names, business titles and responsibilities, including in advising the listing applicant on compliance with the Code [of Conduct] and the Listing Rules and the performance of due diligence. The SFC may seek further details from firms and individuals to substantiate their submissions. [Paragraph 17.11(f) of the Code of Conduct]

2.5 Guidance

Immediately upon completion of the listing assignment, a member of the Transaction Team should be designated to ensure that an existing structure chart of the Transaction Team is complete and up-to-date. The chart should show the reporting line of each of the licensed or registered staff within the Transaction Team together with their respective names, business titles and responsibilities. The Principal who supervised the listing assignment should countersign the structure chart and the sponsor should submit the chart to the SFC within two weeks after the first day of dealings of the shares of the listing applicant on the Stock Exchange. A record of the making of the submission to the SFC should be retained.

Endnotes

1. Paragraph 17.11(f) of the Code of Conduct requires that, upon completion of a listing transaction, a sponsor should submit to the SFC, within 2 weeks after the first day of dealings, its team structure chart in respect of that listing transaction countersigned by a Principal who supervised the transaction. The chart should show the reporting line of each of the licensed or registered staff within the team together with their respective names, business titles and responsibilities, including in advising the listing applicant on compliance with the Code of Conduct and the Listing Rules and the performance of due diligence. The SFC may seek further details from firms and individuals to substantiate their submissions.

2. Listing Rule 3A.07(9) provides that if an employee of the sponsor who is directly engaged in providing the subject sponsorship services to the listing applicant (which would include a member of the Transaction Team) or an associate of such an employee of the sponsor has a current business relationship with the listing applicant or a director, subsidiary, holding company or substantial shareholder of the listing applicant which would reasonably be considered to affect the sponsor’s independence in performing its duties as set out in Chapter 3A of the Listing Rules, or might reasonably give rise to a perception that the sponsor’s independence would be so affected, the sponsor would not be considered to be independent of the listing applicant under the Listing Rules. Paragraph 1.1.4 of the Sponsor Guidelines provides that members in one Transaction Team of a sponsor may work in other Transaction Teams of the same sponsor provided that … (3) the sponsor complies with General Principle 6 and paragraph 10.1 of the Code of Conduct in respect of conflicts of interest.