Recent Amendments to the Listing Rules
Janet Chiu
Assistant Vice President
Compliance and Monitoring Department
Listing Division, HKEx
Background
•
11 January 2008 - 2008 Combined Consultation Paper concerning 18
substantive policy issues published
•
7 April 2008 - Consultation period ended
•
28 November 2008 - Consultation Conclusions and Rule amendments on 15
policy issues published
•
1 January 2009 - Rule amendments became effective
•
3 policy issues are still under assessment
 Public float (Issue 5)
 General mandates (Issue 11)
 Self-constructed fixed assets (Issue 15)
2
Major areas of Rule amendments
•
Vetting of listed issuers’ documents
•
Transaction-related issues
•
Disclosure and submission of information
•
Corporate governance practices
3
Agenda
I.
Reduction of pre-vetting activities
II.
Alignment of requirements for material dilution in major subsidiary and
deemed disposal
III.
Disclosure of information in takeovers
IV.
Use of website for communication with shareholders
V.
Model Code for directors’ dealings
VI.
Disclosure of changes in issued share capital
VII.
Other Rule amendments
4
I. Reduction of pre-vetting activities
5
Phased approach to post-vetting announcements
•
MB R13.52(2)/ GEM R17.53(2) sets out announcements requiring pre-vetting.
•
The Exchange intends to cease pre-vetting of all announcements.
•
Transitional arrangement:

•
Announcements for more significant transactions will continue to be
pre-vetted.
The Exchange may request to pre-vet any documents
−
•
•
New MB R13.52A/ GEM R17.53A
When will the Exchange request for pre-vetting issuers’ announcements?
Can an issuer request the Exchange to pre-vet its announcement?
6
Phased approach to post-vetting announcements
Pre-vetting required (Phase 1)
• Major transactions, VSD, VSA or reverse
takeovers
• Connected transactions
• Fundamental change of listed issuer’s principal
business activities within 12 months after listing
• An issuer becoming a cash company
Pre-vetting NOT required
For example:
• Share transactions/ discloseable
transactions *
• Issue of securities *
• Amendments of articles of association*
• Matters involving trading arrangements*
• Price-sensitive information
• Results announcements
* Subject to pre-vetting under the Old
Rules
7
Our follow up enquiries
•
We follow up:
 Before commencement of the next trading session – in situations that
may raise fair and orderly market concern
 Within one business day – on possible non-compliance/ ascertain
Listing Rule compliance
•
Issuers must respond promptly to our enquiries within the time limit
imposed (MB R2.12A/ GEM R17.55A [New])
•
Outcome:
 No further actions
 Trading suspension
 Clarification announcements
 Other remedial measures
 Disciplinary actions
•
•
When may issuers publish a clarification announcement?
Will the Exchange take disciplinary actions against an issuer after post-vetting
if the issuer or its announcement fails to comply with the Rules?
8
Pre-announcement consultation
•
The Exchange will continue to offer guidance to issuers on a voluntary
basis
−
MB R13.52B(2)/ GEM R17.53B(2)
•
Issuers should seek prior consultation with the Exchange, particularly on
Rules:
 where we experienced a high rate of non-compliance
 where we may exercise discretion
•
Apart from areas which require pre-announcement consultation, issuers
may seek guidance from the Exchange on a voluntary basis.
9
Circumstances requiring pre-announcement consultation
•
Aggregation of transactions [New]
−
MB R14.23A, R14A.27A/ GEM R19.23A, R20.27A
Must an issuer consult the Exchange if:
(a) the aggregated transactions are not subject to notifiable transaction
or connected transaction requirements?
(b) it already decides to apply the aggregation rules?
•
Trading arrangement [New]
−
•
Requests for waivers [New]
−
•
MB R13.52B(2)(b)/ GEM R17.53B(2)(b)
Proposal for alternative size test
−
•
MB R13.52B(1)/ GEM R17.53B(1)
MB R14.20/ GEM R19.20
Deeming a party to the transaction to be a connected person
−
MB R14A.06 or 14A.11(4) / GEM R20.06 or 20.11(4)
10
Rule amendments relating to circular requirements
•
MB R13.52(1)/ GEM R17.53(1) sets out circulars and documents which
are subject to pre-vetting.
Pre-vetting required
Pre-vetting NOT required
• Listing documents
• Circular relating to
– Cancellation or withdrawal of listing
– Transactions or matters under MB Chapter 14/
GEM Chapter 19
– Connected transactions
For example:
• Explanatory statement for share repurchase
mandate*
• Circular to shareholders seeking their approval of
– Issuance of securities under specific mandate/
circulars containing IFA opinion
– Matters relating to share option scheme
– Mining activities
– warrant proposal under MB PN4 paragraph
4(c)/ GEM R21.07(3)
• Circulars on:
– general issue mandate
– re-election of directors
– change of auditors
• Circular or offer documents relating to takeovers,
mergers or offer
• Circulars on amendments of articles of
association*
* Subject to pre-vetting under the Old Rules
11
Rule amendments relating to circular requirements
•
For (a) share repurchase and (b) amendments to issuer’s M&A, issuers
must confirm that:

there is nothing unusual / no unusual feature (for both)
What does the term “unusual” mean?

the proposed changes comply with Rules and the laws of the
place where the issuer is incorporated or otherwise established
(for amendments to M&A)
Does the Exchange accept confirmation from in-house
lawyer of the issuer?
12
Rule amendments relating to circular requirements
•
Issuers are no longer required to publish a circular for discloseable
transactions.
•
A further announcement on the expert reports must be published within 21
days from the discloseable transaction announcement
 Exploration for natural resources activities (MB R14.38)
 Profit forecast (MB R14.60A/ GEM R19.60A)
13
Suspension cases - Phase 1 announcements
Did post-vetting shorten the suspension period?
Duration
(Average no. of days)
No. of suspension
2008
Jan – May 2009
2008
Jan – May 2009
Share transactions/
discloseable transactions
3.4
1.3
64
14
Fund raising
2.9
2.2
177
63
14
Post-vetting results in Jan – May 2009
Number
%
11,206
100
578
5
- Not post-vetted
5,970
53
- Post-vetted
4,658
42
684
14.7
522
76
15
2.2
132
19
- Non-compliance with the Rules
81
12
- In the process of enquiry (31 May 2009)
48
7
Total number of published announcements
- Pre-vetted
Post-vetted announcements resulting in follow up
Results of follow-up actions :
- No further action
- Suspension
- Clarification announcements
15
Post-vetting results in Jan – May 2009
- Announcements on Notifiable Transactions and Fundraising
Number
%
- Notifiable transactions
181
60
- Fundraising
123
40
304
100
83
27
52
63
4
4.8
34
41
- Non-compliance with the Rules
4
4.8
- In the process of enquiry (31 May 2009)
3
3.6
Post-vetted announcements
Total
Post-vetted announcements resulting in follow up
Results of follow-up actions :
- No further action
- Suspension
- Clarification announcements
16
Post-vetting results in Jan – May 2009
– Examples of omission of specific disclosures for Notifiable
transactions and Fundraising
•
Share transaction/ discloseable transaction announcements





•
Issue of securities announcements




•
Principal business activities of the counterparty (MB R14.58(2)/ GEM R19.58(3))
Date of the transaction and independence of the counterparty (MB R14.58(3)/
GEM R19.58(4))
Basis of consideration (MB R14.58(5)/ GEM R19.58(6))
Value of the subject asset (MB R14.58(6)/ GEM R19.58(7))
Net profits attributable to the target asset (MB R14.58(7)/ GEM R19.58(8))
Nominal value of shares (MB R13.28(2)/ GEM R17.30(2))
Net price of the securities to be issued (MB R13.28(5)/ GEM R17.30(5))
Details of general mandate (MB R13.28(12)/ GEM R17.30(12)) [New]
Allocation basis for excess shares in rights issue/ open offer (MB R7.21(1) and
R7.26A(1)/ GEM R10.31(1) and R10.42(1)) [New]
General

Disclaimer statement (MB R13.52 Note 5 / GEM R2.19) [Revised]
17
Post-vetting results in Jan – May 2009
– Announcements on Price Sensitive Information (R13.09)
Number
%
- Profit warnings
354
40
- Other R13.09
530
60
884
100
142
16
118
83
- Suspension
4
3
- Clarification announcements
8
6
21
15
7
5
Post-vetted announcements
Total
Post-vetted announcements resulting in follow up
Results of follow-up actions :
- No further action
- Non-compliance with the Rules
- In the process of enquiry (31 May 2009)
18
Post-vetting results in Jan – May 2009
– Announcements on Price Sensitive Information (R13.09)
Points to note:
•
Suspension situations
 insufficient disclosure on impact of development to issuers
•
Profit warning announcements
 voluntary or price sensitive
 follow up on:
− timeliness of publication of announcements
− extent of disclosures
•
Overseas regulatory announcements
 may be subject to other Rule requirements (e.g. MB R13.09/ GEM
R17.10 or notifiable transaction Rules)
19
Post-vetting results in Jan – May 2009
– Results announcements
Number
%
1,130
100
158
14
118
75
1
0.6
- Clarification announcements
21
13
- Non-compliance with the Rules
14
9
- In the process of enquiry (31 May 2009)
20
13
Post-vetted announcements
Post-vetted announcements resulting in follow up
Results of follow-up actions :
- No further action
- Suspension
20
Post-vetting results in Jan – May 2009
– Results announcements
Non-compliance matters identified:
•
Historical non-compliance - failure to publish
 profit warning announcements
 notifiable transactions
•
Insufficient level of operations/ cash company
•
Internal control issue (e.g. unavailability of books and records)
•
Agreement with auditors on financial statements (MB R13.49/ GEM R18.49)
•
Non-compliance with specific disclosures (MB Appendix 16/ GEM Chapter 18)
 qualification or modification of audit opinion
 compliance with CG code
 clarity of corporate actions disclosures (e.g. dividend, book closure)
•
Disclosure of material information about the issuer’s financial position (e.g. going
concern, litigations)
21
II. Alignment of requirements for material dilution in
major subsidiary and deemed disposal
22
•
Amended MB R13.36(1)(a) / GEM R17.39
 requires shareholders’ approval for issuance of securities
 new Rule no longer applies to share issuance by major subsidiaries
Share issuance by a subsidiary is still a deemed disposal of an effective
interest in the subsidiary (MB R14.29/ GEM R19.29), which requires:
• announcement (size test(s): 5% or more)
• shareholders’ approval (size test(s): 25% or more)
23
Example 1: Placing of shares by a subsidiary
Before placing
After placing
Listco A
Listco A
51%
(51 shares)
Listco B
42%
(51 shares)
Listco B
Old Rules
•
Chapter 13 – allotment of shares by a major subsidiary is a material dilution
 Subject to shareholders’ approval at a physical meeting
•
Chapter 14 – deemed disposal of interest in a subsidiary
 Announcement
New Rules
•
Chapter 14 – deemed disposal of interest in a subsidiary
 Announcement
24
Example 2: Placing of shares by a listed subsidiary under
its general mandate
Listco A
Independent
investors
> 50%
Listco B
Placing of new shares
under general mandate
Does Listco A (the parent co.) need to comply with the shareholders’
approval requirement under Chapter 14?
25
III. Disclosure of information in takeovers
26
Timing relief for disclosures in major transaction/ VSA
circulars
•
MB R14.67A(1)/ GEM R19.67A(1) – provides timing relief to listed issuers
where certain non-public information related to a target company is
unavailable.
•
Conditions:
 The target must be listed and it must become a subsidiary of the
listed issuer.
 The issuer has no or limited access to non-public information on the
target.
 There are legal restrictions in providing non-public information on the
target.
27
Timing relief for disclosures in major transaction/ VSA
circulars
•
MB R14.67A(2)/ GEM R19.67A(2) – The initial circular must contain the
minimum disclosure:
 all material public information and other available information of the
target company to enable shareholders to make an informed voting
decision
 specific information (e.g. indebtedness statement and working capital
sufficiency statement) in relation to the listed issuer
•
MB R14.67A(3)/ GEM R19.67A(3) – The supplemental circular must:
 contain all non-disclosed information
 be despatched to shareholders within 45 days after gaining access to
the information or control over the target company
•
Will the Exchange grant relief if the target will become an associated
company of the listed issuer?
•
Will the Exchange grant other relief such as disclosure relief?
28
IV. Use of website for communication
with shareholders
29
Deeming consent under MB R2.07A(2A)/ GEM R16.04A(2A)
•
A listed issuer can deem shareholder’s consent to corporate communication
being made available to him solely on the listed issuer’s website.

subject to compliance with applicable laws/ regulations and the listed
issuer’s own constitutional documents.
•
Basic conditions for adoption of the deeming procedure:

shareholders’ approval has been obtained at a general meeting; or

there is an enabling provision in the listed issuer’s constitutional
documents.
•
How does the new Rule affect Hong Kong/ PRC/ Bermuda/ Cayman Islands
incorporated issuers?
30
Deeming consent under MB R2.07A(2A)/ GEM R16.04A(2A)
Other conditions for adoption of the deeming procedure:
•
Each shareholder must be asked individually for the consent.
•
Issuers must wait for 28 days before deeming shareholders’ consent.
•
A shareholder would not be deemed to have consented if:
•

the listed issuer’s request for consent was sent less than 12 months
after a previous request for consent; and

the previous request for consent is made to him in respect of the
same class of corporate communication.
Issuers must notify the intended recipient of publication of the corporate
communication on the website.
31
V. Model Code for directors’ dealings
32
“Black out” period
•
Revised “black out” period (effective 1 April 2009) under Rule A.3 of MB
App 10 / GEM R5.56

Annual results
−
60 days before publication of the results or, if shorter, the
period from the financial year end up to the date of
publication

•
Half-year and quarterly results
−
30 days before publication of the results, or, if shorter, the
period from the financial period end up to the date of
publication
The listed issuer must notify the Exchange in advance of the
commencement date of the “black out” period
−
New Rule A.3(b) of MB App 10/ GEM R5.56(b)
33
Press release on 12 February 2009
•
We support early implementation of statutory obligation to disclose
price sensitive information.
•
We believe that we should enhance our Rules to require reporting on a
quarterly basis to ensure a more regular and timely flow of information.
•
We have enhanced program to monitor directors’ dealings.
34
Analysis of director’s dealings during Jan – Mar 2009
Jan to Mar 2009
Full year 2008
Number
%
Number
%
Total no. of dealings:
1,293
100%
9,840
100%
- Outside black out period
1,254
97.0%
9,589
97.4%
39
3.0%
251
2.6%
- No. of dealings
3
7.7%
43
17%
- No. of issuers involved
3
-
25
-
- Within black out period
Non-compliance with Model Code:
Source: Disclosure of Interest forms filed by directors and posted on the HKEx website.
35
Example
31/3/2009
(year end
date)
•
•
6/6/2009
(Date of publication
of annual results)
31/7/2009
(Deadline for publication
of annual results)
31/8/2009
Commencement of black out period: 7 April 2009
Notification must be sent to the Exchange before 7 April 2009
•
Can directors deal in securities of the issuer on 6 June 2009?
•
If the issuer expects a delay in publication of the results until 31 August 2009,
when should the black out period start?
•
If the issuer has notified the Exchange of the commencement of the black out
period (7 April 2009), say on 5 April 2009 and subsequently decides to
postpone the board meeting to 30 July 2009, when should the black out
period start?
36
Other Rule amendments
•
3 new exceptions to the definition of “dealings”
−
•
Definition of “price-sensitive information” for the purpose of the Mode Code
−
•
MB App 10 – 7(d)(vi) to (viii) / GEM R5.52 (4)(f) to (h)
Note to MB App 10 – Rule A.1/ GEM R5.54
Time limits for (a) an issuer to respond to a director’s request to deal and (b)
dealings to take place once clearance is given
−
MB App 10 – Rule B.8 / GEM R5.61
37
VI. Disclosure of changes in issued share capital
38
Next Day Disclosure Return (MB R13.25A/ GEM R17.27A)
and Monthly Return (MB R13.25B/ GEM R17.27B)
•
•
Next Day Disclosure Return (NDDR) must be published by 9 a.m. the next
business day following the relevant event

Certain event triggers immediate disclosure (e.g. placing, share
repurchase, etc)

Other events may be subject to a 5% de minimis threshold (e.g.
exercise of options by a non director, conversion of convertible bonds)

In the event of immediate disclosure is triggered, all prior events that
are subject to the 5% de minimis threshold must be disclosed
Monthly Return must be published by 9 a.m. of the fifth business day next
following the end of the calendar month.
39
Grant of options (MB R17.06A/ GEM R23.06A)
•
Issuers must publish an announcement as soon as possible upon grant of
options under the share option scheme.
•
Example:
–
Date of offer of options: 15 April 2009
–
Date of acceptance of options: 20 April 2009
•
When was the announcement obligation under R17.06A triggered? on
15 April 2009 or 20 April 2009?
40
VII. Other Rule amendments
41
1)
Bonus issue of a class of securities new to listing

2)
Disapplies the minimum spread and number of shareholders requirement for
bonus issue involving options, warrants or similar rights to subscribe or
purchase shares provided that no high concentration of shareholding in the
hands of a few shareholders within the preceding 5 years
Qualified accountants

Removed the requirement for appointment of a qualified accountant under
MB R3.24/ GEM R5.15 to 5.18

New Code Provisions in MB Appendix 14/ GEM Appendix 15
− Directors should conduct an annual review of the adequacy of staffing
of the financial reporting functions of the issuer. (C.2.2)
−
The term of the audit committee should include its responsibility of
overseeing the adequacy of staffing of the issuer’s accounting and
financial reporting functions. (C.3.3)
42
3)
New Code Provisions in MB Appendix 14/ GEM Appendix 15

4)
Voting by poll

5)
Notice to shareholders should be sent:
− at least 20 clear business days before AGM
− at least 10 clear business days in the case of all other general
meetings (E.1.3)
Required for all resolutions (MB R13.39(4)/ GEM R17.47(4))
Codification of the waiver to property companies (MB Ch.14&14A and GEM
Ch. 19 & 20)

Joint press release by the Exchange and the SFC in Dec 2006 –conditional
waiver applies to acquisitions by listed property developers of land or property
development projects in Hong Kong through public auctions or tenders
43
6)
Issuers must disclose changes to information about directors/ supervisors
(New MB R13.51B/ GEM R17.50A)


by issue of an immediate announcement for information under paragraphs (h)
to (v)
in listed issuers’ next published annual / interim report for information under
paragraphs (a) to (e) and (g)
44
Reference materials published on the HKEx website
•
Guidance materials on Exchange’s practices and procedures for handling
listing related matters: http://www.hkex.com.hk/listing/epp/epp.htm
•
Frequently asked questions on notifiable transactions, connected
transactions and issue of securities:
(http://www.hkex.com.hk/listing/suppmat/faq200811.doc)
•
Listing Decisions: http://www.hkex.com.hk/listing/listdec/listdec.asp
•
Checklists and forms in relation to disclosure, documentary and other
specific compliance requirements under the Listing Rules and related
administrative procedures:

Main Board - http://www.hkex.com.hk/listing/epp/cft_mb.htm

GEM - http://www.hkex.com.hk/listing/epp/cft_gem.htm
45
Reference materials published on the HKEx website
•
Consultation Conclusions
 http://www.hkex.com.hk/consul/conclusion/cc200811.pdf
•
Frequently asked questions on the Rule amendments relating to the 2008
Combined Consultation
 http://www.hkex.com.hk/listing/suppmat/faqcc200811.doc
•
Annotated Next Day Disclosure Return
 http://www.hkex.com.hk/listing/suppmat/annotnddr.pdf
•
Annotated Monthly Return
 http://www.hkex.com.hk/listing/suppmat/annotmr.pdf
46
Thank you
47