recent amendments to the listing rules janet chiu assistant vice president compliance and monitoring...

Recent Amendments to the Listing Rules

Janet Chiu

Assistant Vice President

Compliance and Monitoring Department

Listing Division, HKEx

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• 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)

Background

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Major areas of Rule amendments

• Vetting of listed issuers’ documents

• Transaction-related issues

• Disclosure and submission of information

• Corporate governance practices

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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

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I. Reduction of pre-vetting activities

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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?

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Phased approach to post-vetting announcements

Pre-vetting required (Phase 1) Pre-vetting NOT required

• 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

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

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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?

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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.

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Circumstances requiring pre-announcement consultation

• Aggregation of transactions [New]− MB R14.23A, R14A.27A/ GEM R19.23A, R20.27A

• Trading arrangement [New]− MB R13.52B(1)/ GEM R17.53B(1)

• Requests for waivers [New]− MB R13.52B(2)(b)/ GEM R17.53B(2)(b)

• Proposal for alternative size test− 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)

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?

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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

• 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)

• Circular or offer documents relating to takeovers, mergers or offer

For example:• Explanatory statement for share repurchase

mandate*

• Circulars on amendments of articles of association*

• Circulars on:– general issue mandate– re-election of directors– change of auditors

* Subject to pre-vetting under the Old Rules

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• 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)

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)

What does the term “unusual” mean?

Does the Exchange accept confirmation from in-house lawyer of the issuer?

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• 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)

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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

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Post-vetting results in Jan – May 2009

Number %

Total number of published announcements 11,206 100

- Pre-vetted 578 5

- Not post-vetted 5,970 53

- Post-vetted 4,658 42

Post-vetted announcements resulting in follow up

Results of follow-up actions :

684 14.7

- No further action 522 76

- Suspension 15 2.2

- Clarification announcements 132 19

- Non-compliance with the Rules 81 12

- In the process of enquiry (31 May 2009) 48 7

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Post-vetting results in Jan – May 2009 - Announcements on Notifiable Transactions and Fundraising

Number %

Post-vetted announcements

- Notifiable transactions 181 60

- Fundraising 123 40

Total 304 100

Post-vetted announcements resulting in follow up 83 27



- Suspension 4 4.8


- Non-compliance with the Rules 4 4.8

- In the process of enquiry (31 May 2009) 3 3.6

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• Share transaction/ discloseable transaction 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))

• Issue of securities announcements 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]

Post-vetting results in Jan – May 2009 – Examples of omission of specific disclosures for Notifiable transactions and Fundraising

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Post-vetting results in Jan – May 2009 – Announcements on Price Sensitive Information (R13.09)

Number %

Post-vetted announcements

- Profit warnings 354 40

- Other R13.09 530 60

Total 884 100




- Suspension 4 3




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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)

Post-vetting results in Jan – May 2009 – Announcements on Price Sensitive Information (R13.09)

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Post-vetting results in Jan – May 2009 – Results announcements

Number %

Post-vetted announcements 1,130 100




- Suspension 1 0.6




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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)

Post-vetting results in Jan – May 2009 – Results announcements

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II. Alignment of requirements for material dilution in major subsidiary and deemed disposal

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• 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)

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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

Example 1: Placing of shares by a subsidiary

Listco A

Listco B

Before placing After placing

Listco A

51% (51 shares)

Listco B

42% (51 shares)

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Example 2: Placing of shares by a listed subsidiary under its general mandate

Does Listco A (the parent co.) need to comply with the shareholders’ approval requirement under Chapter 14?

Listco A

Listco B

> 50%

Independent investors

Placing of new shares under general mandate

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III. Disclosure of information in takeovers

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• 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.

Timing relief for disclosures in major transaction/ VSA circulars

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• 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

Timing relief for disclosures in major transaction/ VSA circulars

• 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?

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IV. Use of website for communication

with shareholders

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• 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.

Deeming consent under MB R2.07A(2A)/ GEM R16.04A(2A)

• How does the new Rule affect Hong Kong/ PRC/ Bermuda/ Cayman Islands incorporated issuers?

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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.

Deeming consent under MB R2.07A(2A)/ GEM R16.04A(2A)

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V. Model Code for directors’ dealings

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• 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)

“Black out” period

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• 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.

Press release on 12 February 2009

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%

- Within black out period 39 3.0% 251 2.6%

Non-compliance with Model Code:

- No. of dealings 3 7.7% 43 17%

- No. of issuers involved 3 - 25 -

Source: Disclosure of Interest forms filed by directors and posted on the HKEx website.

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• Commencement of black out period: 7 April 2009• Notification must be sent to the Exchange before 7 April 2009

Example

31/3/2009(year end

date)

6/6/2009(Date of publication of annual results)

• 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?

31/7/2009(Deadline for publication

of annual results)

31/8/2009

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• 3 new exceptions to the definition of “dealings”− MB App 10 – 7(d)(vi) to (viii) / GEM R5.52 (4)(f) to (h)

• Definition of “price-sensitive information” for the purpose of the Mode Code− 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

Other Rule amendments

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VI. Disclosure of changes in issued share capital

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• 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.

Next Day Disclosure Return (MB R13.25A/ GEM R17.27A)and Monthly Return (MB R13.25B/ GEM R17.27B)

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• 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

Grant of options (MB R17.06A/ GEM R23.06A)

• When was the announcement obligation under R17.06A triggered? on 15 April 2009 or 20 April 2009?

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VII. Other Rule amendments

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1) Bonus issue of a class of securities new to listing 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

2) 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)

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3) New Code Provisions in MB Appendix 14/ GEM Appendix 15 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)

4) Voting by poll Required for all resolutions (MB R13.39(4)/ GEM R17.47(4))

5) 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

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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)

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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

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• 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

Reference materials published on the HKEx website

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Thank you

recent amendments to the listing rules janet chiu assistant vice president compliance and monitoring...

Documents

preannouncement consultation

exchange request

background slide

hkex slide

major transactions

53b2 issuers

major areas of rule

amendments of articles