Recent Amendments to the Listing Rules

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Recent Amendments to the Listing Rules

• Janet Chiu
• Assistant Vice President
• Compliance and Monitoring Department
• Listing Division, HKEx

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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)

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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

• Reduction of pre-vetting activities
• Alignment of requirements for material dilution
  in major subsidiary and deemed disposal
• Disclosure of information in takeovers
• Use of website for communication with
  shareholders
• Model Code for directors dealings
• Disclosure of changes in issued share capital
• 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

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Phased approach to post-vetting announcements
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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

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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)

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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.

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Rule amendments relating to circular
requirements

• For (a) share repurchase and (b) amendments to
  issuers MA, 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 MA)

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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)

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Suspension cases - Phase 1 announcements

• Did post-vetting shorten the suspension
  period?

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

• 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

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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
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)

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Post-vetting results in Jan May 2009
Results announcements
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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
  issuers financial position (e.g. going concern,
  litigations)

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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

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Example 1 Placing of shares by a subsidiary
After placing
Before placing
Listco A
Listco A
51 (51 shares)
42 (51 shares)
Listco B
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

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Example 2 Placing of shares by a listed
subsidiary under its general mandate
Independent investors
Listco A
gt 50
Placing of new shares under general mandate
Listco B
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• III. Disclosure of information in takeovers

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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.

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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

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• IV. Use of website for communication
• with shareholders

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

• A listed issuer can deem shareholders consent to
  corporate communication being made available to
  him solely on the listed issuers website.
• subject to compliance with applicable laws/
  regulations and the listed issuers 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
  issuers constitutional documents.

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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 issuers 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.

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• V. Model Code for directors dealings

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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)

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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.

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Analysis of directors dealings during Jan Mar
2009
Source Disclosure of Interest forms filed by
directors and posted on the HKEx website.
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Example
6/6/2009 (Date of publication of annual results)
31/3/2009 (year end date)
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

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Other Rule amendments

• 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
  directors request to deal and (b) dealings to
  take place once clearance is given
• MB App 10 Rule B.8 / GEM R5.61

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• VI. Disclosure of changes in issued share capital

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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.

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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

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• VII. Other Rule amendments

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• 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
• 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 issuers accounting and financial
  reporting functions. (C.3.3)

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• 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)
• Voting by poll
• Required for all resolutions (MB R13.39(4)/ GEM
  R17.47(4))
• Codification of the waiver to property companies
  (MB Ch.1414A 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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• 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 Exchanges 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/suppma
  t/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/cf
  t_mb.htm
• GEM - http//www.hkex.com.hk/listing/epp/cft_gem.h
  tm

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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.p
  df
• Annotated Monthly Return
• http//www.hkex.com.hk/listing/suppmat/annotmr.pdf

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• Thank you

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