GENERAL

SFC Publishes Consultation Conclusions on Expanding the Scope of Short Position Reporting

The Securities and Futures Commission (SFC) has published the “Consultation Conclusions in relation to Expanding the Scope of Short Position Reporting and the Corresponding Amendments to the Securities and Futures (Short Position Reporting) Rules (SPR Rules)”. After considering market feedback, the SFC concluded that the following proposals would be adopted:

  1. the short position reporting would be expanded to cover all securities (Designated Securities) that could be short sold under the rules of The Stock Exchange of Hong Kong Limited (Stock Exchange);
  2. the existing reporting threshold (i.e. 0.02% of the market capitalization of the listed issuer concerned or HK$30 million, whichever is lower) would apply to all Designated Securities except Collective Investment Schemes (CISs), and the reporting threshold for CISs would be set at the HK$30 million threshold;
  3. in contingency situations, the SFC would determine which Designated Securities would be subject to daily reporting (instead of the usual weekly reporting); and
  4. the existing practice to convert the closing price of a Designated Security expressed in a currency other than Hong Kong dollars (i.e. US dollars or Renminbi) into Hong Kong dollars first for the purposes of determining the value of a net short position would be formalised.

The corresponding amendments to the SPR Rules will be submitted to the Legislative Council for negative vetting. It is currently anticipated that the amended SPR Rules will be implemented on 15 March 2017 and that the SFC will make further announcements regarding operational reporting arrangements for the expanded regime in due course.

A copy of the Consultation Conclusions can be downloaded via the link below:

http://www.sfc.hk/edistributionWeb/gateway/EN/consultation/conclusion?refNo=15CP6

Consultation on Introducing Mandatory Clearing and Expanding Mandatory Reporting for OTC Derivatives Market Published

The Hong Kong Monetary Authority and the SFC have jointly published conclusions to the proposals made in a joint consultation on introducing mandatory clearing and expanding mandatory reporting for the second stage of the OTC (over-the-counter) derivatives regulatory regime.

Major proposals to be adopted include:

Introducing mandatory clearing (phase 1 clearing)

  • subject to the legislative process, deferring commencement of phase 1 clearing from 1 July 2016 to 1 September 2016;
  • defining “financial services provider” by reference to a list of entities to be published in the Gazette and seeking views on the initial list of financial services providers;
  • having a single clearing threshold which applies to all prescribed persons (i.e. authorized institutions, approved money brokers or licensed corporations), whether they are incorporated locally or overseas;
  • excluding both deliverable FX forwards and deliverable FX swaps from the clearing threshold calculation;
  • providing a mechanism for prescribed persons to exit from the clearing obligation;
  • exempting from the clearing obligation certain transactions resulting from a multilateral portfolio compression cycle conducted by a third party;

Expanding mandatory reporting (phase 2 reporting)

  • subject to the legislative process, further deferring commencement of phase 2 reporting from 1 January 2017 to 1 July 2017;
  • narrowing the backloading requirement for transactions reported prior to phase 2 reporting so that it does not apply to transactions maturing before 1 July 2018; and
  • excluding from the reporting obligation FX forwards which are entered into for the purposes of buying or selling securities in a foreign currency and which are settled within the settlement cycle for the securities.

Central counterparties who are authorized to provide automated trading services will be subject to mandatory reporting in its current form (phase 1 reporting) from 1 September 2016 to align with the commencement of phase 1 clearing.

A separate conclusions paper on the specific data fields to be completed under phase 2 reporting will be issued later.

A copy of the Consultation Conclusions can be downloaded via the link below:

http://www.sfc.hk/edistributionWeb/gateway/EN/consultation/conclusion?refNo=15CP4

Listing Rules–Related Developments

Stock Exchange Publishes a New Guidance Letter

The Stock Exchange has published a new Guidance Letter (GL86-16): “Guide on Producing Simplified Listing Documents Relating to Equity Securities for New Applications”. This Guidance Letter is divided into three parts:

  1. general guidance on producing clear and concise listing documents;
  2. consolidated and updated version of a number of the Stock Exchange’s guidance letters on disclosures in listing documents, mostly included under the title “Simplification Series” (Consolidated Guidance); and
  3. online hyperlinks to :
    • sample “Summary of the Constitution of the Company and the Companies Law” sections of listing documents of applicants incorporated in Bermuda, the Cayman Islands and the PRC; and
    • the corresponding sample constitutional documents for the applicants.

New listing applicants may voluntarily choose to comply with this new Guidance Letter if they intend to submit their listing applications on or before 30 April 2016. Applicants who intend to submit their listing applicants after 30 April 2016 should comply with the Consolidated Guidance.

The Stock Exchange will not return a listing application merely because it does not follow the general guidance, the specimen sections or the sample constitutional documents set out in the Guidance Letter, but will remind applicants to do so.

The following Guidance Letters will be withdrawn after 30 April 2016:

− GL27-12 on “Summary and Highlights” section;

− GL54-13 on “Risk Factors” section;

− GL48-13 on “Industry Overview” section;

− GL49-13 on “History and Development” section;

− GL50-13 on “Business” section;

− GL59-13 on “Financial Information” or “Management discussion and analysis on the historical financial information” section;

− GL72-14 on “Applicable laws and Regulations” section;

− GL62-13 on “Directors, Supervisors and Senior Management” section;

− GL33-12 on “Use of Proceeds” section; and

− GL64-13 on Application Forms and “How to Apply for Hong Kong Offer Shares” section.

Copies of the new Guidance Letter and related FAQs can be downloaded via the links below:

http://en-rules.hkex.com.hk/net_file_store/new_rulebooks/g/l/gl8616.pdf

http://www.hkex.com.hk/eng/rulesreg/listrules/listsptop/guidepsld/Documents/FAQ_001-2016.pdf

SFC Enforcement Action

SFC Publicly Censures Securities House for Breaching Dealing Disclosure Obligations etc. under the Takeovers Code

The Takeovers Executive (Executive) of the SFC has publicly censured Goldman Sachs (Asia) L.L.C. (Goldman Sachs) for breaching, amongst others, the dealing disclosure obligations under the Takeovers Code.

The background of the case was that on 16 September 2013, an offer period commenced for Wing Hang Bank, Limited (Wing Hang Bank), and upon the verbal engagement of Goldman Sachs by Wing Hang Bank, Goldman Sachs became an “associate” of Wing Hang Bank under the Takeovers Code. As a result, Goldman Sachs was subject to disclosure obligations under Rule 22 of, and certain other restrictions under, the Takeovers Code. However, as a consequence of failure of Goldman Sachs’ investment banking team to inform its global compliance control room of the commencement of the offer period for Wing Hang Bank, Goldman Sachs had not appreciated the application of the Takeovers Code to it as “associate” of Wing Hang Bank and, in breach of the Takeovers Code:

  1. failed to make the required dealing disclosures in accordance with Rule 22;
  2. failed to obtain the Executive’s consent prior to dealing in principal trades in the relevant securities of Wing Hang Bank which fell outside the scope of dealings covered by the exempt principal trading and exempt fund manager status granted to the various Goldman Sachs entities; and
  3. failed to comply with certain requirements in relation to issue of research reports on Wing Hang Bank.

In taking the disciplinary action, the Executive has taken into account that Goldman Sachs:

  • self-reported the breaches to the Executive;
  • had fully cooperated with the Executive’s review of this matter; and
  • had since introduced enhanced compliance policies and procedures to ensure future compliance with the Takeovers Code.

A copy of the Executive’s Statement can be downloaded via the link below:

http://www.sfc.hk/web/EN/files/CF/pdf/Public_censure/Public%20Censure%20(ENG).pdf