Chapter 8
Chapter 14
Chapter 17

The Stock Exchange of Hong Kong Limited (HKSE) has conducted a 1998/1999 review of the Rules Governing the Listing of Securities on the HKSE (Listing Rules) and has published a consultation paper on proposed amendments to certain chapters.

The principal aim of the review is to ensure that the Listing Rules are in line with best market practices and current market conditions and that they are clearly understood by market participants. The HKSE is seeking to achieve this by codifying as far as possible its practice in interpreting and applying the Listing Rules and by proposing rule changes to ensure that they are clear and concise, easily understandable and consistent.

The chapters of the Listing Rules subject to the review include:

  • Chapter 8 (Qualifications for Listing);

  • Chapter 14 (Notifiable Transactions); and

  • Chapter 17 (Share Schemes).

Chapter 8

Chapter 8 sets out the qualifications that a company is required to comply with in order for its shares to become and remain listed on the HKSE.

A new rule is proposed to address the situation where a listing applicant's controlling shareholder (ie, a person who controls 35% or more of the voting rights) has an interest in a business that competes or is likely to compete with the applicant's business (ie, the excluded business). The proposed rule would require the disclosure of material information about the excluded business in the applicant's prospectus. Where a listed company acquires an excluded business from a controlling shareholder, the excluded business would be required to comply with the track record requirements for listing. In addition, the proposed rule would require disclosure of the interests of the applicant's directors in any competing business both in the applicant's prospectus and after listing in the applicant's annual reports.

Chapter 14

Chapter 14 regulates transactions which, because of their size or because of the relationship between the counter-party and the listed company, give rise to disclosure and/or shareholder approval requirements.

The HKSE has re-written Chapter 14 - one of the most complex chapters in the Listing Rules. It proposes to divide it into two chapters - Chapter 14 and Chapter 14A. These chapters will codify practices and interpretations that are at present not expressly stated in the Listing Rules. Also, key terms have been newly defined, re-defined or moved to a separate definitions section for greater clarity. The changes suggested by the HKSE are extensive.

Proposed rules in Chapter 14 include those relating to the following:

  • the calculation of relevant percentage ratios;

  • the treatment of joint ventures;

  • the classification of notifiable transactions. A new category, namely 'reverse takeover' would be introduced to deal with backdoor listings and the definition of 'very substantial acquisitions' would be amended;

  • the notification obligations imposed on listed issuers;

  • the contents of press announcements and circulars; and

  • the treatment of transactions involving options.

Proposed rules in Chapter 14A include those relating to the following:

  • the definition of 'connected persons' and, in particular, the treatment of certain subsidiaries as connected persons;

  • classifying the formation of a joint venture with a connected person as a connected transaction;

  • the categories of connected transactions. A new category of connected transaction, namely 'continuing connected transactions' would be introduced;

  • the matters to be opined on by independent financial advisers and independent directors;

  • the treatment of certain waivers;

  • the contents of press announcements and circulars; and

  • the treatment of financial assistance.

Chapter 17

Chapter 17 sets out the requirements for a listed company's share option scheme. The HKSE has proposed various changes to this chapter in order to codify current practice, to remove ambiguities and to promote transparency. Proposed changes to Chapter 17 include those relating to the following:

  • extension of the scope of Chapter 17;

  • the restriction on the number of securities subject to share schemes;

  • the minimum option period and the exercise price of the options granted;

  • the administration of share schemes;

  • the treatment of cancelled and re-issued options;

  • share schemes adopted by an unlisted subsidiary;

  • disclosure of entitlements in relation to share schemes in the annual report; and

  • the requirement to notify the HKSE when options are granted, exercised, cancelled and/or re-issued.

The HKSE has invited market participants to submit comments on the proposed consultation paper by July 31 1999. Any rule changes arising from the 1998/1999 review will be subject to the approval of the Exchange Council and the Securities and Futures Commission.

For further information on the above topic contact Phillip John at Simmons & Simmons by telephone (+852 2868 1131) or by fax (+852 2810 5040) or by email ([email protected]). The Simmons & Simmons website can be accessed at

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