The Hong Kong Government and the Securities and Futures Commission (SFC) have announced the introduction of mandatory electronic filing (Mandatory E-Filing) of disclosure of interests (DOI) notifications and reports under Part XV of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) (SFO) with effect from 3 July 2017.
Mandatory E-Filing is being introduced to improve the timeliness of publication of DOI notifications. Although a small change in the overall complexity of Part XV, this will affect a broad spectrum of market participants: corporate insiders of listed corporations, persons with an interest in 5% or more in the shares of a listed corporation (i.e. substantial shareholders), and listed corporations themselves.
Corporate insiders and substantial shareholders
Currently, corporate insiders and substantial shareholders, wherever they are located, must file DOI notifications with the relevant listed corporation and the Stock Exchange of Hong Kong (SEHK). Generally filings may be made by hand, post, fax, or email (or in the case of the SEHK, through its optional electronic filing system).
Once Mandatory E-Filing has been introduced, two important changes will take place:
* Corporate insiders and substantial shareholders will only be required to file DOI notifications with the SEHK. It will no longer be necessary for corporate insiders and substantial shareholders to notify the relevant listed corporation as the SEHK will do this automatically.
* DOI notifications made by hand, post, fax, email, or the SEHK’s optional electronic system will no longer be effective to discharge a person’s duty of disclosure. All DOI notifications will have to be made to the SEHK only through the SEHK’s new electronic filing system, known as the Disclosure of Interests Online System (DION System), which we understand is being tested by market participants.
The SFC has also taken this opportunity to update the notification forms in two important ways:
* The codes to describe a relevant event have been greatly expanded from 17 to almost 90. The codes for capacity and derivative interests have also been refreshed to provide greater detail of a person’s interest.
* Persons who are a party to a section 317 agreement (e.g. concert parties) will be required to submit documentation relating to the section 317 agreement and that documentation will be published on the SEHK’s website; previously they were available for inspection only at the SEHK’s offices. In particular, a person will be required to separately state in writing that he/she/it is a party to a section 317 agreement, and submit either (a) a copy of or an extract from the written agreement, contract, or other document (if any) that records any terms or details of the agreement or (b) if there is no such document or the document doesn’t record the material terms of the agreement, a written memorandum setting out the material terms of the agreement.
The new forms are available on the SFC’s website.
The remainder of Part XV for corporate insiders and substantial shareholders (e.g. the thresholds for triggering notifications, filing deadlines, the information required to be disclosed, and the availability of exemptions) is unchanged.
Currently, listed corporations are required to pass information received from a DOI notification or upon completion of an investigation into interests in its own shares to the SFC, SEHK, and (where a listed corporation or its subsidiary, is an authorized financial institution (i.e. licensed bank, restricted licence bank, or deposit-taking company) (Bank)) Hong Kong Monetary Authority (HKMA). Listed corporations currently do so by hand, post, fax, or email and there is no specified form for doing so.
Once Mandatory E-Filing has been introduced, notifications and reports made by hand, post, fax, or email will no longer be effective to discharge a listed corporation’s reporting obligations. For a listed corporation that is not a Bank or a holding company of a Bank, notifications and reports will have to be made to the SFC and the SEHK solely through the DION System. For a listed corporation that is a Bank or a holding company of a Bank, notifications and reports will have to be made to the HKMA via the its Supervisory Communication Website; please see the HKMA’s circular for further details.
The SFC has also introduced a new Form 4 for a listed corporation to use when reporting the findings of an investigation into interests in its own shares, which it may do pursuant to powers under the SFO. The new form and the instructions for the form are available on the SFC’s website.
The remainder of Part XV for listed corporations (e.g. the requirement to maintain registers of DOI notifications and the deadlines for updating the registers upon the receipt of new DOI notifications) is unchanged.
Mandatory E-Filing will come into effect on 3 July 2017. The SFC and the SEHK have announced that there will be a three month transition from the introduction of Mandatory E-Filing to allow firms to discharge their obligations using the current or new regime. The SFC has also indicated that it is unlikely to decide to prosecute a breach of Part XV arising solely from an incorrect use of a prescribed form or submission method during the transition period.
Now that the updated DOI notification forms are available, firms should look to make a start to modifying their existing filing procedures, including incorporating appropriate changes to internal systems to reflect the changes to codes and information required in the updated forms. There will be no requirement to update existing notices – where for example a different code now applies; however, the new codes will need to be used going forward should further disclosure relating to the shares be required.