In our May 2012 e-bulletin, we summarised the new statutory disclosure regime for inside information under a Part XIVA of the Securities and Futures Ordinance ("SFO") which will come into effect on 1 January 2013. As this date is fast approaching, this bulletin serves as a reminder to listed companies to ensure that you are ready to comply with the new regime from next year and provides a suggested checklist for compliance with the statutory disclosure regime.
In November, the Stock Exchange published its consultation conclusions on consequential changes to the Listing Rules as a result of the new statutory regime. The Listing Rules will be amended from 1 January 2013 to remove from the Listing Rules the obligation to disclose price sensitive information and to clarify the respective roles and responsibilities of the Securities and Futures Commission ("SFC") and the Stock Exchange. We briefly consider these changes below.
Consequential Listing Rule changes effective from 1 January 2013
Whilst the rules dealing with the disclosure obligation in respect of price sensitive information will be deleted and replaced with the SFO regime, the amended Listing Rules will still contain some important provisions relating to the disclosure of information including the following:
- The revised Listing Rules require that any disclosure of inside information under the SFO must be announced simultaneously in accordance with the Listing Rules - in practice it is expected that the Stock Exchange's news website will be the medium used by companies to satisfy the SFO disclosure requirement.
- The Stock Exchange may make enquiries concerning unusual price or trading volume movements or the possible development of a false market and the company must respond promptly and, if necessary, make a clarification announcement. Alternatively, the company may be required to publish a standard confirmation announcement in a revised form from that currently required. The newly worded standard confirmation requires the company to confirm that it is not aware of any matter that may be relevant to the price/trading movement, that must be announced to avoid a false market or any inside information that is required to be disclosed. In making the standard confirmation announcement, the directors must have made such enquiry as may be reasonable in the circumstances.
- Irrespective of whether the Stock Exchange makes enquiries of a company, the revised Listing Rules require that the company must, as soon as practicable after consultation with the Stock Exchange, announce information necessary to avoid a false market, if the Stock Exchange considers there is, or is likely to be such a false market in the company's securities. There may, therefore, be circumstances where disclosure may not be required under the SFO regime (for instance because of a safe harbour) but would be required under the Listing Rules due to concerns that a false market exists, particularly for example, in response to press reports or other market rumours.
- The revised Listing Rules require companies to file with the Stock Exchange a copy of any waiver application to the SFC relating to disclosure of inside information as well as the SFC's decision.
- The revised Listing Rules also set out the obligations and requirements for a company to apply for a trading halt or suspension.
Please refer to the Stock Exchange's Consultation Conclusions on the consequential Listing Rule changes for full details of the revised rules.
Suggested checklist for compliance with the statutory disclosure regime
Under the statutory regime, every officer of the company is required to take all reasonable measures from time to time to ensure that proper safeguards exist to prevent a breach of the disclosure requirements in relation to the company. Given this personal liability, it will be key for officers of listed companies to be able to demonstrate that the company has adopted "reasonable measures" to comply with the disclosure requirements. Both the SFC and the Stock Exchange emphasise the importance of having in place appropriate internal controls to identify, assess and elevate inside information to the board.
In preparation for the 1 January 2013 implementation of the statutory regime, we would encourage all listed issuers to fully familiarise themselves with the amendments to the SFO and the Guidelines on Disclosure of Inside Information (the "Guidelines") issued by the SFC in June 2012. The Guidelines provide insight into the SFC's views on how the new Part XIVA will be applied and some useful guidance on suggested internal control procedures and policies to assist companies with compliance.
The adequacy of internal controls and policies are very important for all officers who may have personal responsibility under the SFO, and, in particular, for non-executive directors who are not themselves involved in the day-to-day running of the business and will rely on these measures to ensure material information is identified and escalated for board consideration. We have set out below a checklist, based on the Guidelines, of certain key things to check and consider prior to 1 January 2013 to ensure that listed companies have in place suitable and adequate policies and procedures to cope with the new statutory regime:
- Ensure all directors, senior managers and other relevant staff have read, and are familiar with, the Guidelines.
Review (and keep under review) the company's internal control procedures to prevent a breach of the disclosure requirements and to ensure the board will be informed where material information arises. The Guidelines set out a range of control systems that might be relevant including putting in place:
- systems for monitoring business and corporate developments to identify and escalate inside information without delay (including, for instance, maintaining a "sensitivity list" to highlight areas to watch out for where inside information is likely to arise and establishing an internal committee to consider and escalate potential inside information);
- financial reporting procedures which ensure timely escalation of key financial and operating data to the board;
- a publication policy to ensure inside information is made available on the Stock Exchange website prior to dissemination through other media channels;
- procedures for dealing with inadvertent disclosure, leaks and market rumours;
- strict confidentiality protocols for staff and restrictions on those able to access inside information, limiting access to only those who need-to-know it; and
- record keeping requirements for meetings and discussions about whether inside information has arisen and requires disclosure.
- Nominate a limited number of officers or executives permitted to make external communications on behalf of the company and ensure they are adequately skilled and fully trained.
- For analysts briefings, put in place procedures to review materials prior to release and record briefings and discussions to monitor whether inside information has been inadvertently released.
- Provide regular staff training on the company's internal procedures and their duties and responsibilities in respect of confidentiality and inside information.
- Prepare draft confidentiality agreements ready for use where significant matters are being discussed with external parties.
- Consider publishing the company's internal policies and procedures so that outside parties, such as media contacts and others, understand them and the disclosure restrictions applicable to the company.
Further examples of measures which the regulators expect companies to consider adopting are set out in the Guidelines.