Quick Read

As explained in our two previous Legal Updates, “New Statutory Price Sensitive Information Disclosure Regime to Take Effect on 1 January 2013” and “A Quick Look at the New SFC Guidelines on Disclosure of Inside Information”, the new statutory price sensitive/inside information disclosure regime (New Disclosure Regime) will become effective on 1 January 2013.

In line with the New Disclosure Regime, The Stock Exchange of Hong Kong Limited (SEHK) published its “Consultation Paper on Rule Changes Consequential on the Enactment of the Securities and Futures (Amendment) Ordinance 2012 to provide Statutory Backing to Listed Corporations’ Continuing Obligation to Disclose Inside Information” (Consultation Paper) on 3 August 2012 to propose amendments to the Rules Governing the Listing of Securities on SEHK (Listing Rules). Corresponding amendments are also proposed to the Rules Governing the Listing of Securities on the Growth Enterprise Market of SEHK.

Comments in response to the Consultation Paper should be submitted by 3 October 2012.

Major Proposals

SFC TO TAKE UP THE PRIMARY RESPONSIBILITY FOR ENFORCING THE NEW DISCLOSURE REGIME

Upon the implementation of the New Disclosure Regime, the Securities and Futures Commission (SFC) will take up the primary responsibility to enforce its requirements. Generally, all possible breaches will be handled by SFC and SEHK will not provide guidance on the interpretation or operation of the New Disclosure Regime. SEHK will take disciplinary action in relation to other specific disclosure obligations under the Listing Rules only if SEHK considers such action appropriate and SFC has indicated that it will not take any action under the New Disclosure Regime.

DELETION OF A SUBSTANTIAL PART OF RULE 13.09(1)

The current Rule 13.09(1) of the Listing Rules requires that an issuer should keep SEHK and its shareholders informed as soon as reasonably practicable of any information relating to the group which:

  1. is necessary to enable them and the public to appraise the position of the group; or
  2. is necessary to avoid the establishment of a false market in its securities; or
  3. might be reasonably expected materially to affect market activity in and the price of its securities.

In view of the roles of SFC and SEHK under the New Disclosure Regime as explained above, paragraphs (a) and (c) under Rule 13.09(1) will be deleted in order to avoid duplication with the New Disclosure Regime requirements. However, SEHK still maintains the responsibility under section 21 of the Securities and Futures Ordinance (SFO) to ensure, as far as reasonably practicable, an orderly, informed and fair market in securities that are traded on SEHK. Accordingly, paragraph (b), which requires disclosure of information to avoid the establishment of a false market in an issuer’s securities, will be retained but modified.

The current wording of paragraph (b) implies that the obligation is limited to avoiding the creation of a false market. Under the Consultation Paper, it is proposed that the obligation to correct a false market should also be included. The proposed amendment to the wording of paragraph (b) is as follows (False Market Provision):

“where there is or there is likely to be a false market in an issuer’s securities, the issuer must, as soon as reasonably practicable, announce the information necessary to correct or prevent a false market in its securities.”

In order to satisfy its regulatory responsibility under the SFO, SEHK will be required to monitor the market and where necessary, take appropriate actions. Also, obligations will be imposed on issuers to assist SEHK in discharging its duty.

OBLIGATIONS OF ISSUERS IN RESPONSE TO SEHK’S REGULATORY RESPONSIBILITY

The obligations which issuers will be subject to in response to SEHK’s regulatory responsibility are:

Click here to view table.

DISCLOSURE OBLIGATIONS ON SPECIFIED MATTERS

At present, obligations are imposed on an issuer to disclose certain matters which arise out of the general disclosure obligation under the Listing Rules, such as obligations to:

  • disclose events which significantly impact on profit forecast made by the issuer, including the assumptions upon which it was made;
  • announce spin-off listing application; and
  • publish periodic announcements of its developments after trading in the issuer’s securities has been suspended as a result of failing to comply with the relevant Listing Rules in relation to sufficient operations.

Since a substantial part of the general disclosure obligation under the Listing Rules will be deleted as explained above, SEHK proposes to create a specific Listing Rules provision to impose disclosure obligation for each of abovementioned matters after implementation of the New Disclosure Regime.

Issuers Should Comply With The Requirements Under Both Regimes

Issuers should note that the disclosure requirements under the Listing Rules are distinct and separate from the New Disclosure Regime and the information required for disclosure under the Listing Rules may or may not constitute inside information. Issuers are required to comply with the relevant disclosure requirements under both the Listing Rules and New Disclosure Regime.

You may download copies of the Consultation Paper via the link below: http://www.hkex.com.hk/eng/newsconsul/mktconsul/Documents/cp201208.pdf