HKEx Publishes Consultation Paper on Proposed Changes to its Connected Transaction Rules

Corporate

02 Oct 2009

Hong Kong Exchanges and Clearing Limited (HKEx) published a consultation paper today (Friday) on proposed changes to its connected transaction rules.

The consultation paper seeks the public’s views on proposals to address specific issues in the regulation of connected transactions under the Listing Rules of The Stock Exchange of Hong Kong (the Exchange) Limited, a wholly-owned subsidiary of HKEx. The paper includes proposals to review the definition of connected person, provide exemptions for connected transactions which are immaterial or involve persons not in a position to exercise significant influence, and amend the Listing Rules to address technical issues.

The proposals comprise:

revisiting whether the definition of connected person should include a person connected at the subsidiary level; or alternatively whether to provide an exemption for the person who is connected only by virtue of his relationship with a subsidiary whose size is “insignificant” to the issuer;

revising the de minimis thresholds that trigger disclosure or shareholders’ approval requirements for connected transactions;

modifying or introducing certain exemptions for connected transactions that are revenue in nature in specific circumstances;

revising the definition of associate to (i) exclude persons who may not be in positions to exercise significant influence over the issuer; and (ii) include a company in which a connected person’s relative has a majority control;

refining the circumstances in which an issuer’s non wholly-owned subsidiary should be regarded as a connected person;

revising the definition of connected person to exclude (i) promoters for PRC (Mainland China) issuers; and (ii) “PRC Governmental Body” for non-PRC issuers (the current exemption only applies to PRC issuers);

modifying or clarifying the application of certain exemptions for connected transactions; and

removing the references to “management shareholder” in the Listing Rules for the Growth Enterprise Market, or GEM (the other proposals apply to the Main Board and GEM Listing Rules).

“Our objective in this consultation is to review specific connected transaction requirements which are burdensome, restrictive or have unintended effects. We have received market comments that the current connected transaction rules cast a wide net and may catch persons or transactions which fall outside the purpose of the rules. This creates an unnecessary burden on issuers and it is not in the interest of minority shareholders when the compliance costs outweigh the benefits. After taking into account the proposed changes, we will continue to have one of the strictest regimes in developed markets on connected transactions. It is important to ensure that the Listing Rules meet their purpose and intent in a balanced and cost-effective manner” said Mark Dickens, HKEx's Head of Listing.

The consultation paper can be downloaded from the HKEx website. Interested parties are encouraged to respond to the consultation paper by completing and submitting the questionnaire.

The deadline for replies to the consultation paper is 2 December 2009.

Updated 02 Oct 2009