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Exchange Publishes Consultation Paper on Proposed Amendments to Listing Rules Relating to Share Schemes of Listed Issuers

Regulatory
29 Oct 2021

  • Feedback is sought during a two-month consultation period on Listing Rule changes to enhance the regulation of share schemes of listed issuers and their subsidiaries
  • Current Rules apply only to share option schemes; proposal extends Rules to govern all share schemes involving grants of share awards and grants of options to acquire new shares of issuers

 

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today (Friday) published a consultation paper on Proposed Amendments to Listing Rules relating to Share Schemes of Listed Issuers.

The Exchange is seeking market views on its proposal to extend Chapter 17 of the Rules to also govern share award schemes, in view of the increasing adoption of these schemes. Chapter 17 currently provides a framework that governs share option schemes only. For share award schemes, issuers must seek shareholders’ approval for each grant of new shares at a general meeting, or issue new shares under a general mandate. The proposals would allow more flexibility for issuers to grant new shares under share award schemes.

“Our proposals aim to provide issuers the flexibility to grant share awards and options, whilst still protecting shareholders from excessive dilution by setting a scheme mandate limit and restrictions on certain grant terms,” said Bonnie Y Chan, HKEX’s Head of Listing.

The Exchange also proposes changes to specific requirements in Chapter 17, such as the definition of eligible participants and the requirements for scheme mandate refreshments, to align them with the purpose of share schemes and to improve disclosure of grants of share options and share awards.

Generally, share schemes are established to reward and incentivise participants to contribute to the long-term growth of the issuer and to align their interests with those of the issuer and its shareholders. The proposals would place more emphasis on the role of the remuneration committee in overseeing the operation of share schemes to ensure that grants of share awards or options meet the purpose of the schemes.

The deadline for responding to the consultation paper is 31 December 2021. Interested parties are encouraged to respond to the consultation paper by completing and submitting the questionnaire.

Key proposals include:

Share Schemes involving issuance of new shares of listed issuers

(a) Extend Chapter 17 to govern all share schemes involving grants of share awards and grants of options to acquire new shares of issuers;

(b) Define eligible participants of Share Schemes1 to include Employee Participants2, Related Entity Participants3 and Service Providers4. Share Grants5 to Related Entity Participants and Service Providers must be approved by the remuneration committee with reasons for grants clearly disclosed;

(c) Scheme mandate

  (i)   Apply a Scheme Mandate Limit6 of not exceeding 10% of an issuer’s issued shares to all Share Schemes of the issuer and require the issuer to set a Service Provider Sublimit7 within the Scheme Mandate Limit and disclose the basis for determining the sublimit;
  (ii)  Require independent shareholders’ approval for refreshment of scheme mandate within a three year period;

(d) Require approval by shareholders for Share Grants to an individual participant in excess of the 1% Individual Limit8;
 
(e) Require a minimum vesting period of 12 months, unless a shorter vesting period is approved by the remuneration committee in respect of Share Grants made to Employee Participants specifically identified by the issuer;
 
(f) Require disclosure of details of Share Grants by the issuer to the following participants to be made on an individual basis: (i) a Connected Person9; (ii) a participant with Share Grants in excess of the 1% Individual Limit; (iii) a Related Entity Participant or Service Provider with Share Grants in excess of 0.1% of the issuer’s issued shares over any 12-month period;
 
Share Schemes funded by existing shares of listed issuers
 
(g) Require disclosure of the terms of the scheme and details of the grants of existing shares consistent with that applicable to Share Schemes funded by issuance of new shares;
 
Share Schemes of subsidiaries of listed issuers
 
(h) Extend Chapter 17 to govern subsidiaries’ share award schemes that are funded by new or existing shares of the subsidiaries.

 

Notes:

  1. Share Schemes” refer to both share option schemes and share award schemes.
  2. Employee Participants” refer to directors and employees of the issuer or any of its subsidiaries (including persons who are granted shares or options under the scheme as an inducement to enter into employment contracts with these companies).
  3. “Related Entity Participants” refer to directors and employees of the holding companies, fellow subsidiaries or associated companies of the issuer.
  4. “Service Providers” refer to the persons who provide services to the issuer group on a continuing and recurring basis in their ordinary and usual course of business which are material to the long term growth of the issuer group.
  5. “Share Grants” refer to grants of share awards and/or share options to acquire new shares of the issuer (in respect of an issuer’s Share Schemes) or grants of share awards and/or options to acquire new or existing shares of the subsidiary (in respect of a subsidiary’s Share Scheme).
  6. “Scheme Mandate Limit” refers to the limit on Share Grants under all share schemes of an issuer (or, for a subsidiary scheme, its subsidiary) approved by its shareholders.
  7. "Service Provider Sublimit" refers to a sublimit under the Scheme Mandate Limit for Share Grants to Service Providers.
  8. 1% Individual Limit” refers to the limit on Share Grants to an individual participant over any 12-month period, which, without shareholders’ approval, must not exceed 1% of the issued shares of the issuer (or, for a subsidiary scheme, its subsidiary).
  9. “Connected Person” refers to a director, chief executive or substantial shareholder of the issuer or an associate of any of them.

 

About HKEX

Hong Kong Exchanges and Clearing Limited (HKEX) is one of the world’s major exchange groups, and operates a range of equity, commodity, fixed income and currency markets.  HKEX is the world’s leading IPO market and as Hong Kong’s only securities and derivatives exchange and sole operator of its clearing houses, it is uniquely placed to offer regional and international investors access to Asia’s most vibrant markets.

HKEX is also the global leader in metals trading, through its wholly owned subsidiaries, The London Metal Exchange (LME) and LME Clear Limited.  This commodity franchise was further enhanced with the launch of Qianhai Mercantile Exchange (QME), in China, in 2018.

HKEX launched the pioneering Shanghai-Hong Kong Stock Connect programme in 2014, further expanded with the launch of Shenzhen Connect in 2016, and the launch of Bond Connect in 2017.

www.hkexgroup.com

 

 

Ends

Updated 29 Oct 2021