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The Exchange Publishes Consultation Conclusions on Proposals in the 2008 Combined Consultation Paper

Corporate
28 Nov 2008

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), today (Friday) published its “Consultation Conclusions on Proposals in the 2008 Combined Consultation Paper” (Consultation Conclusions). 

Background

On 11 January 2008, the Exchange published a “Combined Consultation Paper on Proposed Changes to the Listing Rules” (CCP) containing proposals to address 18 substantive policy issues pertaining to corporate governance and initial listing criteria, as well as some amendments to improve the clarity, certainty and efficacy of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (Main Board Listing Rules) and the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (GEM Listing Rules) (together, the Listing Rules or Rules).  The consultation period ended on 7 April 2008. 

The Consultation Conclusions present the results of the consultation concerning 15 of the 18 substantive policy issues. 

The Exchange received a total of 105 submissions from a wide spectrum of respondents including listed issuers, market practitioners, and professional and industry associations.  Overall market feedback indicated general support for the proposals concerning the 15 policy issues presented in the Consultation Conclusions, although certain aspects of the proposals prompted vigorous debate.  The Exchange would like to thank all those who responded for sharing their views and suggestions with us.

The Consultation Conclusions and copies of submissions can be downloaded from, respectively, the “Market Consultation - Consultation Conclusions” and “Market Consultation – Responses to Consultation Paper” sections of the HKEx website.

Proposals adopted

In view of the broad market support, the Exchange intends to implement the proposals outlined in the CCP in respect of the 15 issues presented in the Consultation Conclusions, subject to certain modifications as set out in the Consultation Conclusions.  The remaining three issues, namely Issue 5 (public float), Issue 11 (general mandates) and Issue 15 (self-constructed fixed assets) remain under assessment and separate conclusions will be published at a later date. 

The Rule amendments proposed in the CCP for Issues 1, 2, 6, 8, 9, 10, 14 and 16  have been adopted, either with no changes or only minor amendments.

Set out below is a summary of the proposals under each of the 15 issues which have been adopted:

Issue No. Subject Summary of the Proposals Adopted
(Rule references are to the Main Board Listing Rules.)
1. Use of websites for communication with shareholders The Exchange has amended the Rules to introduce a procedure which, if complied with, will permit a listed issuer to deem consent on the part of a shareholder to a corporate communication being made available to him solely on the listed issuer’s website.

2. Information gathering powers A new Rule has been introduced to codify the powers of the Exchange to gather information from issuers.

3. Qualified accountants The Exchange has removed the requirement for a qualified accountant in the Rules and expanded the Code Provisions of Appendix 14 – Code on Corporate Governance Practices regarding internal controls to make specific references to the responsibility of the directors to conduct an annual review of the adequacy of staffing of the financial reporting functions and the oversight role of the audit committee.

4. Review of sponsor’s independence The Exchange has amended the Rules to require a sponsor to demonstrate independence from the date of submission of Form A1 to the date of listing.

6. Bonus issues of a class of securities new to listing The Rules have been amended to disapply the requirement for a minimum spread of securities holders at the time of listing in the event of a bonus issue of a new class of securities involving options, warrants or similar rights to subscribe or purchase shares, provided that the existing listed shares of the issuer are not concentrated in the hands of a few shareholders.

7. Review of the Exchange’s approach to pre-vetting public documents of listed issuers Announcements
The Exchange has amended the Rules to implement a progressive phased approach to reduction in pre-vetting activities for different types of listed issuers’ announcements.  Listing documents and circulars of listed issuers
The Exchange has removed the circular requirement for discloseable transactions. The Exchange has made amendments to remove from the Rules pre-vetting requirements in respect of circulars for matters of a routine nature that normally do not raise material regulatory concerns, including: circulars for proposed amendments to a listed issuer’s Memorandum and/or Articles of Association and explanatory statements relating to listed issuers purchasing their own shares on a stock exchange. The Exchange has also amended the Rules to codify the Exchange’s current practice in relation to pre-vetting circulars for significant transactions or arrangements.  

8. Disclosure of changes in issued share capital The Rules have been amended to require listed issuers:
  • to submit a Next Day Disclosure Return to the Exchange in respect of changes in issued share capital, in some cases by 9:00 a.m. the next business day and in other cases subject to a 5% de minimis threshold and certain other criteria (e.g. aggregation)

  • for the convenience of listed issuers, the Next Day Disclosure Return has been merged with the current Share Buyback Report

  • to submit a Monthly Return to provide a regular update on information relating to the listed issuers’ share capital and other movements in its securities, including future obligations and commitments to issue shares

  • to make an announcement as soon as possible upon the grant of any share options pursuant to a share option scheme to minimise opportunities for backdating such awards

9. Disclosure requirements for announcements regarding issues of securities for cash and allocation basis for excess shares in rights issue The Exchange has extended the specific disclosure requirements under the Rules to any issue of securities for cash (and not only cases involving general mandates as under the existing Rules).  The Rules have been amended to:
  • require disclosure of additional items of information codifying the disclosure practices in respect of announcements for issues of securities for cash

  • require disclosure of the basis of allocation of excess shares in the announcement, circular and listing document for a rights issue or an open offer

10. Alignment of requirements for material dilution in major subsidiary and deemed disposal The Exchange has amended the Rules to align the requirements for material dilution in a major subsidiary and deemed disposal such that the requirement for shareholders’ consent will be based on a size test threshold of 25% (i.e. the threshold for a major transaction) and that a written certificate may be accepted in lieu of a physical shareholders’ meeting.

12. Voting at general meetings The Rules have been amended to make voting by poll mandatory on all resolutions at general meetings and to encourage sufficient notice periods to be given for convening such meetings the Exchange has introduced revised provisions in the Code on Corporate Governance Practices.

13. Disclosure of information about and by directors The Rules have been amended to require an increased level of continuous disclosure of information about and by directors and supervisors.

14. Codification of waiver to property companies The Rules have been amended to codify the conditional waiver that exempts listed issuers actively engaged in property development as a principal business activity from the shareholders’ approval requirement under the Listing Rules in certain scenarios of acquisitions of land or property development projects in Hong Kong from Government or Government-controlled entities through public auctions or tenders.

16. Disclosure of information in takeovers A new Rule has been introduced to codify the Exchange’s practice of granting waivers to allow listed issuers to publish certain prescribed information on target companies being acquired by the listed issuer in a supplemental circular at a later time when the information becomes available.
17. Review of director’s and supervisor’s declaration and undertaking The Rules have been revised to:
  • streamline disclosure requirements of director’s and supervisor’s biographical information in the various prescribed forms of declaration and undertaking of directors and supervisors

  • remove the statutory declaration requirement

  • codify the Exchange’s powers to gather information from directors

  • include detailed provisions for service of disciplinary proceedings
      
18. Review of Model Code for Securities Transactions by Directors of Listed Issuers The Model Code has been revised to:
  • introduce three new exceptions to the definition of “dealing”

  • extend the “black out” period to commence from the listed issuer’s financial period end to the date on which the issuer publishes the relevant results announcement

  • introduce a note to Rule A.1 of Appendix 10 to clarify the meaning of the term “price sensitive information” in the context of the Model Code

  • impose a time limit for an issuer to respond to a request to deal and a time limit for dealing to take place once clearance is given

Implementation

The Listing Rule amendments to implement the proposals can be downloaded from the following sections of the HKEx website:

Board Section of HKEx website
Main Board Regulatory Framework and Rules - Rules and Guidelines on Listing Matters - Listing Rule Update for Main Board Listing Rules

Growth Enterprise Market Regulatory Framework and Rules - Rules and Guidelines on Listing Matters - Listing Rule Update/Interpretation for GEM Listing Rules

The Listing Rule amendments will become effective on 1 January 2009.

A set of Frequently Asked Questions relating to the Listing Rule amendments can be downloaded from the “Regulatory Framework and Rules - Rules and Guidelines on Listing Matters - Supplementary materials on Listing Rules and rule changes” section of the HKEx website.

Updated 28 Nov 2008