Listing Committee Announces
Proposed Modification of the “Black Out” Period Extension and
Suggests Measures to Enhance Hong Kong’s Disclosure Regime
The Listing Committee of The Stock Exchange of Hong Kong Limited* (the Exchange), which acts both as an independent administrative decision maker and an advisory body for the Exchange, held one of its regular meetings today and, amongst other items of business, continued its discussions on the rule to extend the “black out” period, which is due for implementation from 1 April 2009.
As part of its preparation for this discussion, the Listing Committee invited the Securities and Futures Commission (SFC), the statutory body that is the principal regulator of Hong Kong’s securities market, to provide its considered and authoritative advice on this issue and associated issues concerning enhancements to the Hong Kong disclosure regime.
The Listing Committee considered this advice and new material prepared by the Listing Division including the findings of the Division’s analysis of dealings by directors during the year ended 31 December 2008; a memorandum dealing with the recent criticism and other comments concerning the extension of the black out period; and observations concerning the impact of the formulation of the new rule.
The Listing Committee made the decisions discussed below in respect of how to proceed with the extension of the black out period and other proposals to enhance the disclosure regime applicable to Hong Kong issuers.
Given the current framework of disclosure, the Listing Committee remains of the view that the current rule on the black out period, providing for a one month restricted period, is insufficient to bolster investor confidence by reducing suspicions of abuse by company insiders of information that they might have or might be thought to have leading up to a results announcement.
The Listing Committee sets out below its views on how the current disclosure regime can be enhanced and its proposed modification of the extension of the black out period.
Enhancements to the disclosure regime
The Listing Committee strongly supports, as a minimum, the early implementation of a statutory obligation to disclose price sensitive information supported by a proportionate range of sanctions which would act as a serious deterrent to non-compliance. Such requirements are the central pillar of a properly functioning disclosure regime. In the interim the Stock Exchange will work with the SFC to consult, as early as possible, on amendments to improve the current formulation of the disclosure of price sensitive information rule in the Listing Rules.
To ensure a regular flow of timely information concerning issuers’ financial performance and position, the Listing Committee believes that the Listing Rules should be enhanced to require issuers to report to the market on a quarterly basis. Under such a regime the Listing Committee views quarterly financial reporting as a long term goal. As an interim enhancement the Exchange will explore alternative approaches and undertake a further consultation with stakeholders on the alternatives to quarterly financial reporting. The Listing Committee notes and welcomes the SFC Executive’s support for further engagement on this important topic.
Early implementation of the proposals set out in the SFC’s April 2008 consultation conclusions paper “Consultation Conclusions on the Proposal to Make Electronic Submission of Disclosure of Interests Notices Mandatory” would address concerns about possible abuse of the current filing requirements and could, if thought appropriate, provide a platform for shortening of the related reporting deadlines at a future date.
The Listing Committee notes and is encouraged that the SFC continues to take action in respect of insider dealing. To support the SFC in its endeavours the Listing Committee has directed the Listing Division to undertake an enhanced programme of monitoring dealings by directors which is intended to increase confidence that suspicious dealings are subject to close regulatory scrutiny. The timely pursuit of complementary regulatory action by the SFC and the Exchange should help contribute to greater investor confidence and mitigate suspicions of abuse by company insiders of information that they might have or might be thought to have leading up to results announcements.
Proposed modification of the black out period extension
The Listing Committee recognises that it may take some time to address the enhancements noted above, save for the initiative to enhance monitoring of transactions which the Exchange will address immediately, and in the interim has decided to put forward a modification of the rule due to come into effect on 1 April 2009 for the SFC Board’s consideration.
The modified proposal is an extension of the black out period applicable to the publication of an issuer’s annual financial results from one month to 60 days. The black out periods for half year and other interim periods will be 30 days, in line with the current requirement of one month. To assist the Exchange in monitoring the revised black out arrangements issuers will be required to give prior notification to the Listing Division of the imminent commencement of any black out period relating to the publication of financial results.
The text of the proposed rule revision is attached.
Subject to approval by the SFC Board, the revised rule amendment will come into effect on 1 April 2009 and replace the rule amendment announced by the Exchange on 28 November 2008.
* The Stock Exchange of Hong Kong Limited is a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited, or HKEx.