Market Turnover


The Exchange Publishes Consultation Conclusions on Review of the Corporate Governance Code and Associated Listing Rules

28 Oct 2011

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 Review of the Corporate Governance Code and Associated Listing Rules” (Consultation Conclusions).

On 18 December 2010, the Exchange published a “Consultation Paper on Review of the Code on Corporate Governance Practices and Associated Listing Rules” (Consultation Paper) containing proposals to amend the Corporate Governance Code (as renamed) and the Rules pertaining to corporate governance, as well as some plainer language amendments to improve the clarity, certainty and efficacy of the Listing Rules (Rule or Rules).  The consultation period ended on 18 March 2011.

The Consultation Conclusions present the results of the consultation.

The Exchange received a total of 118 submissions from respondents including listed issuers, market practitioners, and professional and industry associations.  Overall market feedback indicated general support for the proposals, although certain aspects of the proposals drew diverse views.  The Exchange would like to thank all those that responded for sharing their views and suggestions.

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

The amendments will keep the Corporate Governance Code in line with international best practices.

“A market that is recognised as having good corporate governance is likely to attract investments.  Prime responsibility for good corporate governance of a company rests with directors.  The amended Rules stress that directors should ensure that they are fully aware of their duties under the law and the Rules, take an active interest in the issuer’s affairs and obtain a general understanding of its business. To provide a sound regulatory framework appropriate for our market and maintain a high standard of corporate governance, our approach is to adopt a combination of Listing Rules, Code Provisions and Recommended Best Practices.  This combination is designed to give flexibility to issuers and to protect investors and the integrity of the market,” said Mark Dickens, HKEx’s Head of Listing.

Rules and Code adopted and implementation dates

Given the broad market support, the Exchange adopted most of the proposals outlined in the Consultation Paper, subject to certain modifications as set out in the Consultation Conclusions.

Having consulted the Securities and Futures Commission, the implementation dates are as follows:

  • most Rule amendments will be effective on 1 January 2012;
  • Code and certain Rules will be effective on 1 April 2012;
  • new Rule requiring the issuer to appoint independent non-executive directors representing at least one-third of the board must be complied with by 31 December 2012; and
  • new Rule requiring company secretary training will be staggered according to the date of appointment of an individual as company secretary of an issuer. 

In its first interim/half year or annual report covering a period after 1 April 2012, the issuer must state, in that report, whether it has, for that period, complied with the Code Provisions (CPs) in the revised Code as well as those of the former Code.  Issuers may adopt the revised Code at an earlier date than 1 April 2012.

A summary of the Rules and Code adopted and their implementation dates are set out below.  Except for the Rules and Code amendments specified below, all other Rule amendments will be effective on 1 January 2012 and all other Code amendments will be effective on 1 April 2012.

Subject and Relevant Rules/Code Summary of the Rules and Code Adopted Implementation Date

Directors’ duties

Main Board Rule (MB R) 3.08, 

GEM Rule (GEM R) 5.01

Expanded Rule 3.08 to emphasise directors’ duties.  The Rule now requires directors to take an active interest in the issuer’s affairs and obtain a general understanding of its business and follow up anything untoward that comes to their attention.  Delegating their functions is permissible but does not absolve them from their responsibilities or from applying the required levels of skill, care and diligence.  It also cautions that directors failing to discharge their duties and responsibilities may be disciplined by the Exchange and may attract civil and/or criminal liabilities.

Introduced a Note to Rule 3.08 providing guidance to directors referencing the Companies Registry’s “A Guide on Directors’ Duties” and the Hong Kong Institute of Directors’ guidelines for directors.

1 January 2012

Directors’ time commitments

Code1: A.1 Principle, new CP A.6.6

Introduced a new Principle in the Code that the board should regularly review the contribution by a director to performing his responsibilities to the issuer, and whether he is spending sufficient time performing them.

Also amended the Code to include a CP that directors should inform the issuer of any change to their significant commitments in a timely manner.

1 April 2012

Directors’ training 

  New CP A.6.5, and new mandatory disclosure requirement under Paragraph I(i) of the Code

Revised and upgraded a Recommended Best Practice (RBP) to a CP on directors’ training.  Also introduced a Note to the CP stating that directors should provide records of training they received to issuers.

Introduced a requirement that the issuer must disclose in its Corporate Governance Report how directors complied with the CP on training.

1 April 2012

INEDs to form one-third of board

MB Rs 3.10A and 3.11,

  GEM Rs 5.05A and 5.06

Introduced a Rule that at least one-third of an issuer’s board should be independent non-executive directors (INEDs).  Issuers must comply with the Rule by 31 December 2012.  Also introduced a Rule to allow an issuer a three-month period to appoint a sufficient number of INEDs to comply with the one-third Rule after failing to meet the requirement. By 31 December 2012

An INED who has served nine years

New CP A.4.3

Upgraded to a CP the RBP recommending shareholders vote on a separate resolution to retain an INED who has served on the board for more than nine years.  Also, an issuer should include the reasons why the board considers the INED independent in the circular nominating him for election.
1 April 2012
6. Board committees

A. Remuneration committee

MB Rs 3.25 to 3.27, 

GEM Rs 5.34 to 5.36, 

new CPs B.1.1 to B.1.4 and RBPs B.1.6 to B.1.8, new mandatory disclosure requirement under Paragraph L(d)(i) of the Code

Introduced new Rules, requiring:
(i) issuers to establish a remuneration committee with a majority of INED members;
(ii) an INED as chairman of remuneration committee;
(iii) written terms of reference for the remuneration committee;
(iv) an issuer that fails to comply with these Rules to immediately announce its reasons for not doing so and any other relevant details.  The issuer will have a three-month period to rectify its non-compliance; and
(v) the remuneration committee to disclose in the Corporate Governance Report which of the two models it has adopted.
Amended the CPs to:
(i) state that professional advice made available to a remuneration committee should be independent;
(ii) accommodate a model where the remuneration committee performs an advisory role to the board, with the board retaining the final authority to approve executive directors’ and senior management’s remuneration;
(iii) remove the term “performance-based” from the CP describing executive directors’ and senior management’s remuneration; and
(iv) make the remuneration committee’s terms of reference available on both the issuer’s and the HKEx websites.
1 April 2012

B. Nomination committee

New CPs A.5.1 to A.5.5, new mandatory disclosure requirement under Paragraph L(d)(ii) of the Code

Upgraded RBPs to CPs (with some amendments) to enhance the nomination committee’s role.  These CPs state that an issuer should:
(i) establish a nomination committee with a majority of INEDs, chaired by an INED or the board chairman;
(ii) establish a nomination committee with written terms of reference that performs the duties described;
(iii) include, as one of the nomination committee’s duties, a review of the structure, size and composition of the board at least annually to complement the issuer’s corporate strategy;
(iv) make the nomination committee’s terms of reference available on both the issuer’s and the HKEx websites;
(v) ensure a nomination committee has sufficient resources; and
(vi) enable a nomination committee to seek independent professional advice at the issuer’s expense.
1 April 2012

C. Corporate governance functions

New CPs D.3.1 and D.3.2, new mandatory disclosure requirement under Paragraph L(d)(iii) of the Code

Introduced a new CP stating that the board should be responsible for corporate governance.  Also introduced new CPs stating that an issuer should establish terms of reference on duties that should be performed by the board or committees delegated by the board.

Introduced a new Rule requiring issuers to disclose the corporate governance policy and duties performed in the Corporate Governance Report.

1 April 2012

D. Audit committee

New CPs C.3.7 and C.3.3(e)(i), and RBP C.3.8. New mandatory disclosure requirement under Paragraph L(d)(iv) of the Code

Upgraded to a CP the RBP stating that an audit committee’s terms of reference should include arrangements for employees to raise concerns about financial reporting improprieties.

Amended the relevant CP to state that an audit committee should meet the external auditor at least twice a year.

Introduced a new RBP recommending the audit committee establish a whistleblowing policy and system.

1 April 2012

Disclosure of senior management remuneration by band

New CP B.1.5

Introduced a CP stating that senior management remuneration should be disclosed by band. 1 April 2012

Disclosure of chief executive’s remuneration

MB R Paragraph 24.5 of Appendix 16, GEM R Note 6 to 18.28

Amended the Rules to require issuers to disclose the remuneration of a chief executive who is not a director. 1 January 2012

Board evaluation

New RBP B.1.9

Introduced an RBP recommending the board to conduct a regular evaluation of its performance. 1 April 2012
10. Board meetings

A. Directors’ attendance at board meetings

New CP A.1.7, new mandatory disclosure requirement under Paragraph I(c) of the Code

Clarified that, subject to the issuer’s constitutional documents and the laws and regulations of its place of incorporation, it may count attendance by electronic means (including telephonic or video-conferencing) as attendance at a physical board meeting. 1 April 2012

B. Removing 5% threshold for voting on a resolution in which a director has an interest

MB R 13.44, GEM R 17.48A

Amended the Rules to remove the 5% exemption for voting by a director on a board resolution in which he has an interest. 1 January 2012

Chairman and chief executive

New CPs A.2.4 to A.2.9

Upgraded all the RBPs in A.2 of the Code to CPs with minor amendments.  The CPs place greater emphasis on the roles and responsibilities of the chairman. 1 April 2012

Notifying directorship change and disclosure of directors’ information (including the chief executive)

MB R 13.51, GEM R 17.50, new CP A.3.2

Amended the Rules to require issuers to:

(i) disclose information on the retirement or removal of a director or supervisor;
(ii) disclose information on the appointment, resignation, re-designation, retirement or removal of a chief executive;
(iii) disclose director’s information on all civil judgments of fraud, breach of duty, or other misconduct involving dishonesty; and
(iv) clarify that the sanctions referred to in Rule 13.51B(3)(c) are those made against the issuer.
1 January 2012
Also upgraded the RBP to a CP stating that a list of directors should be published on the issuer’s website and added that it should also be published on the HKEx website.
1 April 2012

Providing monthly information to board members to enable them to discharge their duties

New CP C.1.2

Introduced a CP stating that management should provide monthly updates to board members giving a balanced and understandable assessment of the issuer’s performance, position and prospects in sufficient detail to enable them to discharge their duties under Rule 3.08 and Chapter 13.  Added a Note stating that the monthly updates may include information such as monthly management accounts and management updates.  The Note was moved from CP A.6.2 (re-numbered A.7.2) and revised.
1 April 2012

Next day disclosure for a director of the issuer’s subsidiaries exercising an option for shares in the issuer 

MB R 13.25A, GEM R 17.27A

Amended the Rules to remove the requirement for issuers to publish a Next Day Disclosure Form following the exercise of an option for shares in the issuer by a director of its subsidiaries.

Amended the Rules so that options for shares in the issuer exercised by a director of a subsidiary only triggers an announcement if the change in its share capital, individually or when aggregated with other events, is 5% or more since its last Monthly Return.

1 January 2012

Disclosing long term basis on which an issuer generates or preserves business value

New CP C.1.4

Introduced a CP stating that the annual report should include an explanation of the basis on which the company generates or preserves value over the longer term and the strategy for delivering the objectives of the company. 1 April 2012

Directors’ insurance

New CP A.1.8

Upgraded to a CP the RBP stating that an issuer should arrange appropriate insurance cover for directors. 1 April 2012
17. Shareholders’ general meetings

A. Notice of meeting and bundling of resolutions

New CP E.1.1

Clarified that issuers should avoid “bundling” resolutions and, where they are “bundled”, explain the reasons and material implications in the notice of meeting. 1 April 2012

B. Voting by poll

MB R 13.39(4) and (5), GEM R 17.47(4) and (5)

Exception for procedural and administrative matters

Amended the Rules to allow a chairman at a general meeting to exempt certain prescribed procedural and administrative matters from a vote by poll.

Clarification of disclosure in poll results

Amended the Rules to clarify the disclosure requirements regarding poll results.

Timing of explanation of polling procedures

Deleted the words “at the commencement of the meeting” from the CP that states when an explanation for the detailed procedures should be given.

1 January 2012

(For meetings held on or after 1 January 2012)

C. Shareholders’ approval to appoint and remove an auditor

MB R 13.88, GEM R 17.100

Introduced a new Rule to require shareholders’ approval at a general meeting of any proposal to appoint or remove an auditor before the term of his office. The Rule requires the issuer to send a circular containing any written representation from the auditor to shareholders and the auditor must be allowed to make a written and/or verbal representation at the general meeting to remove him.
1 January 2012

D. Directors’ attendance at meetings

New CPs A.6.7 and A.6.8, new mandatory disclosure requirement under Paragraph (I)(c) of the Code

New CP E.1.2

Upgraded to a CP the RBP stating that non-executive directors, including INEDs, should attend board, committee and general meetings and contribute to the issuer’s strategy and policies.

Introduced a requirement that issuers must disclose details of the attendance at general meetings of each director by name in its Corporate Governance Report.

Also revised the CP on attendance at the annual general meeting (AGM) of the chairman of the board and the chairmen of the audit, remuneration and nomination committees to include chairmen of “any other committees”.

1 April 2012

E. Auditor’s attendance at AGMs

New CP E.1.2

Introduced a CP stating that the issuer’s management should ensure the external auditors attend the AGM to answer questions about the conduct of the audit, the preparation and content of the auditors’ report, accounting policies and auditor independence.
1 April 2012

Shareholders’ rights

New mandatory disclosure requirements under Paragraph O of the Code 

An issuer must disclose the following “shareholder rights” information in its Corporate Governance Report that was previously a recommended disclosure:
(i) the way in which shareholders can convene an extraordinary general meeting;
(ii) the procedures for sending enquiries to the board (with sufficient contact details); and
(iii) the procedures for making proposals at shareholders’ meetings (with sufficient contact details).
1 April 2012
19. Communication with shareholders

A. Establishing a communication policy

New CP E.1.4

Introduced a CP stating that issuers should establish a shareholder communication policy. 1 April 2012

B. Publishing constitutional documents on website

MB R 13.90, GEM R 17.102

Introduced a Rule requiring an issuer to publish an updated and consolidated version of its constitutional documents on its own website and the HKEx website. 1 April 2012

C. Publishing procedures for election of directors

MB R 13.51D, GEM R 17.50C

Introduced a Rule requiring an issuer to publish on its website the procedures shareholders can use to propose a person for election as a director. 1 April 2012

D. Disclosing significant changes to constitutional documents

New mandatory disclosure requirement under Paragraph P of the Code

An issuer must disclose any significant change to the issuer’s constitutional documents during the year in its Corporate Governance Report.  Previously this was a recommended disclosure. 1 April 2012

Company secretary’s qualifications, experience and training

MB Rs 3.28, 3.29, and 19A.16, GEM Rs 5.14, 5.15 and 25.11

Moved the company secretary’s qualifications and experience requirements from Rule 8.17 to a new section in Chapter 3.

Set out in a Note to the Rule the academic or professional qualifications that the Exchange would consider acceptable.  They include a member of Hong Kong Institute of Chartered Secretaries, a lawyer or an accountant.  Also clarified in a Note the factors the Exchange would consider in assessing “relevant experience”. These include the length of employment with an issuer, training received, familiarity with the Rules and relevant laws, and qualifications in other jurisdictions.

Removed the requirement for a company secretary to be ordinarily resident in Hong Kong.

Repealed Rule 19A.16 - to make the requirements for company secretaries of Mainland issuers the same as for other issuers.

Introduced a Rule requiring company secretaries to have 15 hours’ professional training in a financial year.  Provided transitional arrangements for implementing this Rule.


1 January 2012

(Except for company secretary training which has specified implementation dates)


New section in Code on Company Secretary 

New Section F of the Code

Introduced a new section to the Code (Section F) setting out the role and responsibilities of a company secretary. Introduced new CPs to this section stating that:

(i) the company secretary should be an employee of the issuer.  If the issuer engages an external service provider, it should disclose the identity of the person with sufficient seniority at the issuer for the external provider to contact;
(ii) the selection, appointment, or dismissal of the company secretary should be a board decision;
(iii) the company secretary should report to the board chairman and/or the chief executive; and
(iv) all directors should have access to the advice and services of the company secretary to ensure that board procedures, and all applicable laws, rules and regulations are followed.
1 April 2012

A set of Frequently Asked Questions relating to the Listing Rule amendments can be downloaded from the “Rules & Regulations - Rules and Guidance on Listing Matters - Interpretation” section of the HKEx website.

1 Although the wording of the Main Board Code (Appendix 14) and the GEM Code (Appendix 15) are not identical, the paragraph numberings in both Codes are the same.



Updated 28 Oct 2011