- Listing Rules to be extended to govern all share schemes involving grants of share awards and share options
- Enhanced share schemes regulation to manage dilution of listed shares and provide informative disclosure to maintain high levels of shareholder protection
- New requirements to take effect on 1 January 2023
The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today (Friday) published conclusions to its consultation on Proposed Amendments to Listing Rules relating to Share Schemes of Listed Issuers (Consultation Conclusions)1.
The Exchange received 58 non-duplicate responses to the consultation paper from a broad range of respondents. Respondents were supportive of the Exchange’s initiatives to provide a consistent regulatory framework to govern both share option schemes and share award schemes. Comments on specific proposals were primarily related to the operational aspects of the proposals and the nature and level of disclosure proposed.
Having carefully considered the respondents’ comments, the Exchange will adopt the consultation proposals with modifications to reflect respondents’ comments where appropriate. These modifications mainly relate to the role of the remuneration committee, vesting period for share awards and options, and share schemes of subsidiaries.
“We believe that the Rule amendments, as modified, will provide issuers the flexibility to establish share schemes to incentivise their employees and service providers, whilst achieving our policy intent to manage dilution of listed shares, provide informative disclosure and uphold robust shareholder protection,” said Bonnie Y Chan, HKEX’s Head of Listing.
Key changes to the Listing Rules include:
I. Share Schemes funded by issuance of new shares of listed issuers
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Extend Chapter 17 to govern all share schemes involving grants of share awards and grants of options to acquire new shares of issuers;
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Define eligible participants of Share Schemes2 to include Employee Participants3, Related Entity Participants4 and Service Providers5; |
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Scheme mandate |
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(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;
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(ii) Require independent shareholders’ approval for refreshment of scheme mandate within a three year period;
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(d)
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Require approval by shareholders for Share Grants8 to (i) an individual participant in excess of the 1% Individual Limit9; or (ii) a Connected Person10 in excess of the de minimis threshold11. All Share Grants to Connected Persons will require approval by independent non-executive directors;
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(e)
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Require a minimum vesting period of 12 months. Share Grants to Employee Participants may be subject to a shorter vesting period under specific circumstances as set out in the scheme document. Share Grants to directors and senior management with a shorter vesting period must be approved by the remuneration committee; |
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(f)
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Require disclosure of details of Share Grants by the issuer to the following participants to be made on an individual basis: (i) a Connected Person; (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; |
II. Share Schemes funded by existing shares of listed issuers
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Require disclosure in annual reports of (i) a summary of each share scheme; and (ii) information relating to grants of existing shares during the year; |
III. Share Schemes of subsidiaries of listed issuers
(h)
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Apply Chapter 17 to Share Schemes of a Principal Subsidiary12. Share Grants under Share Schemes of other subsidiaries will be subject to Chapters 14 and/or 14A requirements. |
The Rule amendments relating to share schemes will come into effect on 1 January 2023. Issuers may adopt the amended Rules for their Share Schemes before the effective date.
The Exchange has also published a series of frequently asked questions to provide guidance on the amended Rules and the transitional arrangements for existing Share Schemes.
In addition, the Exchange will make a housekeeping amendment to the GEM Listing Rules to align the requirements on payment date of subsequent issue fees by GEM issuers with those applicable to Main Board issuers, which will come into effect on 1 October 2022.
The Consultation Conclusions and copies of the respondents’ submissions are available to view on the HKEX website.
Notes:
- The consultation paper was published on 29 October 2021. The consultation period ended on 31 December 2021.
- “Share Schemes” refer to both share option schemes and share award schemes.
- “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).
- “Related Entity Participants” refer to directors and employees of the holding companies, fellow subsidiaries or associated companies of the issuer.
- “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 in the interests of the long term growth of the issuer group.
- “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.
- “Service Provider Sublimit” refers to a sublimit under the Scheme Mandate Limit for Share Grants to Service Providers.
- “Share Grants” refer to grants of share awards and/or options over new shares of the issuer (in respect of an issuer’s Share Schemes) or grants of share awards and/or options over new or existing shares of the subsidiary (in respect of a subsidiary’s Share Scheme).
- “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).
- “Connected Person” refers to a director, chief executive or substantial shareholder of the issuer or an associate of any of them.
- De minimis threshold refers to (i) the limit on grants of share awards (involving new shares) to a director (other than an independent non-executive director) or chief executive of the issuer; or (ii) the limit on Share Grants to an independent non-executive director or substantial shareholder of the issuer, which, without shareholders’ approval, must not exceed 0.1% of the issued shares of the issuer over any 12-month period.
- “Principal Subsidiary” refers to a subsidiary whose revenue, profits or total assets accounted for 75% (or more) of that of the issuer under the percentage ratios in any of the latest three financial years.
About HKEX
Hong Kong Exchanges and Clearing Limited (HKEX) is a publicly-traded company (HKEX Stock Code:388) and one of the world’s leading global exchange groups, offering a range of equity, derivative, commodity, fixed income and other financial markets, products and services, including the London Metal Exchange.
As a superconnector and gateway between East and West, HKEX facilitates the two-way flow of capital, ideas and dialogue between China and the rest of world, through its pioneering Connect schemes, increasingly diversified product ecosystem and its deep, liquid and international markets.
HKEX is a purpose-led organisation which, across its business and through the work of HKEX Foundation, seeks to connect, promote and progress its markets and the communities it supports for the prosperity of all.
www.hkexgroup.com
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