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The SFO, together with relevant subsidiary legislation, will come into force on 1 April 2003. Relevant amendments have to be made to the Listing Rules to reflect the requirements of the SFO. The disclosure requirements for substantial shareholders, directors and chief executives and other persons who are required to disclose interests under the SFO are more extensive than under the SDI. Amendments have also been made so that new applicants and listed issuers authorise the Exchange to make filings with the SFC pursuant to the Securities and Futures (Stock Market Listing) Rules which introduces a new dual filing regime. The amendments we have made will take effect on 1 April 2003. The SFO has also lowered the disclosure threshold of a person having notifiable interests in shares from 10% to 5%. We will consider the extent (if any) to which the existing definition of "substantial shareholder" in the Listing Rules needs to be changed. Any such changes would entail consideration of complex or substantive issues and would be the subject of market consultations, if appropriate. Further announcements will be made as necessary.
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Background
The SFO was enacted on 13 March 2002 and, together with relevant subsidiary legislation, will come into force on 1 April 2003. Upon its coming into force, the SFO will repeal and replace the Securities (Disclosure of Interests) Ordinance ("SDI") as well as many other existing pieces of securities-related legislation.
The SFO has streamlined the licensing regime in Hong Kong. With respect to intermediaries, there will be one licence covering various categories of regulated activities to be stipulated in the licence. As regards financial products, the wider concept of collective investment schemes will replace and encompass the existing definitions of mutual funds and unit trusts in the soon to be repealed Securities Ordinance.
Part XV of the SFO introduces very extensive disclosure requirements. The SDI only requires interests in issued shares and debentures of an issuer or its associated corporations to be disclosed. However, under the SFO, the duty to disclose is extended to interests in unissued shares as well as short positions. In addition, interests in equity derivatives, whether physically or cash settled, have to be disclosed by reference to the "underlying shares" to which the equity derivatives relate.
Part XV of the SFO imposes a reporting requirement on shareholders holding 5% (rather than 10%, as currently provided under the SDI) or more of the relevant shares (i.e. issued shares carrying voting rights in all general meetings) of a listed corporation.
Pursuant to the Securities and Futures (Stock Market Listing) Rules which is a piece of subsidiary legislation under the SFO, listing applications (including IPO prospectuses) and circulars, announcements, accounts and other documents issued by listed companies will also be required to be filed with the Securities and Futures Commission ("SFC"). The effect of filing the aforementioned documents with the SFC is that criminal liability will attach to any intentional or reckless disclosure of false or misleading information in such documents and the SFC can exercise its investigation powers in cases of suspected false or misleading information disclosure. In order to avoid any additional administrative burden and costs, new applicants and listed issuers should authorise the Exchange to file with the SFC relevant documents received from them by the Exchange.
Impact on Listing Rules
The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "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 (the "GEM Listing Rules", together with the Main Board Listing Rules, the "Listing Rules") contain numerous references to soon-to-be-repealed securities-related legislation. One such piece of legislation is the SDI. References to all such legislation are being amended to harmonise with the SFO. These amendments are largely of a "search and replace" nature.
References in the Listing Rules to exempt or registered dealers, investment advisers and their respective representatives are being updated to reflect the new licensing regime under the SFO. Furthermore, the SFO introduces the concept of a collective investment scheme which is wider than the concept of "unit trusts" and "mutual funds". Although Chapter 20 of the Main Board Listing Rules refers to collective investment schemes, it is not intended to apply to all kinds of collective investment schemes authorised by the SFC. In practice, the scope is likely to continue to be restricted to unit trusts, mutual funds and other collective investment schemes authorised under the Code on Unit Trusts and Mutual Funds. As a result, various amendments are being made to the Main Board Listing Rules to clarify the position.
Pursuant to the SFO, disclosures have to be made containing the particulars required under the SFO and the disclosure forms prescribed by the SFC. The disclosures required are much more extensive than those under the existing law. Relevant provisions in the Listing Rules about disclosure of interests have therefore been extensively revised.
Substantial shareholders (within the meaning of the Listing Rules), directors and chief executives and other persons who are required to disclose interests under the SFO have to separately disclose their long and short positions in shares and underlying shares and, in the case of directors and chief executives, their interests in debentures. They must also disclose separately for listed and unlisted equity derivatives whether the interests in underlying shares are derived from physically settled or cash settled equity derivatives. The prescribed forms for disclosure under the SFO contain details about the capacities in which such interests are held and the nature of such interests. Such information will also need to be disclosed.
The new disclosure requirements will come into force on 1 April 2003 but they will not be applied to disclosures referable to a date or period ending before 1 April 2003 which will continue to be made in accordance with existing requirements. Hence, for companies with a financial reporting period ending before 1 April 2003, information about interests held will be disclosed in the published financial reports in accordance with existing requirements.
The Listing Rules are being amended so that:
- new applicants and listed issuers authorise the Exchange to make filings to the SFC pursuant to the Securities and Futures (Stock Market Listing) Rules; and
- the procedures set out in the Memorandum of Understanding Governing Listing Matters concluded between the Exchange and the SFC on 28 January 2003 about the administration of takeovers-related matters and share repurchases (other than on market share repurchases) are reflected.
We will also consider the substantive impact of the SFO on the Listing Rules. In particular, the Listing Rules currently define a 10% shareholder as a "substantial shareholder" whereas under the SFO, a person has a notifiable interest in shares if he is interested in 5% or more of the relevant share capital of an issuer.
We will consider the extent (if any) to which the existing definition of "substantial shareholder" in the Listing Rules needs to be changed. Any such changes would entail consideration of complex or substantive issues and would be the subject of a market consultation, if appropriate. Further announcements will be made as necessary.
Coming into Effect of Amendments
Amendments (dealing with the matters identified in (a) to (d) above) will come into effect on the same day as the SFO, on 1 April 2003.
The Main Board Listing Rules (incorporating the amendments) will be available for viewing on HKEx's website at http://www.hkex.com.hk and the GEM Listing Rules (incorporating the amendments) will be available for viewing on the GEM website at http://www.hkgem.com.
Re-printed pages of the Listing Rules will be distributed in due course.
