On 18 December 2020, The Stock Exchange of Hong Kong Limited (the “Exchange”) published the Consultation Conclusions on “Proposals to Introduce a Paperless Listing & Subscription Regime, Online Display of Documents and Reduction of the Types of Documents on Display” (the “Consultation Conclusions”). This followed its earlier consultation by way of its consultation paper published on 24 July 2020 on the relevant proposals (the “Consultation Paper”). In the Consultation Conclusions, the Exchange observed that, having given due consideration of the matter, it will implement all relevant proposals with minor modifications. As such, new arrangements will be put in place such that any application for listing of equities, debt securities and collective investment schemes by a new applicant requiring a listing document excluding any Mixed Media Offer (“MMO”) (as explained below) (“New Listing”), shall be paperless from 5 July 2021 onwards. Moreover, the new arrangements for displaying documents online to support listings and transactions shall take effect from 4 October 2021 onwards.
Paperless Listing and Subscription Regime
Noting, among other things, that some recent popular IPOs have been fully paperless and their subscription processes have operated smoothly without paper documentation, as well as the high internet penetration rate in Hong Kong, the Exchange concluded that save for situations where an issuer opts for an MMO, whereby an issuer can distribute paper application forms for public offers of certain securities without a printed prospectus under certain circumstances, the new requirements will apply such that (i) all listing documents in a New Listing must be published solely in an electronic format; and (ii) New Listing subscriptions, where applicable, must be made through online electronic channels only. These changes would be effective starting 5 July 2021. It should be noted that the current requirement for the publication of listing documents in newspapers would also be repealed.
The Exchange considered that any inconvenience caused to investors by the proposals would be minimal and significantly outweighed by the benefits including enhanced market efficiency, improved cost effectiveness and positive environmental impact. In the meantime, it mentioned that (i) it remains up to individuals to print listing documents from the e-Publication System (“EPS”) if they prefer to read hard copies; (ii) investors can instruct brokers or custodians to submit electronic applications on their behalf; and (iii) issuers who anticipate a high demand for printed applications forms for the IPO may still adopt an MMO.
If MMO is the medium adopted by an issuer of an IPO, it is important for these issuers to note that, (i) printed subscription forms are still required but they will not be accompanied by a printed form prospectus relating to the offer; (ii) the printed subscription forms must still comply with the Exchange’s guidance letter(s); and (iii) MMO issuers have to rely on retail brokers and / or share registrars for inputting orders from subscribers into the relevant online platform directly.
Online Display of Documents
Under the new arrangements, the Exchange would require issuers to post relevant documents, such as contracts pertaining to the transaction which facilitate shareholders’ assessment in respect of relevant notifiable transactions and connected transactions subject to shareholders’ approval (see discussion below), on both EPS and the issuer’s website while physical display of printed copies in tandem would no longer be required. It should be noted that display of documents on online platforms for inspection purpose is not entirely new to the Hong Kong listing regime, given that under the present regime material contracts and directors’ service agreements are already required to be made available electronically or online by other Hong Kong regulators. Incidentally, there would be no restriction for the public to download or print these electronic documents, nor would the identity of any person accessing the documents displayed online be recorded or verified by the issuers.
Undoubtedly, the display of documents online can facilitate documentary accessibility by both domestic and foreign investors alike. While it is noted that certain documents, such as contracts in relation to certain notifiable or connected transactions may contain confidential or proprietary information that may possibly be unsuitable for widespread distribution, protective measures such as specific disclosure relief (“Disclosure Relief”) are available to issuers in need upon their application for redaction of the relevant information. The Exchange will assess such application on a case-by-case basis. Redaction may be allowed in very limited circumstances as set out in the Guide on Applications for Waivers and Modifications of the Listing Rules (the “Waiver Guide”). Under its proposals, amendments will be made to the Waiver Guide to accommodate for information that is not material to the assessment of the subject transaction where the issuers can demonstrate to the satisfaction of the Exchange that, among other things, disclosure of the relevant information concerned would (i) breach the Personal Data (Privacy) Ordinance (Cap. 486) or other applicable privacy laws; or (ii) cause competitive harm to the applicant, such as where the information is a trade secret.
Considering that it would be onerous for PRC issuers to display the register online which is currently not required by the PRC law and to ensure consistency in the treatment of PRC issuers and other issuers, the register of members of PRC issuers would not be required to be displayed online, while such would continue be available for physical inspections.
Reduction of Documents on Display
The final proposal by the Exchange serves to reduce the documents required to be on display. In respect of relevant notifiable transactions and connected transactions subject to the approval of shareholders, only contracts pertaining to the concerned transactions are required for display. Contrarily, (i) material contracts entered into by the issuer within the last two years before the issue of the circular of a relevant notifiable transaction and (ii) contracts referred to in a connected transaction circular and directors’ service contracts (except for those expiring or determinable by the employer within one year without payment of compensation) would not be required for display under the new arrangements. Nonetheless, for the avoidance of doubt, regardless of the effect of the amendments relating to the reduction of documents on display, issuers would still be required to include a summary of material contracts and particulars of directors’ service agreements in the transaction circulars.
The new approach removed the requirement to display documents unrelated to the subject transaction and so are irrelevant to shareholders’ assessment of the particular transaction, which serves to further prevent unnecessary disclosure of sensitive information.
Implications
There is a historical reliance on printed publications and hard copy documents by Hong Kong’s securities market participants. With the implementation of the proposals, it is expected that the regime would become more environmentally conscientious, which is conducive to positioning Hong Kong as an international green finance centre and aligning it with the standards of other signatory markets to the United Nation’s Sustainable Stock Exchanges Initiative, such as NYSE, Nasdaq and LSE. The new arrangements are also expected to modernise the Hong Kong’s public offering processes, thus enhancing efficiency and transparency for market stakeholders. It should also be noted that stronger adherence to electronic means has been largely favoured by most institutions, regulators and activists as shown in the Consultation Conclusions, suggesting that a general favouring market sentiment for the greener path forward.
This article is authored by Rodney Teoh (Partner, Corporate Finance). Please contact our Rodney Teoh for any enquiries or further information.
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