Introduction
On 30 June 2023, The Stock Exchange of Hong Kong Limited (the “Exchange”) published the consultation conclusions (the “Conclusions”) on expanding the paperless listing regime and other rule amendments. The Conclusions were issued in response to the consultation paper (the “Consultation Paper”) published by the Exchange on 16 December 2022 (see our news update on the Consultation Paper).
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The amendments to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Main Board Rules”) and the Rules Governing the Listing of Securities on GEM set out in the Conclusions (the “Listing Rules” or “Rules”) will become effective on the following dates:
(a) 8 July 2023 – for the amended Rules relating to other Rule amendments and housekeeping amendments; and
(b) 31 December 2023 – for the amended Rules relating to (a) reducing submission documents and mandating submission by electronic means, (b) electronic dissemination of corporate communications by listed issuers, and (c) simplification of the current appendices to the Listing Rules (the “Appendices”).
The Exchange will implement the proposals as set out in the Consultation Paper, subject to certain amendments.
Proposals Adopted
Proposal 1: Reducing submission documents and mandating submission by electronic means
(a) Removing unnecessary submission documents
Most of the respondents agreed to remove the requirements for issuers to submit certain documents to the Exchange and agreed that it would simplify the document preparation process and reduce unnecessary burden for issuers. The respondents also believed that the proposal would not jeopardise market quality, considering that issuer’s obligations or the level of due diligence or work required of sponsors and other advisers would not be altered.
Some, however, voiced their concerns over the removal of certain documents as they consider submission of these documents contain practical benefits. For example, some respondents believed that forms M105, M106, M107 and M108 checklists are “useful tools” for the sponsors and advisers to conduct compliance checks before the submission of listing applications. In response, the Exchange maintains their view that these documents are unnecessary, and the removal of these documents will not absolve the professional parties of their obligations.
Further, in response to concerns about disclosure of information (e.g., details of transactions with top five customers and suppliers in item A1 of Form M104) which was commercially sensitive and might place listing applicants into competitive disadvantage, the Exchange reiterated that disclosure of such information is necessary to enable investors to assess the financial position and future prospects of a new applicant. The new applicant can provide a submission (e.g., pursuant to item E22 of Form M104) to the Exchange for the Exchange to decide whether the non-disclosure is acceptable.
(b) Codifying undertakings, confirmations and declarations
The majority of respondents were supportive of the proposal to codify obligations contained in undertakings, confirmations and declarations into the Listing Rules and guidance materials as they believed this would streamline the submission requirements and reduce unnecessary paperwork, while retaining the Exchange’s power to take disciplinary action for any breach of obligations following codification into the Listing Rules. As such, the proposal is adopted by the Exchange accordingly.
(c) Consolidating sponsors’ and new applicant’s obligations into overarching undertakings
Majority of the respondents agreed to include, in Form A1, a consolidated set of overarching obligations that new applicants and sponsors must undertake to comply with. Such overarching obligations include (i) requiring new applicants to further undertake to submit, or procure the submission on its behalf, of accurate and complete information to the Exchange; and (ii) sponsors must provide an overarching undertaking on compliance with applicable Listing Rules and guidance materials on due diligence, and the provision of advice and guidance to the new applicant and its directors on compliance with the Listing Rules and guidance materials. As such, the proposal is adopted by the Exchange.
(d) Removing unnecessary signature or certification requirements
Most of the respondents agree that existing laws, rules, and regulations (including the Securities and Futures Ordinance (Cap. 571) (“SFO”), the Code of Conduct of Persons Licensed by or Registered with the Securities and Futures Commission and common law duties) support the removal of unnecessary signature and certification requirements, hence the Exchange will adopt the proposal to remove signature and certification requirements for certain submission documents and further extend the removal of such requirements to Form M119.
In response to concerns over heightened risk of fraud, the Exchange addressed that a person may be liable to a criminal offence under the SFO if he knowingly or recklessly provides false or misleading information to the Exchange. The consolidated set of overarching obligations covered by the undertaking of new applicants and sponsors in the Form A1 will serve to remind the parties to ensure the accuracy and completeness of their submissions and the proposed issuer platform will provide an audit trail of documents submitted to the Exchange.
(e) Mandating electronic only submission
The initiative of mandating electronic submission was generally welcomed and the Exchange will incorporate the feedback respondents have provided regarding the implementation of the proposed issuer platform into the design of the system including (i) providing sufficient market guidelines, (ii) functionality, and (iii) support services (e.g., a hotline service).
Proposal 2: Electronic dissemination of corporate communications by listed issuers
(a) Mandating electronic dissemination of corporate communications
The Exchange will adopt the proposal to mandate electronic dissemination of corporate communication with some modifications. Respondents agree that the proposal can reduce printing and postage costs and any time delay in hard copy delivery. Such approach is in line with the market practice of other exchanges as well as the global trend towards digital communication and could further improve the efficiency and cost-effectiveness of listed issuers’ communications with their securities holders. To address the difficulties certain investors may face in accessing issuers’ electronic corporate communications, the Exchange included a requirement that issuers should provide a securities holder with hard copy communications on request.
(b) Implied consent for electronic dissemination of corporate communications
The proposal to remove the current rules concerning the arrangements a listed issuer must make to avail itself of the consent mechanism for disseminating corporate communications electronically was welcomed by the respondents as the majority of listed issuers on the Exchange are incorporated in either the Cayman Islands, Bermuda or the PRC, where implied consent is generally permitted. The Exchange will also put in place measures to protect the interests of investors who prefer to receive corporate communications in hard copy.
(c) Mandating Actionable Corporate Communications to be sent to securities holders individually and in electronic form
Most of the respondents agreed that sending Actionable Corporate Communications (as defined in the Conclusions) to each securities holder individually would help ensure the fair opportunity to instruct an issuer on exercising their rights in respect of a corporate action. As such, the Exchange will adopt the proposal to require issuers to send Actionable Corporate Communications to securities holders individually and in electronic form if functional electronic contact details have been provided to the issuer.
Proposal 3: Simplification of Appendices to the Listing Rules
The Exchange will adopt a holistic approach to organising and streamlining the Appendices in a more thematic manner, and will remove Appendices that have been superseded, repealed and are otherwise unnecessary so that users could navigate requirements more efficiently and effectively. It is believed that the simplification of the Listing Rules would enhance corporate governance for issuers and improve transparency.
a) Moving “Fees Rules” and “Regulatory Forms” out of the Appendices
The Exchange will adopt the proposal to move “Fee Rules” and “Regulatory Forms” out of the Appendices to new sections on the Exchange’s website for easier accessibility. The Exchange reiterated that the new location of the “Fees Rules” and “Regulatory Forms” will not affect their status as mandatory requirements of the Listing Rules.
b) Repealing and Deleting Appendices
The Exchange will repeal Appendices that are administrative in nature and separately display their contents outside the Listing Rules section of the HKEX website. In addition, the Exchange shall delete Appendices that have already been superseded, repealed or are otherwise unnecessary. The Exchange will continue to make available the historical versions of the Listing Rules on Exchange’s website.
c) Reorganising the remaining Appendices by theme
To avoid confusions for users, the Exchange will group the Appendices together to form a broad topic without material gaps or overlaps in theme so that users can easily locate them.
Analysis and takeaways
Given the prevalence of internet use today, the Exchange’s effort to expands its paperless listing initiatives is in line with the global trend of digital communication. These initiatives can enhance environmental sustainability, modernise Hong Kong’s listing regime, and contribute to paving a greener path in Hong Kong.
It is expected that the Exchange will continue to provide guidance and support for both issuers and securities holders when expanding the paperless listing regime. The proposed issuer platform, which is a designated channel for two-way communication between the Listing Division and new applicants/listed issuers, is also expected to enhance the efficiency and accuracy of communication.
Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.
This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.