THE HONG KONG EXCHANGE CONSULTS ON PROPOSED LISTING RULES AMENDMENTS RELATING TO LISTED ISSUER SHARE SCHEMES

• Chapter 17 currently governs share option schemes only.

• Proposes to extend Chapter 17 to also govern share award schemes funded by issue of new shares.

• No restriction on the categories of eligible participants.

• Defines “eligible participants” of Share Schemes to include the following:

(a)            Employee Participants: directors and employees of the issuer or any of its subsidiaries;

(b)            Related Entity Participants: directors and employees of related entities (i.e. the holding companies, fellow subsidiaries or associated companies of the issuer); and

(c)            Service Providers: other persons who provide services to the issuer group in its ordinary and usual course of business which are material to its long-term growth and on a continuing and recurring basis (e.g. independent contractors, consultants and advisors to biotech companies).

• The share grants to Related Entity Participants and Service Providers must be approved by the remuneration committee.

• The grants of share options from all share option schemes are limited to 10% of the total issued shares of the issuers.
• Issuers may seek shareholders’ approval to refresh the scheme mandate at any time if the options outstanding do not exceed the 30% of its total issued shares.

• Applies a scheme mandate limit of not exceeding 10% of an issuer’s issued shares to all Share Schemes involving issuance of new shares (the “Scheme Mandate Limit”).  The Scheme Mandate Limit might be refreshed once every three years.
• Requires independent shareholders’ approval for additional refreshments within a three-year period.
• Proposes to remove the 30% limit requirement.
• Sets a sublimit within the Scheme Mandate Limit on share grants to Service Providers.

• Does not have specific requirements on vesting period.

• Requires a minimum vesting period of 12 months. The period can only be shortened if it is approved by the remuneration committee in respect of share grants made to Employee Participants who are identified by the issuer.

• Requires issuer to disclose in the scheme documents any performance targets attached to share grants or a negative statement.
• No specific disclosure requirement relating to a clawback mechanism.

• Requires performance targets and clawback mechanism for all share grants and the disclosure thereof in the grant announcements.
• If no performance targets and/or a clawback mechanism, the grant announcement and circular must set out the remuneration committee’s views addressing why performance targets and/or a clawback mechanism is/are not necessary.

• The exercise price of share options must not be less than market price of the shares at the time of grant.

• Retains the current restriction on the exercise price of share options.
• For grants of shares under share award schemes: does not propose to impose any restriction on share grant price.

• For individual grantee: shareholders’ approval if grants of options in excess of 1% of issued shares over a 12- month period.
• For director (other than an independent non-executive director (the “INED”)), or chief executive: approval by INEDs.
• For (i) eligible participant who is a substantial shareholder and (ii) INED: (a) approval by INEDs (excluding any INED who is the grantee); or (b) independent shareholders’ approval for grants of options in excess of 0.1% of issued shares and HK$5 million over a 12-month period.

Share award schemes

• For individual grantee: No specific limit.
• For director, chief executive and eligible participant who is a substantial shareholder: shareholders’ approval for any grant of share awards involving new shares.

• For individual grantee:  shareholders’ approval if the grants of share awards and share options in aggregate exceed 1% of the total issued shares over any 12- month period.
• For director (other than an INED), or chief executive: (a) subject to (b), remuneration committee’s approval; or (b) independent shareholders’ approval if the grants of share awards cause the share awards granted to exceed 0.1% of the total issued shares over any 12-month period.
• For (i) eligible participant who is a substantial shareholder and (ii) INED: (a) Subject to (b), remuneration committee’s approval; or (b) independent shareholders’ approval if the grants of share awards and share options in aggregate exceed 0.1% of the total issued shares over any 12- month period.

• Share award schemes which are funded by existing shares purchased on-market do not require shareholders’ approval.
• Disclosure about these schemes is governed by accounting standards.

• Requires disclosure of the terms and details of the share schemes funded by existing shares consistent with that applicable to Share Schemes funded by issuance of new shares.

• Governs share option schemes of subsidiaries.

• Extends Chapter 17 to also govern subsidiaries’ share award schemes funded by new or existing shares.