Background

 Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect (collectively, “Stock Connect”) launched in 2014 and 2016, respectively, have enabled investors from the Mainland and Hong Kong to trade shares listed on each other’s market.  Such mutual market access has been facilitating the opening-up of China’s capital account and Renminbi internationalisation.  In 2022, the scope of eligible stocks under Stock Connect was expanded to include exchange-traded funds (ETFs), international companies primarily listed in Hong Kong, and a larger number of Shanghai and Shenzhen-listed companies.

Nevertheless, block trading is currently not available to participants under the Stock Connect regime while offshore investors can only engage in block trading through the Qualified Foreign Investor (“QFI”) scheme.  Since many Stock Connect participants do not have a QFI licence to access block trading, they could only execute a large-sized transaction by way of separate transactions, which could take long time to complete and lead to price slippage.

The new Stock Connect arrangement

The new arrangement introduces block trading to Stock Connect under which investors can execute large-sized transactions at privately negotiated prices, which in turn minimises the price impact brought by these transactions to the market via auto-matching.  Under the new arrangement, offshore investors will be able to execute block trades on the Shanghai Stock Exchange and the Shenzhen Stock Exchange through the northbound trading link.  Meanwhile, Mainland investors will be able to conduct manual block trades on The Stock Exchange of Hong Kong Limited through the southbound trading link.

The CSRC and the SFC will oversee the respective exchanges and clearing houses as they develop the operational and regulatory details required to launch the new block trading mechanism.  Further implementation proposal and the official launch date of the new arrangement will be announced in due course, but it is confirmed that both northbound and southbound block trading will be introduced at the same time.

Analysis and takeaways 

By including block trading as an additional trading mechanism under Stock Connect, the new arrangement could reduce the potential price impact to the market when large-sized transactions are executed.  While from investors’ perspective, the new arrangement would likely enhance the price and execution certainty of large-sized transactions, which may further assist investors in better managing their asset allocation at lower costs.

It is anticipated that the new block trading facility under Stock Connect could further promote connectivity and integration between the Mainland and Hong Kong capital markets, thereby strengthening Hong Kong’s position as an international financial centre and offshore Renminbi hub which connects the Mainland and the world.

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.

The seminar featured speakers from HKEX and capital market professionals who provided valuable insights on new listings and the latest developments in the capital market. During the seminar, Mr. Tsang discussed listings on Hong Kong Stock Exchange and the challenges of the listing applicants.

Mr Jiang Peng, Senior Partner of our associated firm – AllBright Law Offices, shared his opinions regarding the common concerns for an A-shares review.

For more information, please contact our Partner Mr. Gordon Tsang.

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Please contact our Partners Hank Lo, Cornelia Chu, Rodney Teoh, Osbert Hui, Erica Cheng, Gordon Tsang or Dominic Lau for any inquiries or further information.

Background
On 17 February 2023, the State Council of the PRC issued the “Decision of the State Council to Repeal Certain Administrative Regulations and Documents”, and the China Securities Regulatory Commission (“CSRC”) issued the “Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies” and related guidelines (“New Regulations on Overseas Listing”). The New Regulations on Overseas Listing came into effect on 31 March 2023, followed by the repeal of the Special Regulations¹ and the Mandatory Provisions² .

Under the New Regulations on Overseas Listing, PRC issuers shall formulate their articles of association with reference to the Guidelines for the Articles of Association of Listed Companies issued by the CSRC. The New Regulations on Overseas Listing no longer require PRC issuers to follow the previously implemented Mandatory Provisions to (i) deem holders of domestic shares and H shares (which are both ordinary shares) as different classes of shareholders, thereby removing the class meeting requirements applied to holders of domestic shares and H shares in certain circumstances; and (ii) use arbitration to resolve disputes involving H shareholders, thereby removing the arbitration requirements.

The New Regulations on Overseas Listing also introduced a new filing regime for all direct and indirect overseas listings and securities offerings by Mainland based companies.

The amendments to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules“) will come into effect on 1 August 2023, and are summarised in the table below:

Analysis and takeaways
The Exchange has made corresponding amendments to the Listing Rules to align with the regulatory rules in Mainland China, and ensure that the rules applicable to Chinese issuers are more consistent with other overseas companies.

PRC issuers must still adhere to their existing articles of association concerning class meetings and other provisions that were originally formulated based on the Mandatory Provisions until and unless they amend their articles of association to remove such provisions. In general, where PRC issuers voluntarily propose to amend their articles of association to remove the class meeting requirements, they should obtain approvals of domestic shareholders and H shareholders at separate class meetings based on their existing articles of association.

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.

¹The Special Regulations on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies (國務院關於股份有限公司境外募集股份及上市的特別規定) issued by the State Council of the PRC on 4 August 1994, as amended, supplemented or otherwise modified from time to time.
²The Mandatory Provisions for Companies Listing Overseas set forth in Zheng Wei Fa (1994) No. 21 issued on 27 August 1994 by the State Council Securities Policy Committee and the State Commission for Restructuring the Economic System.

(From the right) Dr Thomas So, Member of The National Committee of the Chinese People’s Political Consultative Conference and Past-President of the Law Society of Hong Kong; Mr CM Chan, President of the Law Society of Hong Kong; our Partner Ms Heidi Chui, Council Member of the Law Society of Hong Kong; and Mr Neville Cheng, Council Member of the Law Society of Hong Kong

As the first provincial-level work conference on foreign-related legal construction in Guangdong, the conference was attended by over 400 guests from various organizations and institutions. Ms. Chui was invited to attend the event as a Specially Invited Mediator from Hong Kong and Macao by the High People’s Court of Guangdong Province and received the appointment letter at the event.

The conference featured six forums in a “conference + parallel forum” format. Guests discussed various topics related to the rule of law, including foreign-related lawyers, arbitration, judicial work, talent cultivation, and enterprise service guarantee. The discussions promoted legal exchanges and cooperation between Guangdong, Hong Kong, and Macao and to build an international brand for legal services in the Greater Bay Area.

For more information, please contact our Partner Ms. Heidi Chui.

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.