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Recent Amendments to the Listing Rules . Janet Chiu Assistant Vice President Compliance and Monitoring Department Listing Division, HKEx. 11 January 2008 - 2008 Combined Consultation Paper concerning 18 substantive policy issues published 7 April 2008 - Consultation period ended

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Recent Amendments to the Listing Rules

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Recent Amendments to the Listing Rules

Janet Chiu

Assistant Vice President

Compliance and Monitoring Department

Listing Division, HKEx


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11 January 2008 - 2008 Combined Consultation Paper concerning 18 substantive policy issues published

7 April 2008 - Consultation period ended

28 November 2008 - Consultation Conclusions and Rule amendments on 15 policy issues published

1 January 2009 - Rule amendments became effective

3 policy issues are still under assessment

Public float (Issue 5)

General mandates (Issue 11)

Self-constructed fixed assets (Issue 15)

Background

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Major areas of Rule amendments

Vetting of listed issuers’ documents

Transaction-related issues

Disclosure and submission of information

Corporate governance practices

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Agenda

Reduction of pre-vetting activities

Alignment of requirements for material dilution in major subsidiary and deemed disposal

Disclosure of information in takeovers

Use of website for communication with shareholders

Model Code for directors’ dealings

Disclosure of changes in issued share capital

Other Rule amendments

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  • I. Reduction of pre-vetting activities

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Phased approach to post-vetting announcements

  • MB R13.52(2)/ GEM R17.53(2) sets out announcements requiring pre-vetting.

  • The Exchange intends to cease pre-vetting of all announcements.

  • Transitional arrangement:

    • Announcements for more significant transactions will continue to be pre-vetted.

  • The Exchange may request to pre-vet any documents

    • New MB R13.52A/ GEM R17.53A

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Phased approach to post-vetting announcements

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Our follow up enquiries

  • We follow up:

    • Before commencement of the next trading session – in situations that may raise fair and orderly market concern

    • Within one business day – on possible non-compliance/ ascertain Listing Rule compliance

  • Issuers must respond promptly to our enquiries within the time limit imposed (MB R2.12A/ GEM R17.55A [New])

  • Outcome:

    • No further actions

    • Trading suspension

    • Clarification announcements

    • Other remedial measures

    • Disciplinary actions

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Pre-announcement consultation

  • The Exchange will continue to offer guidance to issuers on a voluntary basis

    • MB R13.52B(2)/ GEM R17.53B(2)

  • Issuers should seek prior consultation with the Exchange, particularly on Rules:

    • where we experienced a high rate of non-compliance

    • where we may exercise discretion

  • Apart from areas which require pre-announcement consultation, issuers may seek guidance from the Exchange on a voluntary basis.

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Circumstances requiring pre-announcement consultation

  • Aggregation of transactions [New]

    • MB R14.23A, R14A.27A/ GEM R19.23A, R20.27A

  • Trading arrangement [New]

    • MB R13.52B(1)/ GEM R17.53B(1)

  • Requests for waivers [New]

    • MB R13.52B(2)(b)/ GEM R17.53B(2)(b)

  • Proposal for alternative size test

    • MB R14.20/ GEM R19.20

  • Deeming a party to the transaction to be a connected person

    • MB R14A.06 or 14A.11(4) / GEM R20.06 or 20.11(4)

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Rule amendments relating to circular requirements

  • MB R13.52(1)/ GEM R17.53(1) sets out circulars and documents which are subject to pre-vetting.

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Rule amendments relating to circular requirements

  • For (a) share repurchase and (b) amendments to issuer’s M&A, issuers must confirm that:

    • there is nothing unusual / no unusual feature (for both)

    • the proposed changes comply with Rules and the laws of the place where the issuer is incorporated or otherwise established (for amendments to M&A)

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Rule amendments relating to circular requirements

  • Issuers are no longer required to publish a circular for discloseable transactions.

  • A further announcement on the expert reports must be published within 21 days from the discloseable transaction announcement

    • Exploration for natural resources activities (MB R14.38)

    • Profit forecast (MB R14.60A/ GEM R19.60A)

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Suspension cases - Phase 1 announcements

Did post-vetting shorten the suspension period?

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Post-vetting results in Jan – May 2009

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Post-vetting results in Jan – May 2009

- Announcements on Notifiable Transactions and Fundraising

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Share transaction/ discloseable transaction announcements

Principal business activities of the counterparty (MB R14.58(2)/ GEM R19.58(3))

Date of the transaction and independence of the counterparty (MB R14.58(3)/ GEM R19.58(4))

Basis of consideration (MB R14.58(5)/ GEM R19.58(6))

Value of the subject asset (MB R14.58(6)/ GEM R19.58(7))

Net profits attributable to the target asset (MB R14.58(7)/ GEM R19.58(8))

Issue of securities announcements

Nominal value of shares (MB R13.28(2)/ GEM R17.30(2))

Net price of the securities to be issued (MB R13.28(5)/ GEM R17.30(5))

Details of general mandate (MB R13.28(12)/ GEM R17.30(12)) [New]

Allocation basis for excess shares in rights issue/ open offer (MB R7.21(1) and R7.26A(1)/ GEM R10.31(1) and R10.42(1)) [New]

General

Disclaimer statement (MB R13.52 Note 5 / GEM R2.19) [Revised]

Post-vetting results in Jan – May 2009

– Examples of omission of specific disclosures for Notifiable transactions and Fundraising

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Post-vetting results in Jan – May 2009

– Announcements on Price Sensitive Information (R13.09)

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Points to note:

Suspension situations

insufficient disclosure on impact of development to issuers

Profit warning announcements

voluntary or price sensitive

follow up on:

timeliness of publication of announcements

extent of disclosures

Overseas regulatory announcements

may be subject to other Rule requirements (e.g. MB R13.09/ GEM R17.10 or notifiable transaction Rules)

Post-vetting results in Jan – May 2009

–Announcements on Price Sensitive Information (R13.09)

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Post-vetting results in Jan – May 2009

–Results announcements

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Non-compliance matters identified:

Historical non-compliance - failure to publish

profit warning announcements

notifiable transactions

Insufficient level of operations/ cash company

Internal control issue (e.g. unavailability of books and records)

Agreement with auditors on financial statements (MB R13.49/ GEM R18.49)

Non-compliance with specific disclosures (MB Appendix 16/ GEM Chapter 18)

qualification or modification of audit opinion

compliance with CG code

clarity of corporate actions disclosures (e.g. dividend, book closure)

Disclosure of material information about the issuer’s financial position (e.g. going concern, litigations)

Post-vetting results in Jan – May 2009

–Results announcements

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  • II. Alignment of requirements for material dilution in major subsidiary and deemed disposal

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Amended MB R13.36(1)(a) / GEM R17.39

requires shareholders’ approval for issuance of securities

new Rule no longer applies to share issuance by major subsidiaries

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Old Rules

Chapter 13 – allotment of shares by a major subsidiary is a material dilution

Subject to shareholders’ approval at a physical meeting

Chapter 14 – deemed disposal of interest in a subsidiary

Announcement

New Rules

Chapter 14 – deemed disposal of interest in a subsidiary

Announcement

Example 1: Placing of shares by a subsidiary

After placing

Before placing

Listco A

Listco A

51%

(51 shares)

42%

(51 shares)

Listco B

Listco B

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Example 2: Placing of shares by a listed subsidiary under its general mandate

Independent

investors

Listco A

> 50%

Placing of new shares

under general mandate

Listco B

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  • III. Disclosure of information in takeovers

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MB R14.67A(1)/ GEM R19.67A(1) – provides timing relief to listed issuers where certain non-public information related to a target company is unavailable.

Conditions:

The target must be listed and it must become a subsidiary of the listed issuer.

The issuer has no or limited access to non-public information on the target.

There are legal restrictions in providing non-public information on the target.

Timing relief for disclosures in major transaction/ VSA circulars

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MB R14.67A(2)/ GEM R19.67A(2) – The initial circular must contain the minimum disclosure:

all material public information and other available information of the target company to enable shareholders to make an informed voting decision

specific information (e.g. indebtedness statement and working capital sufficiency statement) in relation to the listed issuer

MB R14.67A(3)/ GEM R19.67A(3) – The supplemental circular must:

contain all non-disclosed information

be despatched to shareholders within 45 days after gaining access to the information or control over the target company

Timing relief for disclosures in major transaction/ VSA circulars

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  • IV. Use of website for communication

  • with shareholders

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A listed issuer can deem shareholder’s consent to corporate communication being made available to him solely on the listed issuer’s website.

subject to compliance with applicable laws/ regulations and the listed issuer’s own constitutional documents.

Basic conditions for adoption of the deeming procedure:

shareholders’ approval has been obtained at a general meeting; or

there is an enabling provision in the listed issuer’s constitutional documents.

Deeming consent under MB R2.07A(2A)/ GEM R16.04A(2A)

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Other conditions for adoption of the deeming procedure:

Each shareholder must be asked individually for the consent.

Issuers must wait for 28 days before deeming shareholders’ consent.

A shareholder would not be deemed to have consented if:

the listed issuer’s request for consent was sent less than 12 months after a previous request for consent; and

the previous request for consent is made to him in respect of the same class of corporate communication.

Issuers must notify the intended recipient of publication of the corporate communication on the website.

Deeming consent under MB R2.07A(2A)/ GEM R16.04A(2A)

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  • V. Model Code for directors’ dealings

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Revised “black out” period (effective 1 April 2009) under Rule A.3 of MB App 10 / GEM R5.56

Annual results

60 days before publication of the results or, if shorter, the period from the financial year end up to the date of publication

Half-year and quarterly results

30 days before publication of the results, or, if shorter, the period from the financial period end up to the date of publication

The listed issuer must notify the Exchange in advance of the commencement date of the “black out” period

New Rule A.3(b) of MB App 10/ GEM R5.56(b)

“Black out” period

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We support early implementation of statutory obligation to disclose price sensitive information.

We believe that we should enhance our Rules to require reporting on a quarterly basis to ensure a more regular and timely flow of information.

We have enhanced program to monitor directors’ dealings.

Press release on 12 February 2009

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Analysis of director’s dealings during Jan – Mar 2009

Source: Disclosure of Interest forms filed by directors and posted on the HKEx website.

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Commencement of black out period: 7 April 2009

Notification must be sent to the Exchange before 7 April 2009

Example

6/6/2009

(Date of publication of annual results)

31/3/2009

(year end date)

31/7/2009

(Deadline for publication of annual results)

31/8/2009

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3 new exceptions to the definition of “dealings”

MB App 10 – 7(d)(vi) to (viii) / GEM R5.52 (4)(f) to (h)

Definition of “price-sensitive information” for the purpose of the Mode Code

Note to MB App 10 – Rule A.1/ GEM R5.54

Time limits for (a) an issuer to respond to a director’s request to deal and (b) dealings to take place once clearance is given

MB App 10 – Rule B.8 / GEM R5.61

Other Rule amendments

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  • VI. Disclosure of changes in issuedshare capital

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Next Day Disclosure Return (NDDR) must be published by 9 a.m. the next business day following the relevant event

Certain event triggers immediate disclosure (e.g. placing, share repurchase, etc)

Other events may be subject to a 5% de minimis threshold (e.g. exercise of options by a non director, conversion of convertible bonds)

In the event of immediate disclosure is triggered, all prior events that are subject to the 5% de minimis threshold must be disclosed

Monthly Return must be published by 9 a.m. of the fifth business day next following the end of the calendar month.

Next Day Disclosure Return (MB R13.25A/ GEM R17.27A)

and Monthly Return (MB R13.25B/ GEM R17.27B)

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Issuers must publish an announcement as soon as possible upon grant of options under the share option scheme.

Example:

Date of offer of options: 15 April 2009

Date of acceptance of options: 20 April 2009

Grant of options (MB R17.06A/ GEM R23.06A)

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  • VII. Other Rule amendments

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Bonus issue of a class of securities new to listing

Disapplies the minimum spread and number of shareholders requirement for bonus issue involving options, warrants or similar rights to subscribe or purchase shares provided that no high concentration of shareholding in the hands of a few shareholders within the preceding 5 years

Qualified accountants

Removed the requirement for appointment of a qualified accountant under MB R3.24/ GEM R5.15 to 5.18

New Code Provisionsin MB Appendix 14/ GEM Appendix 15

Directors should conduct an annual review of the adequacy of staffing of the financial reporting functions of the issuer. (C.2.2)

The term of the audit committee should include its responsibility of overseeing the adequacy of staffing of the issuer’s accounting and financial reporting functions. (C.3.3)

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New Code Provisionsin MB Appendix 14/ GEM Appendix 15

Notice to shareholders should be sent:

at least 20 clear business days before AGM

at least 10 clear business days in the case of all other general meetings (E.1.3)

Voting by poll

Required for all resolutions (MB R13.39(4)/ GEM R17.47(4))

Codification of the waiver to property companies (MB Ch.14&14A and GEM Ch. 19 & 20)

Joint press release by the Exchange and the SFC in Dec 2006 –conditional waiver applies to acquisitions by listed property developers of land or property development projects in Hong Kong through public auctions or tenders

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Issuers must disclose changes to information about directors/ supervisors (New MB R13.51B/ GEM R17.50A)

by issue of an immediate announcement for information under paragraphs (h) to (v)

in listed issuers’ next published annual / interim report for information under paragraphs (a) to (e) and (g)

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Reference materials published on the HKEx website

  • Guidance materials on Exchange’s practices and procedures for handling listing related matters: http://www.hkex.com.hk/listing/epp/epp.htm

  • Frequently asked questions on notifiable transactions, connected transactions and issue of securities: (http://www.hkex.com.hk/listing/suppmat/faq200811.doc)

  • Listing Decisions: http://www.hkex.com.hk/listing/listdec/listdec.asp

  • Checklists and forms in relation to disclosure, documentary and other specific compliance requirements under the Listing Rules and related administrative procedures:

    • Main Board - http://www.hkex.com.hk/listing/epp/cft_mb.htm

    • GEM - http://www.hkex.com.hk/listing/epp/cft_gem.htm

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Consultation Conclusions

http://www.hkex.com.hk/consul/conclusion/cc200811.pdf

Frequently asked questions on the Rule amendments relating to the 2008 Combined Consultation

http://www.hkex.com.hk/listing/suppmat/faqcc200811.doc

Annotated Next Day Disclosure Return

http://www.hkex.com.hk/listing/suppmat/annotnddr.pdf

Annotated Monthly Return

http://www.hkex.com.hk/listing/suppmat/annotmr.pdf

Reference materials published on the HKEx website

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Thank you

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