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Aspects of the Securities and Futures Ordinance: disclosure of interests, insider dealing, regulation of offers of investments, market misconduct and the stabilisation rules

 

 

THE SECURITIES AND FUTURES ORDINANCE – PART XV – DISCLOSURE OF INTERESTS

Introduction

The SFO considerably broadens the previous regime governing the disclosure of interests in the shares and debentures of Hong Kong listed companies with a view to enhancing transparency in the Hong Kong market.

Substantial Shareholders

As previously, disclosure is required:

  • when a person acquires or ceases to have a notifiable interest; and
  • when there is a change in the percentage level (ie. the figure rounded down to the next whole number) of his interest.

The New Features

Reduction of Substantial Shareholding Threshold

  • Reduction of threshold from 10% to 5% of a Hong Kong listed company’s issued voting share capital
  • Where there is more than one class of shares, the percentage of each class is taken separately

Shortening of Notification Period

  • The notification period is shortened from 5 days to 3 business days (which includes Saturdays), subject to limited exceptions

Disclosure of Interests in Equity Derivatives

  • Previously the disclosure requirements applied only to physically settled derivatives.
  • A key change under the SFO is the extension of the disclosure requirements to:
  • interests in the unissued shares of listed companies which, if issued, would carry the right to vote (eg. under options, subscription warrants and convertible bonds); and
  • cash settled derivatives.

Disclosure of Short Positions

Another key change is the extension of the disclosure obligations to cover ‘short positions’.

A person is taken to have a ‘short position’ if he:

  • holds, writes or issues financial instruments under which:
    1. he can require another to take the underlying shares;
    2. he is obliged to deliver the underlying shares; or
    3. he has a right to receive money or to avoid or reduce a loss if the price of the underlying shares declines, before or on a certain date or within a certain period (whether the right or obligation is conditional or absolute); or
  • borrows shares under a securities and borrowing lending agreement.

Note however that:

  • A short position is only discloseable if the person (other than a director) already holds a 5% interest;
  • The short position must be at least 1%;
  • Changes in short positions need only be disclosed when they cross a percentage level or the person ceases to have a short position;
  • Long and short positions cannot be netted off: they must be calculated and notified separately.

Calculation of A Person’s Interest

Nominal value of shares in which a person is interest* X 10

Nominal value of issued shares of the listed company of the same class

* This includes interests in issued shares and interests in shares underlying equity derivatives whether issued or unissued.

Notification of Changes in the Nature of Interests

Disclosure obligations extended to cover changes in the nature of interests already disclosed.

No change:

  1. on taking delivery of shares where the acquisition of an equitable interest on contracting to purchase has previously been disclosed;
  2. where a vendor enters into a contract for sale, if the sale is to be completed within 4 trading days;
  3. on a change in the terms of equity derivatives due to a change in the number of underlying shares in issue;
  4. on the exercise of rights to subscribe for or on delivery of shares under a rights issue;
  5. where a ‘qualified lender’ takes a security interest in shares; and
  6. for a holding company, on a transfer of shares from one wholly owned subsidiary to another.

Deemed Interests

As previously, need to aggregate:

  • interests of spouse and children under 18;
  • interests of ‘controlled companies’ (ie. of which the person controls 1/3 of the voting power at general meetings or if the company or its directors are accustomed to acting in accordance with his directions);
  • interests of a trust of which a person is a trustee (unless a bare trustee);
  • beneficial interests under a trust (other than discretionary interests of substantial shareholders);

New provisions in the SFO:

  • interests of a discretionary trust are attributed to the ‘founder’ of such a trust;
  • concert party agreements – provisions requiring parties to concert party agreements to aggregate the interests of all other parties are extended to cover arrangements where a ‘controlling person’ or director of a listed company lends money to another to purchase shares in the company.
    • A ‘controlling person’ is a person who alone or with associates : controls 30% of the voting power at general meetings
    • can nominate any of its directors
    • can modify or veto resolutions at general meetings

    Exemption where the director or ‘controlling person’ is a ‘qualified lender’ acting in the ordinary course of his business.

Exemptions

  1. Basket Derivatives
  2. De minimis change exemptions on change in long or short positions
  3. De minimis change exemption on change in nature of interests
  4. Exempt Security Interests
  5. Wholly owned group exemption
  6. Bonus and Rights Issue Exemption
  7. Investment Managers, Custodians and Trustees
  8. Disaggregated Group Interests
  9. Securities Borrowing and Lending Exemption
  10. Collective Investment Schemes
  11. Intermediary Exemption

Basket Derivatives

  • Basket over shares of at least 5 listed companies
  • No one share accounts for more than 30% of value of total basket

De Minimis Change Exemptions – Long & Short Positions – Sections 313 (7) And (9)

Increase/decrease in percentage level of a holding (above 5%) or short position (above 1%) not discloseable if:

  • the percentage level of the interest is the same as, or less than, the percentage level of the interest stated in the Last Notification given; and
  • the percentage figure of the interest has not at any time differed by 0.5% or more from the percentage figure of the interest stated in the Last Notification.‘Percentage level’ means the figure rounded down to the next whole number.

    ‘Percentage figure’ is the actual unrounded percentage figure.

A ‘Last Notification’

  • for a holding – notice under S313(1)(c) of change in percentage level of a holding above 5%
  • for a short position – notice under S313(4)(c) of a change in percentage level of a short position above 1%.

Exempt Security Interests – S323 (6)

Interest in shares not discloseable if an ‘exempt security interest’ – ie. ‘held by a qualified lender by way of security only for a transaction entered into in the ordinary course of his business’.

‘Qualified Lender’:

  • includes authorised financial institutions, authorised insurers, exchange participants and intermediaries licensed to deal in securities or margin financing.
  • now also includes equivalent overseas institutions.

Note: interest becomes discloseable if qualified lender starts to treat the shares as his own (eg shows intention to exercise votes or offers shares for sale).

Wholly Owned Group Exemption – S313 (10)

Wholly owned subsidiaries – no need to file notice under Sections 313(1) or (4) if the ultimate holding company files notice.

Bonus And Rights Issue Exemption – S314 (2)

Shareholders taking up rights – no change in percentage level of interests – no disclosure requirement.

Shareholders not taking up rights – must disclose change in percentage level of interests.

Investment Managers, Custodians And Trustees Bare Trustee Exemption Exempt Custodian Interest – S323 (3)

Interests of a corporate custodian exempt if it has no authority to exercise discretion in dealing in, or exercising rights attached to, the shares.

Disaggregated Group Interests – S316 (5)

New exemption for the fund management industry. Holding companies exempted from requirement to aggregate interests of ‘controlled companies’ who are investment managers, custodians or trustees if:

  • interest in shares arises in the ordinary course of its business
  • power to (i) vote on shares and (ii) invest in, manage, deal in or hold interests in shares, is exercised independently of its holding company/group companies.

Securities Borrowing And Lending Rules

Substantial shareholders (other than directors) lending through an ‘Approved Lending Agent’ using a ‘relevant agreement’ – exempted from disclosing lending and return of shares.

SFC Approved Lending Agents

  • need only disclose changes in the size of the lending pool.
  • no need to disclose lending shares from, or returning shares to, lending pool.

‘Regulated Persons’ (companies licensed to deal in securities and overseas brokers in recognised jurisdictions)

  • No need to disclose interests in shares borrowed and on-lent or returned within 5 business days.

Collective Investment Schemes – S323 (1)(C)

No need to disclose interests of holders, trustees or custodians of SFC authorised collective investment schemes, certain pension or provident fund schemes and qualified overseas schemes.

Qualified overseas scheme

  • established in a jurisdiction recognised by SFC
  • does not include schemes:
    • not run as a business
    • with less than 100 holders
    • where less than 50 persons hold 75% of the interests

    Interest of the manager of a scheme discloseable even if he’s also a holder, trustee or custodian.

Intermediary Exemption – S323 (1)(i)

No need to disclose interests of an intermediary licensed to deal in securities acquired as agent for clients if:

  • interest is acquired for (and from) a person outside the intermediary’s group
  • interest is held by intermediary for no more than 3 business days.

Penalties for Failure to Disclose

Failure to disclose or the making of a statement which is false or misleading in any material particular is a criminal offence liable to a maximum fine of $100,000 or maximum prison sentence of 2 years.

Directors and Chief Executives

As previously, disclosure requirements are broader than for substantial shareholders:

  • Must disclose interests in any shares (not just voting shares) or debentures of a listed company of which they are a director and any associated company;
  • No disclosure threshold – all interests must be disclosed however small.
  • Definition of ‘Associated Company’

The SFO extends directors’ disclosure obligations to cover:

  • interests under equity derivatives
  • short positions
  • changes in the nature of interests

Changes in Nature of Interest

Only 3 circumstances where there is taken to be no change:

  • On delivery of shares to him, if acquisition of equitable interest previously notified;
  • Change in the terms of equity derivatives due to a change in the number of underlying shares in issue;
  • Where a ‘qualified lender’ comes to have a security interest in the shares.

Exemptions

Exemptions for directors limited to exemptions for:

  • basket derivatives
  • bare trustees
  • collective investment schemes

Registration of the Interests and Short Positions of Substantial Shareholders and Directors and Chief Executives

Details to be included within 3 business days of receipt of information.

Details to be recorded on the grant to a director or chief executive of a right to subscribe for shares or debentures of a company (Section 352(3)).

Information to be recorded on the exercise of any such right (Section 352(4)).

Investigations of Shareholders by a Listed Company

A listed company has the power to investigate the identity of holders of:

  • interests and short positions in its shares
  • equity derivatives where the underlying shares are shares in the listed company.

A listed company may also be required to exercise such powers on the request of its members.

THE SECURITIES AND FUTURES ORDINANCE – PARTS XIII AND XIV – MARKET MISCONDUCT

Introduction

Parts XIII and XIV broaden the previous law on market manipulation and disclosure of false or misleading information relating to securities and futures.

Key Features

  • Market Misconduct comprises 6 offences:
    • insider dealing
    • false trading
    • price rigging
    • disclosure of information about prohibited transactions
    • disclosure of false or misleading information inducing transactions
    • stock market manipulation
  • Part XIV also creates 3 new criminal offences:
    • use of fraudulent or deceptive devices in transactions in securities, futures contracts or leveraged foreign exchange dealing
    • disclosure of false or misleading information inducing others to enter leveraged foreign exchange contracts
    • falsely representing dealings in futures contracts on behalf of others
  • The civil regime under Part XIII covers all types of market misconduct (not just insider dealing as previously)
  • The criminal regime under Part XIV also covers all types of market misconduct (including insider dealing, previously subject only to civil proceedings)
  • Wider range of civil sanctions available to the Market Misconduct Tribunal
  • The SFO creates a right of civil action in favour of a person who has suffered financial loss to seek compensation from the perpetrator of market misconduct
  • The SFO imposes a duty on all officers of a company to take reasonable measures to ensure that the company does not contravene the market misconduct provisions.

Insider Dealing

In broad terms insider dealing takes place where a person buys or sells shares in a listed company when he has insider information – that is, knowledge of certain facts about that company which the public does not have and which, if known to the public, would have an impact on the price of the company’s shares.

The definition of insider dealing is largely the same as under the previous legislation. There are basically 7 heads of ‘insider dealing’ :

  1. person with insider information deals in shares of a corporation with which he is connected;
  2. take-over offer – bidder deals in shares of target;
  3. person connected with a corporation leaks insider information about that corporation;
  4. bidder leaks take-over information;
  5. recipient of insider information from person connected with a corporation deals in the shares of that corporation;
  6. recipient of insider information about a take-over deals in shares of the target; and
  7. person with insider information seeks to facilitate a dealing on an overseas market.

The definition of ‘Listed securities’ under the SFO has been extended so that the insider dealing provisions now catch ‘grey market’ dealings prior to a secondary issue of securities.

False Trading

False trading prohibits:

  • intentionally or recklessly creating (or doing anything likely to create) a false or misleading appearance of active trading in, or as to the market for, or price of, securities or futures; and
  • transactions (which need not be in securities or futures) entered into with the intention that, or being reckless as to whether, they create or maintain an artificial price for securities or futures.

In the case of on-market ‘wash sales’ (ie. trades involving no change in beneficial ownership) and ‘matched orders’ (ie. offers to sell or buy matched by offers to buy or sell substantially the same number of securities at substantially the same price), there is a rebuttable presumption that the person who entered into it intended, or was reckless as to whether, his conduct created the appearance at (i) above.

Price Rigging

Price rigging prohibits:

  1. engaging in wash sales which affect the price of securities (unless the defendant can show that his purposes did not include the purpose of creating a false or misleading appearance as to the price of securities); and
  2. engaging in a fictitious or artificial transaction intending that, or being reckless as to whether, it will affect the price of securities or futures.

Stock Market Manipulation

These provisions prohibit engaging in transactions in securities of a corporation that affect the price of any securities, intending to induce investment decisions relating to the securities of the corporation or to those of a related corporation.

Disclosure of Information about Prohibited Transactions

This offence prohibits a person from disclosing information that the price of securities or futures traded on an exchange or through an automated trading system (‘ATS’) in Hong Kong will be affected by a transaction in contravention of the market misconduct provisions or Part XIV, if he or his associate entered into the transaction or will benefit from the disclosure. Defences are available to those who innocently report market misconduct and its effect on price (eg. journalists and research analysts).

Disclosure of False or Misleading Information Inducing Transactions

This offence prohibits the disclosure of information about securities or futures which is materially false or misleading that is likely to induce investment decisions or affect prices in Hong Kong, if the defendant knows that, or is reckless or, for civil liability only, negligent as to whether, the information is materially false or misleading. There are a number of narrowly drafted defences available to businesses who passively disseminate information provided by others.

Scope of Offences

The market manipulation offences (ie. false trading, price rigging and stock market manipulation) cover both conduct in Hong Kong or elsewhere which affects securities (or futures) traded on an exchange or through an ATS in Hong Kong and conduct in Hong Kong which has the same effect on securities (or futures) traded on an overseas market. Where the conduct affects an overseas market, the prosecution must prove that the conduct is also unlawful in the country in which the market is situated.

Effects of Market Misconduct

THE MARKET MISCONDUCT TRIBUNAL (“MMT”)

  • the purpose of proceedings before the MMT is to determine:
    1. whether any market misconduct has taken place;
    2. the identity of each person involved; and
    3. the amount of any profit gained or loss avoided as a result
  • the MMT makes its findings on the civil standard of proof – ie. on the balance of probabilities
  • the MMT can receive any evidence, whether or not it would be admissible in criminal or civil proceedings

Orders of The MMT

The MMT may impose any of the following sanctions:

  • Disqualification order
  • Cold shoulder order
  • Cease and desist order
  • Disgorgement order
  • Government costs order
  • SFC costs order
  • Disciplinary referral order

Criminal Penalties

The maximum criminal sanctions are 10 years’ imprisonment and fines of up to $10 million

NO DOUBLE JEOPARDY

A person will not be subject to the ‘double jeopardy’ of both civil proceedings under Part XIII and criminal proceedings under Part XIV for the same conduct.

Civil Liability – Private Right of Action

A private right of action is created in favour of anyone who has suffered financial loss as a result of market misconduct or a Part XIV offence to seek compensation from the perpetrator.

A person is taken to have committed market misconduct if:

  • he has perpetrated the market misconduct; or
  • the market misconduct was perpetrated by a company of which he is an officer with his consent or connivance; or
  • another person committed market misconduct and he assisted or connived in the perpetration thereof, knowing that such conduct constitutes or might constitute market misconduct.

Liability of Officers of A Corporation

Section 279 imposes a duty on officers of a company to take reasonable measures to ensure that proper safeguards exist to prevent the company contravening the market misconduct provisions.

The definition of ‘officer’ includes a director, a manager or secretary of, or any other person involved in the management of a company.

THE SECURITIES AND FUTURES ORDINANCE PART IV REGULATION OF OFFERS OF INVESTMENTS

Introduction

Part IV covers 3 main areas:

  • Prohibition on the issue of investment advertisements to the public unless approved by the SFC (previously contained in the PIO)
  • SFC authorisation of ‘collective investment schemes’ (previously contained in S15 Securities Ordinance re. unit trusts and mutual funds only)
  • Creates civil and criminal liability for fraudulently, recklessly or negligently (for civil liability only) inducing others to invest money

Prohibition On Unauthorised Investment Advertisments

Section 103(1) – it is an offence for a person to issue, or have in his possession for the purposes of issue, whether in Hong Kong or elsewhere, an advertisement, invitation or other document which to his knowledge contains an offer to the public:

  1. to enter into:
    1. an agreement to acquire, dispose of, subscribe for or underwrite securities; or
    2. a regulated investment agreement; or
  2. to acquire an interest in or participate in a collective investment scheme,

unless the issue is authorised by the SFC.

New Terminology

A ‘regulated investment agreement’ – an agreement (other than a collective investment scheme), the purpose or effect of which is to provide to any party to it, a profit, income or other returns calculated by reference to changes in the value of any property.

‘Collective investment scheme’ – new term used to cover mutual funds, unit trusts and other pooled investment arrangements. Its definition is broad: key elements are:

  • that participants do not have day-to-day control over the management of the property;
  • the property is managed as a whole by the operator of the scheme, or participants contributions’ and profits or income are pooled, or both; and
  • the purpose or effect of the scheme is for participants to receive profits, income or other returns from the scheme property.

New Deeming Provisions

New deeming provisions whereby:

  • an investment advertisement likely to lead to the doing of any act referred to in Section 103(1); and
  • an investment advertisement containing an invitation directed at, or which is likely to be accessed or read by, the public,

is caught by the Section 103(1) prohibition.

SFC Authorisation Of Investment Advertisments

Section 105 SFO contains the SFC’s power to authorise the issue of investment advertisements.

Authorisation can be subject to conditions, including conditions on the investment product itself.

New feature of application procedure – applicant must nominate an individual to be served with notices relating to the issue.

Exemptions

The exemptions to the S103 prohibition previously contained in the PIO mostly carried forward to the SFO. 2 main categories:

  • exemptions relating to the type of person issuing the advertisement (eg. for advertisements issued by intermediaries licensed/registered under the SFO)
  • exemptions relating to certain types of investment advertisement (eg. prospectuses complying with the Companies Ordinance).

Exemptions also retained for investment advertisements for securities/interests in a regulated investment agreement or collective investment scheme which:

  • are offered only to persons outside Hong Kong; or
  • are offered only to ‘professionals’

The SFO ‘Professional Investor’ Exemption

New definition of ‘professional investor’ – specific categories of qualifying persons

Definition replaces generic wording of the PIO – exemption for offers to ‘persons whose ordinary business involves the acquisition and disposal of securities, whether as principal or agent’.

New definition is lengthy (SFO Schedule 1 and the Securities and Futures (Professional Investor) Rules and includes:

  • authorised financial institutions and overseas banks
  • authorised insurers (and overseas equivalents)
  • authorised collective investment schemes and their operators (and overseas equivalents)
  • registered MPF schemes, their constituent funds and approved trustees/service providers and investment managers
  • registered occupational retirement schemes (and overseas equivalents)

and

  • trust corporations with total assets of HK$40 million
  • individuals with a portfolio of HK$8 million
  • corporations or partnerships with a portfolio of HK$8 million or total assets of HK$40 million

‘Professionals Exemption’ Under The Companies Ordinance

Note: CO ‘professionals exemption’ not yet amended in line with SFO.

Section 343(2) CO – offers of shares or debentures to ‘persons whose ordinary business is to buy or sell shares or debentures’ – deemed not to be an offer to the public.

CO professionals exemption is narrow: investors (including large corporates) not buying or selling shares/debentures ‘in the ordinary course of their business’ are outside the exemption.

Proposed Amendments To The Companies Ordinance

Companies (Amendment) Bill 2003 (the ‘CAB’) proposes to amend the CO ‘professionals exemption’.

Proposal to exclude from the CO definition of ‘prospectus’ any document containing an offer to investors within the SFO definition of ‘professional investor’

CAB also proposes to exclude from CO definition of ‘prospectus’ offering documents for 11 further categories of offers including:

  • Offers to not more than 50 persons
  • Offers where the total consideration payable does not exceed HK$5 million
  • Offers where the minimum consideration payable by any person is not less than HK$500,000

Offers to persons outside Hong Kong also to be excluded.

Private placements under the SFO and CO.

Ability to combine exemptions

Exclusions (except for high net worth individuals and small offers) will be able to be used in combination.

Consequential amendments to the SFO

Documents excluded from CO ‘prospectus’ definition will also be exempted from prohibition in Section 103(1) SFO.

Penalties For Breach Of S103 (1)

Maximum penalties are:

  • Fine of HK$ 500,000
  • Up to 3 years’ imprisonment
  • Further fine of HK$ 20,000 for each day offence continues

Authorisation Of Collective Investment Schemes

Previous regime (S15 Securities Ordinance) specifically regulated 2 products only – unit trusts and mutual funds.

Other pooled investment arrangements – regulated only with respect to marketing materials – requirement for SFC authorisation under PIO.

Under SFO:

  • new wide definition of ‘collective investment scheme’
  • Section 104 – specific power for SFC to authorise ‘collective investment schemes’ (ie. to authorise investment product itself).

Procedure for authorisation contained in the Code on Unit Trusts and Mutual Funds.

New feature – applicant to nominate individual to be served with notices re. the scheme.

Withdrawal Of Authorisation

SFO rectifies weakness of previous legislation – new power for SFC to withdraw authorisation of a collective investment scheme or the issue of an investment advertisement where:

  • any information provided to the SFC was materially false or misleading when provided
  • there is a breach of any condition for authorization
  • it is desirable to protect the interests of the investing public
  • the approved person for the scheme or advertisement makes a written request to the SFC.

Other Offences Under Part IV

Section 107(1) – Offence to fraudulently or recklessly induce others to invest money.

Section 108 – Civil liability for fraudulently, recklessly or negligently inducing others to invest money.

New definitions of ‘regulated investment agreement’ and ‘collective investment scheme’ extend scope of PIO offences.

Section 109 – Offence to issue advertisements relating to the carrying on of regulated activities.

STABILISATION UNDER THE SECURITIES AND FUTURES (PRICE STABILISING) RULES

Introduction

The SFO allows the SFC to make rules creating defences to the market misconduct provisions of Parts XIII and XIV of the SFO.

The Securities and Futures Price Stabilising Rules (the ‘Rules’) are made under that provision and prescribe the circumstances in which price stabilisation may be carried out without constituting market misconduct. The Rules came into effect on 1 April 2003.

Previous Position

Previously, a restricted form of stabilisation was permitted under policy statements of the SFC and the Hong Kong Stock Exchange whereby:

  • there was an over-allotment of securities by the underwriters;
  • the short position created by the over-allotment was covered by an over-allotment option granted by the issuer and/or stock borrowing arrangements;
  • ‘genuine purchases’ to satisfy the over-allotment which also reduced excess supply were permitted.

Conditions to be Satisfied

To qualify for the safe harbour under the Rules, the offer must be of ‘relevant securities’ and

  • the offer must be for cash;
  • the securities must be listed on a recognised stock exchange or traded through an authorised automated trading system;
  • the offer size (excluding over-allocated securities) must be at least $100 million*;
  • the offer must be to the public;
  • the offer must be:
    1. the subject of a prospectus or a document authorised under S105 of the SFO (to cover offers of debt securities by government agencies); or
    2. a placing or other offer of shares of a class which is already listed to Companies Ordinance ‘professionals’ only. It must not comprise a sell-down element and must be the subject of a public announcement containing the offer price and the disclosure and warnings relating to the proposed stabilisation required by the Rules.

* The minimum offer size means that any stabilisation conducted in respect of an offer below $100 million now potentially constitutes market misconduct.

Relevant securities are equity securities, debt securities or depositary receipts.

Primary Stabilising Actions

  • The stabilising manager can buy relevant securities in the secondary market to support their price.
  • These purchases may (but do not have to) be made to satisfy an over-allotment of the securities.
  • All stabilising purchases must be for the account of the Stabilising Manager.

Ancillary Stabilising Actions

Permitted ancillary stabilising action allows the Stabilising Manager to:

  • over-allocate or establish a short position in the relevant securities;
  • exercise an over-allotment option to close out any such short position;
  • liquidate net long positions acquired in the course of primary stabilising activity.

The SFC has also indicated that securities borrowing arrangements and the subsequent return of borrowed shares should be covered as ancillary stabilising activity.

Time Limits for Stablising Actions

Primary Stabilising Actions

The period runs from the commencement of trading on a recognised stock exchange or through an authorised automated trading service after the issue of the offer document and announcement of the offer price.

It ends 30 days after the earlier of the closing date or the commencement of trading on a recognised stock exchange.

Ancillary Stabilising Actions

No time limits apply.

However the SFC has indicated that, as a matter of good practice, net long positions should be liquidated as soon as is practicable at a profit without disrupting the market.

Price Limits For Stabilising Actions

Upper price limits apply to primary stabilising actions for equity securities but not debt securities.

Item Action Maximum Price
1 Initial stabilising action The offer Price
2 After the initial stabilising action, when there has been no deal or transaction described in item 3. The initial stabilising action
3 After the initial stabilising action, when there has been an independent* deal or transaction on a recognised stock market or through an ATS at a price above the initial stabilising price. The lower of the offer price and the price at which the deal or transaction was effected

The ‘initial stabilising action’ is the first stabilising purchase made by the Stabilising Manager.

The ‘initial stabilising price’ is the price of the first stabilising purchase.

* With respect to item 3, the deal or transaction must be truly independent. Any deal or transaction effected by or on the instructions of the Stabilising Manager does not count.

The Role of the Stabilising Manager

  • The Stabilising Manager is ultimately responsible for the conduct of any agent appointed to carry out stabilisation;
  • The Stabilising Manager should separate its stabilising activities from its other trading activities (including proprietary trading);
  • Dealings between the Stabilising Manager and its agents as principals is prohibited – unless the identity of the counter-party is unknown.

Disclosure Requirements

Prior Disclosure

Adequate disclosure of the fact that stabilisation may be undertaken must be made in the first public announcement of the offer and in all subsequent communications until detailed warnings and disclosure are made in the prospectus or other offer document.

Interim Disclosure

Exercise of Over-allotment option.

A public announcement is required as soon as possible after any exercise of an over-allotment option stating:

  • the number of securities purchased or subscribed for; and
  • the number of securities still available under the unexercised portion of the option.

A public announcement must be made within 7 days of the end of the stabilising period stating:

  • the ending date of the stabilisation period;
  • whether or not stabilising action was undertaken;
  • the price range between which purchases were made;
  • the date and price of the last stabilising purchase;
  • the extent to which any over-allotment option was exercised.

Record Keeping of Stabilising Actions

  • Stabilising Manager to maintain a register of all stabilising actions taken;
  • Register to be updated immediately or on a daily basis;
  • Register to be kept for 7 years after the end of the stabilising period;
  • The Issuer can inspect the register within 3 months of the end of the stabilising period;
  • The SFC can inspect the register at any time.

Securities and Futures Ordinance

Types of market misconduct

Disclosure of interests

Market Misconduct Tribunal

Disclosure of short positions

Market misconduct provisions

Insider dealing

Collective investment schemes

Professional investor

The Securities and Futures Price Stabilising Rules

Hong Kong Financial Regulator
Securities and Futures Commission
Disclosure legal definition