3. Part IV of the Securities and Futures Ordinance
3.1. Investment Advertisements
It is an offence under Section 103 SFO for a person to issue in Hong Kong an advertisement, invitation or document which is or contains an invitation to the public to enter into or offer to enter into an agreement to acquire, dispose of, subscribe for or underwrite securities, unless the issue is authorised by the SFC under Section 105(1) SFO.
It should be noted that the SFO regime covers advertisements and invitations made verbally as well as written documents5.
There are a number of exemptions from the investment advertisements requirements.
Most importantly, any invitation to the public which relates to an offer within the safe harbours of the Seventeenth Schedule to the C(WUMP)O, is also exempt from the prohibition on unauthorised investment advertisements by virtue of Section 103(2)(gaa) SFO. Accordingly, SFC authorisation is not required for invitations relating to an offer:
- to investors each paying a minimum consideration of HK$ 500,000 for the shares; or
- in circumstances where the total consideration payable for the shares is less than HK$ 5 million; or
- to unlimited numbers of “professional investors” within Annex A, overseas investors and up to a maximum of 50 other investors.
4. Internet Marketing
The SFC has stated that the provisions of the SFO and C(WUMP)O relating to the advertisement, offering and dealing of securities apply equally to activities conducted over the internet. The sending of marketing material over the internet is therefore subject to the same restrictions under the C(WUMP)O and the SFO.
The SFC’s primary concern is to regulate activities which are targeted at persons residing in Hong Kong or are detrimental to the interests of the Hong Kong investing public or to the market integrity of Hong Kong. Factors which will be taken into account in determining whether an advertisement is targeted at Hong Kong investors include:
- Whether the information is targeted via “push” technology (such as e-mail) to persons residing in Hong Kong;
- Whether the information provided over the internet appears to target Hong Kong residents (such as the use of local distribution agents; references to Hong Kong dollars; the use of Chinese language and the publication in a Hong Kong newspaper or publication of the internet address where such information can be accessed).
4.1. The Hong Kong Licensing Requirements
As mentioned in Section 1.4 above, marketing activities conducted from outside Hong Kong which target Hong Kong investors may trigger the SFO’s licensing requirements. The SFC’s Guidance Note on Internet Regulation published in 1999 (the “SFC Guidance Note”) states that the SFC will require persons who use the internet to induce people residing in Hong Kong to deal in securities to be registered or licensed by the SFC.
4.2. The C(WUMP)O Prospectus Regime and Part IV of the Securities and Futures Ordinance
The SFC Guidance Note also states that the requirements of the C(WUMP)O prospectus regime and the SFO’s prohibition on unauthorised invitations to the public apply to invitations and offers made by means of the internet.
In addition, internet advertisements to acquire shares in a Company are likely to be caught by Section 103(10) SFO which contains deeming provisions whereby:
- any advertisement, invitation or document which consists of or contains information likely to lead, directly or indirectly, to the doing of any act referred to in Section 103(1) is regarded as an advertisement, invitation or document which is or contains an invitation to do such act; and
- any advertisement, invitation or document which is or contains an invitation directed at, or the contents of which are likely to be accessed or read (whether concurrently or otherwise) by, the public is deemed to be or contain an invitation to the public.
This note is intended for information purposes only. Specific advice should be sought in relation to any particular situation.
5 See the definitions of “advertisement” and “invitation” in Section 102 SFO.