2. Part IV of the Securities and Futures Ordinance
2.1. Investment Advertisements in Hong Kong
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: or
- to acquire an interest in or participate in, or offer to acquire an interest in or participate in, a collective investment scheme,
unless the issue is authorised by the SFC under Section 105(1) SFO.
“Collective investment scheme” is the term used in the SFO to cover mutual funds, unit trusts and other pooled investment arrangements. Interests in limited partnerships, which are not a very common form of investment vehicle in Hong Kong, will also be treated as collective investment schemes for the purposes of the SFO.
The SFO regime covers advertisements and invitations made verbally as well as written documents2.
2.2. Public Offer
In order for interests in a fund to be marketed to the public in Hong Kong, the fund must be authorised by the SFC under Section 104 SFO. The conditions for authorisation are set out in the Code on Unit Trusts and Mutual Funds. In addition, any invitation to the public to acquire interests in the fund, must be authorised by the SFC under Section 105 SFO.
There are no published guidelines on the approval of limited partnerships for marketing to the public in Hong Kong. Applications will therefore be treated on a case-by-case basis although it is likely that the provisions of the Code would be applied as far as they are relevant.
There are certain exemptions from the investment advertisements requirements.
- Advertisements issued by Type 1 licensed/registered intermediaries
This exemption is available in respect of advertisements of securities.
The term “securities” includes investments in collective investment schemes. However, in the sections dealing with the various exemptions to the investment advertisement requirements, the legislation appears to make a distinction between “collective investment schemes” and “securities”, so that it is arguable that this exemption does not apply to the marketing of interests in the Fund.
- Advertisements issued to persons outside Hong Kong
This exemption applies to advertisements for both securities and collective investment schemes to be disposed of outside Hong Kong.
- Advertisements issued to professional investors
This exemption is available in respect of advertisements for securities and for collective investment schemes.
The definition of professionals which applies for the purposes of this exemption includes all the categories of investors listed in Part A of Annex A to this note (i.e. Type 1 professionals) and those listed in Part B of Annex A (“Type 2 professionals”).
It is therefore possible to market interests in the Fund to the categories of high net worth investors referred to in Part B of Annex A in reliance on this exemption. However, the offeror must use appropriate methods to establish that persons specified in paragraphs 10, 11, 12 and 13 of Part B meet the relevant assets or portfolio threshold at the relevant date3 to qualify as a professional investor. Firms should keep proper records of their assessment process so as to demonstrate that they have exercised professional judgement and have reached a reasonable conclusion that their clients meet the relevant thresholds.
- Private placements in Hong Kong
This is technically not an exemption, but invitations not issued to the public do not fall foul of the legislation.
It is generally considered that if an invitation is issued to no more than 50 persons, it will not be regarded as being made to the public.
Where an offer is structured as a private placement, the following steps should be taken:
- Each information memorandum issued should be numbered in series and individually addressed to each offeree;
- No more than 50 copies of the information memorandum should be issued;
- The information memorandum should contain a warning that the addressee may not copy or pass the information memorandum to any other person;
- Subscriptions for interests in the Fund should only be accepted from the offeree and the offeree should only be able to purchase interests in the Fund as principal; and
- There should be no public advertising at all in Hong Kong in relation to the offer of interests in the Fund. The issue of promotional material must be strictly limited to offerees.
2 See the definitions of “advertisement”and “invitation” in Section 102 SFO.
3 “Relevant date” for these purposes means in the case of any advertisement, invitation or document to enter an agreement to acquire or subscribe for securities, the date of issue of the advertisement, invitation or document (Section 2 of the Securities and Futures (Professional Investor) Rules).