IX. LISTING RULE DISCLOSURE OBLIGATIONS
1. The role and duties of the SFC and the Exchange
The SFC is responsible for enforcement of the statutory obligation to disclose inside information. The Exchange will not give guidance on the interpretation or operation of the SFO or the SFC Guidelines. Where, however, the Exchange is aware of a possible breach of the statutory disclosure obligation, the Exchange will refer it to the SFC. The Exchange will not take any disciplinary action itself under the Rules, unless the SFC considers it inappropriate to pursue the matter under the SFO and the Exchange considers action under the Rules for a possible breach of the Rules to be appropriate. An issuer will not face enforcement action by the SFC and the Exchange at the same time, in respect of the same set of facts.
2. Obligation to avoid false market (GEM Rule 17.10(1))
If it is the Exchange’s view that there is, or is likely to be, a false market in a listed issuer’s securities, the issuer must announce the information necessary to avoid a false market as soon as reasonably practicable after consultation with the Exchange.
An issuer is also required to contact the Exchange as soon as reasonably practicable if it believes that there is likely to be a false market in its securities.
Under GEM Rule 17.10(2), where an issuer is required to disclose inside information under the SFO, it must simultaneously announce the information. An issuer is also required to simultaneously copy to the Exchange any application to the SFC for a waiver from the requirement to disclose inside information and to promptly copy to the Exchange the SFC’s decision whether to grant such a waiver.
3. Obligation to respond to the Exchange’s enquiry
Under GEM Rule 17.11, if the Exchange makes an enquiry concerning unusual movements in the price or trading volume of an issuer’s listed securities, the possible development of a false market in its securities, or any other matters, an issuer will be required to respond promptly to the Exchange’s enquiries in one of the following two ways:
- provide to the Exchange and, if requested by the Exchange, announce any information relevant to the subject matter(s) of the enquiries available to it, so as to inform the market or to clarify the situation; or
- if appropriate, and if requested by the Exchange, issue a standard announcement confirming that, the directors, having made such enquiry with respect to the issuer as may be reasonable in the circumstances, are not aware of any information that is or may be relevant to the subject matter(s) of the enquiries, or of any inside information which needs to be disclosed under the SFO.
The standard form of the announcement in response to an enquiry is set out in Note 1 to GEM Rule 17.11:
“This announcement is made at the request of The Stock Exchange of Hong Kong Limited.
We have noted [the recent increases/decreases in the price [or trading volume] of the [shares/warrants] of the Company] or [We refer to the subject matter of the Exchange’s enquiry]. Having made such enquiry with respect to the Company as is reasonable in the circumstances, we confirm that we are not aware of [any reasons for these price [or volume] movements] or of any information which must be announced to avoid a false market in the Company’s securities or of any inside information that needs to be disclosed under Part XIVA of the Securities and Futures Ordinance.
This announcement is made by the order of the Company. The Company’s Board of Directors collectively and individually accept responsibility for the accuracy of this announcement.”
GEM Rule 17.11 states that an issuer does not need to disclose inside information under the Rules if the information is exempt from disclosure under Part XIVA SFO.
The Exchange reserves the right to direct a trading halt of an issuer’s securities if an announcement under GEM Rule 17.11 cannot be made promptly.
4. Trading halts or suspension
GEM Rule 17.11A requires an issuer to request a trading halt or trading suspension if an announcement cannot be made promptly in any of the following circumstances:
- where an issuer has information which must be disclosed under the GEM Rule 17.10;
- an issuer reasonably believes that there is inside information which must be disclosed under Part XIVA SFO; or
- inside information may have been leaked where it is the subject of an application to the SFC for a waiver from compliance with the statutory disclosure obligation or where it is exempt from the statutory disclosure obligation (except if the exemption concerns disclosure prohibited by Hong Kong law or an order of a Hong Kong court).
Under GEM Rule 9.04, the Exchange also has the right to direct a trading halt or suspend dealings in an issuer’s securities in a number of circumstances, including where:
- there are unexplained movements in the price or trading volume of the issuer’s listed securities or where a false market for the trading of such securities has developed and the issuer’s authorised representative cannot immediately be contacted to confirm that the issuer is not aware of any matter that is relevant to the unusual price movement or trading volume or the development of a false market;
- the issuer delays in issuing an announcement in response to enquiries from the Exchange under GEM Rule 17.11; or
- there is uneven dissemination or leakage of inside information in the market giving rise to an unusual movement in the price or trading volume of the issuer’s listed securities.
1. The Listing Rules require listed companies to publish announcements in a wide range of situations.
The Exchange’s Guide on Pre-vetting Requirements and Selection of Headline Categories for Announcements (“Pre-Vetting Guide”) (attached at Annex C) sets out the situations in which an announcement is required under the GEM Rules, whether or not the announcement is required to be vetted by the Exchange before publication and the headline categories which will generally apply. The following is a summary of the main situations in which a listed issuer is required to publish an announcement.
Price-sensitive information – any price-sensitive information which is discloseable as inside information under Part XIVA SFO must be announced and kept strictly confidential until a formal announcement is made.
Notifiable transactions – any notifiable transaction within Chapter 19 of the GEM Rules.
Connected transactions – any connected transaction (unless an exemption is available) within Chapter 20 of the GEM Rules.
Advances and financial assistance to third parties – the listed issuer or any of its subsidiaries makes a “relevant advance to an entity” which:
- exceeds 8% of the total assets of the listed issuer (GEM Rule 15); or
- is greater than the previously disclosed relevant advance by 3% or more of the listed issuer’s total assets (GEM Rule 16).
The expression “relevant advance to an entity” means the aggregate of amounts due from and all guarantees given on behalf of an entity, its controlling shareholder, its subsidiaries, its affiliated companies and any other entity with the same controlling shareholder as itself (Note 2 to GEM Rule 17.14). An advance to a subsidiary of the listed issuer, or between subsidiaries of the listed issuer, is not regarded as a relevant advance to an entity (GEM Rule 17.15).
Financial assistance to affiliated companies – where financial assistance and guarantees of financial assistance given by the listed issuer or any of its subsidiaries to affiliated companies (being those which are equity accounted for by the issuer) of the listed issuer together exceed 8% of the listed issuer’s total assets (GEM Rule 17.18).
Pledge of controlling shareholder’s interest – where the controlling shareholder of the listed issuer has pledged its interest in shares of the issuer to secure debts of the issuer or to secure guarantees or other support of obligations of the issuer (GEM Rule 17.19).
Loan agreements – where:
- the listed issuer (or any of its subsidiaries) enters into a loan agreement that imposes specific performance obligations on any controlling shareholder (e.g. a requirement to maintain a specified minimum holding in the share capital of the listed issuer) and breach of such obligation will cause a default in respect of loans that are significant to the operations of the listed issuer (GEM Rule 20); or
- the listed issuer or any of its subsidiaries breaches the terms of a loan that is significant to the operations of the group, such that the lender may demand immediate repayment and the breach has not been waived by the lender (GEM Rule 21).
Takeover offers – an announcement must be made once a takeover offer is made or accepted, as required by the Takeovers Code.
Accounts and auditors
Board meeting for approval of results – an issuer must inform the Exchange and publish an announcement at least 7 clear business days in advance of the date fixed for any board meeting at which the profits or losses for any period are to be approved for publication (GEM Rule 17.48).
Annual, half-year and quarterly results – must be published by way of announcement under Chapter 18 of the GEM Rules.
Change in auditor or financial year end – any change in a listed issuer’s auditors or financial year end, the reason(s) for the change and any other matters that need to be brought to the attention of holders of the company’s securities. The issuer’s announcement must state whether the outgoing auditors have confirmed that there are no matters that need to be brought to the attention of holders of the company’s securities (GEM Rule 17.50(4)). The issuer must appoint an auditor at each annual general meeting (AGM) to hold office until the next AGM. Any proposal to remove an auditor before the end of its term of office must be approved by shareholders in general meeting (GEM Rule 17.100).
Change of company name – once the board decides to change the company name (Schedule to Appendix 24 of the GEM Rules).
Memorandum and Articles of Association – any proposed alteration of the memorandum or articles of association (or equivalent documents) of the listed issuer (GEM Rule 17.50(1)).
Registered office – any change in the company’s registered address, agent for service of process in Hong Kong or registered office or registered place of business in Hong Kong (GEM Rule 17.50(5)).
Share registrar – any change of the company’s share registrar (including any overseas branch share registrar) (GEM Rule 17.50(3)).
Dividends – an issuer must inform the Exchange and publish an announcement at least 7 clear business days in advance of the date fixed for any board meeting at which the declaration, recommendation or payment of a dividend is expected to be decided (GEM Rule 17.48). Any decision of the board to declare, recommend or pay a dividend or not to do so must be announced immediately, and include the rate, amount and expected payment date (GEM Rules 17.49(1) and (2)).
Change in nature of business – a proposed fundamental change in the principal business activities of the issuer or its group must be announced immediately after it has been the subject of any decision (GEM Rule 17.25).
Winding-up or Liquidation – the appointment of a receiver or manager, the presentation of any winding-up petition or the passing of any resolution authorising the winding up of the listed issuer, its holding company or any of its major subsidiaries (i.e. a subsidiary representing 5% under any of the percentage ratios (please see “Notifiable Transactions” below) or any similar insolvency events (GEM Rule 17.27(1)).
Decision to withdraw listing – a proposed withdrawal of listing must be notified to shareholders by way of publication of an announcement (GEM Rule 9.23).
Audit committee – if the issuer fails to set up an audit committee or does not meet the membership requirements (GEM Rule 5.33). An announcement must also be published of any change in membership of the audit committee (GEM Rule 17.50(3)).
Remuneration committee – if the issuer fails to set up a remuneration committee or does not comply with the requirements as to its composition or terms of reference (GEM Rule 5.36).
Directors and officers
Board composition and independent non-executive directors – an announcement must be made if the number of the issuer’s independent non-executive directors (“INEDs”) is less than three or one third of the number of directors on the board, or if it does not have at least one INED with appropriate professional qualifications or accounting or related financial management expertise (GEM Rule 5.06).
Change in company secretary – an announcement must be made once the board has decided to change the company secretary (GEM Rule 17.50(3)).
Change in compliance adviser – an announcement must be made as soon as a compliance adviser resigns, and arrangements must be made immediately to appoint a new compliance adviser. Once a new compliance adviser has been appointed, another announcement must be made (GEM Rules 17.50(3) and 6A.29).
Change in compliance officer – an announcement must be published of any change to the issuer’s compliance officer (GEM Rule 17.50(3)). The issuer must also immediately publish an announcement if it does not have a compliance officer at any time (GEM Rule 5.23).
Change in directors – any change of directors, including, in the case of the resignation of a director, the reasons given by the director for his resignation (GEM Rule 17.50(2)). An announcement of the appointment of a new director or re-designation of a director must include the information specified in GEM Rule 17.50(2).
Change in disclosed information about directors – any change to the information specified in paragraphs (h) to (v) of GEM Rule 17.50(2) previously disclosed about a director must be announced (GEM Rule 17.50A). Such information relates mainly to matters which may cast doubt on the integrity of the directors involved and their suitability for continuing to serve as directors. Any change in the information specified in paragraphs (a) to (e) and (g) of GEM Rule 17.50(2) must be set out in the next published annual or interim report (GEM Rule 17.50A(1)). The Rules include an obligation for directors to inform the issuer immediately of any information specified in GEM Rule 17.50(2) and any change to such information (GEM Rule 17.50B).
Notice of general meetings – notice of an issuer’s annual general meeting and other general meetings must be announced (GEM Rules 17.44 and 17.46(2)).
Results of general meetings – the results must be published before commencement of trading on the business day following the meeting (GEM Rule 17.47(5)).
Issues of securities – an issue of securities (including convertible securities or warrants, options or similar rights) will almost always require an announcement (except an exercise of options under an employee share scheme) either as inside information under GEM Rule 17.10(2)(a), or under Chapter 19 or 20, or under GEM Rule 17.30.
Changes in number of issued shares – certain changes in the number of issued shares must be reported to the Exchange for publication on the Exchange’s website on the following business day (GEM Rule 17.27A). Issuers must also submit a monthly return of changes in their equity securities, debt securities and other securitised instruments (GEM Rule 17.27B).
Share option schemes – an employee share option scheme must be approved by shareholders in general meeting and a listed issuer must publish an announcement of the outcome of the meeting as soon as possible and no later than the business day following the meeting (GEM Rule 23.02(1)(a)). Further announcements must be published on the grant of share options pursuant to a share option scheme specifying the information required by GEM Rule 23.06A. The announcement is required to include details of the date of grant, the exercise price and number of options granted, the market price of the issuer’s securities on the date of the grant, the name of any grantee who is, or is an associate of, a director, chief executive or substantial shareholder of the listed issuer and the number of options granted to such person, and the validity period of the options.
Basis of allotment of securities – the basis of allotment of any securities offered to the public for subscription or sale or an open offer and of the results of the offer and, if applicable, of the basis of any acceptance of excess applications. The company must notify the Exchange of such matters no later than the morning of the next business day after the allotment letters or other relevant documents of title are posted (GEM Rule 16.13).
Public float – the company must inform the Exchange immediately and publish an announcement if it becomes aware that the number of its listed securities held by the public has fallen below the prescribed minimum percentage (i.e. 25% unless a lower percentage of between 15% and 25% was approved by the Exchange on listing for a company having an expected market capitalisation at the time of listing of more than HK$10 billion) (GEM Rules 11.23(7), 11.23(10) and 17.36).
Share Repurchases – Listed issuers must submit a completed return after any purchase, sale, drawing or redemption by the issuer or its group members of its listed securities (whether on the Exchange or not) (GEM Rule 17.35). The issuer should also be aware of the provisions of the Code on Share Buy-backs which sets out detailed rules governing any offer to purchase, redeem or otherwise acquire the shares of a listed issuer made by or on behalf of the listed issuer to any of its shareholders.
2. Announcements which require pre-vetting by the Exchange
Announcements of the following matters or transactions must be submitted to the Exchange for review and approval before publication under GEM Rule 17.53(2):
- very substantial acquisitions, very substantial disposals or reverse takeovers under GEM Rules 19.34 and 19.35;
- transactions or arrangements within 12 months after listing which would result in a fundamental change in principal business activities under GEM Rules 19.88 to 19.90; and
- matters relating to cash companies under GEM Rules 19.82 and 19.83.
Announcements other than those specified in GEM Rule 17.53(2) do not need to be pre-vetted by the Exchange, although companies may consult the Exchange regarding rule compliance issues. The Exchange also reserves the right under GEM Rule 17.53A to require listed companies to submit for review any draft announcement, circular or other document in individual cases.
For a summary of the pre-vetting requirements for announcements, reference should be made to the Exchange’s Pre-vetting Guide at Annex C.
3. Matters requiring prior consultation with Exchange prior to announcement
There are a number of Rule compliance issues relating to notifiable transactions or issues of securities which need the Exchange’s prior consent or confirmation prior to the publication of announcements. These include, but are not limited to, the following:
- whether the Exchange will allow the listed issuer to adopt alternative size test(s) to classify a notifiable transaction under GEM Rule 19.20;
- whether the Exchange will deem a party to a transaction to be a connected person of the listed issuer under GEM Rules 20.17 to 20.19. GEM Rule 20.20 requires a listed issuer to notify the Exchange of any proposed transaction with a party described in such rules unless the transaction is exempt;
- whether the transaction/matter falls under the special or exceptional circumstances described in the Listing Rules, e.g. a proposed issue of securities for cash under general mandate at a price representing a discount of 20% or more to the benchmarked price under GEM Rule 17.42B; or a proposed issue of warrants that would not meet certain specific requirements under GEM Rule 21.02; and
- in the case of matters affecting trading arrangements (including suspension or resumption of trading, and cancellation or withdrawal of listing), GEM Rule 17.53B requires that:
- listed issuers must consult the Exchange before issuing the relevant announcement; and
- the announcement must not include any reference to a specific date or timetable which has not been agreed in advance with the Exchange.
4. Publication of announcements
Announcements are required to be published on the GEM website and on the listed issuer’s own website in accordance with the provisions of GEM Rule 16.17, 16.18 and 16.19. Listed companies must submit an electronic copy of the announcement through the Exchange’s electronic submission system (HKEx-EPS). When doing so, companies must select all appropriate headlines from the list of headline categories which are set out in Appendix 17 to the GEM Rules. Unless stated otherwise in the Rules, all announcements must be published in both English and Chinese.
With the exception of certain limited types of announcements that can be published at all times during the operational hours of the e-Submission System, announcements must only be submitted during the designated publications windows which are:
On a normal business day:
- 6.00 a.m. to 8.30 a.m.
- 12.00 p.m. to 12.30 p.m.
- 4.15 p.m. to 11.00 p.m.
On the eves of Christmas, New Year and Lunar New Year when there is no afternoon session:
- 6.00 a.m. to 8.30 a.m.
- 12.00 p.m. to 11.00 p.m.
The categories of announcements which can be published during trading hours as well as outside trading hours are:
- suspension announcements;
- announcements made in response to unusual movements in share price or trading volume;
- announcements denying the accuracy of news reports or clarifying that only its published information should be relied upon; and
- overseas regulatory announcements.