Disclosure of Interests under the Securities and Futures Ordinance

Introduction

The Securities and Futures Ordinance (SFO), which came into force on 1 April 2003, has significantly broadened the previous regime governing the disclosure of interests in the shares and debentures of Hong Kong listed companies. The aim is to enhance transparency in the Hong Kong market.

The SFC has issued a detailed paper explaining the relevant provisions with practical examples. The following is a summary of the new regime as it affects substantial shareholders, directors, and chief executives of listed companies.

Disclosure by Substantial Shareholders

As under the previous regime, the SFO requires disclosure when a person acquires or ceases to have a notifiable interest, or when there is a change in the percentage level (rounded down to the nearest whole number) of their interest.

Reduction of Substantial Shareholding Threshold

The SFO lowers the disclosure threshold from 10% to 5% of a Hong Kong listed company’s issued voting share capital. Where there is more than one class of listed shares, the percentage is calculated separately for each class.

When is Notification Required?

Initial Notification on Commencement of the SFO

Interests that became discloseable upon the commencement of the SFO must be filed on or before 14 April 2003.

See Schedule 1 for the list of interests that became discloseable on the commencement date.

Any interest already disclosed under the previous regime does not need to be re-notified.

Subsequent Notifications

Notification is required for events listed in Schedule 2. The SFO shortens the notification period from 5 days to 3 business days (including Saturdays).

An Initial Notification is also required in specific cases (e.g., when a company is newly listed or voting rights are granted) with a 10 business days notification period.

Disclosure of Interests in Equity Derivatives

The SFO extends disclosure requirements beyond physically settled derivatives to include:

• Interests in unissued shares that would carry voting rights if issued
• Cash-settled derivatives

This covers options, subscription warrants, convertible bonds, ADRs, stock futures, and other equity derivatives.

A holder, writer, or issuer of equity derivatives is considered to have a long position in the underlying shares if they have:

1. A right to take the underlying shares;
2. An obligation to take the underlying shares; or
3. A right to receive money or avoid/reduce a loss if the price of the underlying shares increases.

Disclosure of Short Positions

The SFO introduces mandatory disclosure of short positions. A person has a short position if they:

• Hold, write, or issue financial instruments that create an obligation or right related to a decline in share price; or
• Borrow shares under a securities borrowing and lending agreement.

Short positions must be disclosed if the person is already a substantial shareholder (≥5%) and the short position is at least 1%. Changes in short positions are disclosed similarly to long positions.

Important: Short positions cannot be netted off against long positions. They must be calculated and disclosed separately.

Calculation of Interests

Long Positions

The percentage is calculated as:

Short Positions

A similar formula applies for short positions (minimum 1%).

Percentages are rounded to 2 decimal places for reporting, but the percentage level is rounded down to the next whole number. Calculations are based on the date of the relevant event.