No. 1 • April 2003

Disclosure of Interests under the Securities and Futures Ordinance | Part 3

Exemptions

The SFO contains a number of detailed exemptions and situations where certain interests may be disregarded. The following provides only a brief outline of the principal exemptions.

Basket Derivatives

Interests in basket derivatives over shares of at least 5 companies listed on a “specified” stock exchange are disregarded, provided no single share accounts for more than 30% of the total value of the basket. The percentage is calculated at the time the derivatives are issued.

De Minimis Change Exemptions

On Acquisition or Disposal of Interests

A person is exempt from disclosing a new interest when crossing a percentage level if:

  1. The new percentage level is the same as (or lower than) the level stated in their “Last Notification”; and
  2. The difference between the actual percentage figure in the Last Notification and the current percentage figure has always been less than 0.5%.

The “Last Notification” must be a notice of a change in percentage level above 5% (under s.313(1)(c)). Notifications on commencement of the SFO or first crossing the 5% threshold do not qualify.

For Short Positions

A similar de minimis exemption applies to minor changes in short positions.

On Change in the Nature of Interests

No disclosure is required where the change in nature of interest meets specific de minimis criteria relating to the unchanged portion of the holding (detailed examples are provided in the SFC’s Outline of Part XV of the SFO).

Exempt Security Interests

An interest in shares held by a “qualified lender” by way of security in the ordinary course of business is exempt from disclosure.

Qualified lenders include authorised financial institutions, insurance companies, exchange participants, licensed intermediaries, and certain recognised overseas institutions.

The exemption ceases if the lender becomes entitled to exercise voting rights due to default and shows intention to do so, or if the power of sale is exercised and shares are offered for sale.

Wholly Owned Group Exemption

A wholly-owned subsidiary does not need to disclose an interest if its ultimate holding company has already done so.

Transfers of shares, grants of options, or issuance of warrants between wholly-owned subsidiaries within the same group do not trigger disclosure obligations, as the ultimate parent’s position remains unchanged.

The exemption is lost if a subsidiary ceases to be wholly owned (even if only 1% is sold to a third party).

Bonus and Rights Issue Exemption

In a rights issue, shareholders’ percentage interests are calculated using this formula:

(Nominal value of shares (including unissued shares) in which the shareholder is interested ÷ (Issued shares + Shares to be issued on completion of the issue)) × 100

Shareholders who take up their rights (percentage unchanged) are not required to disclose. Those who do not take up rights, or who sell their rights, must disclose if a percentage level is crossed.

Investment Managers, Custodians and Trustees

Bare Trustee Exemption

Retained for trustees who can only act on the instructions of the beneficiary.

Exempt Custodian Interest

Corporate custodians are exempt if they have no discretionary authority over the shares or voting rights.

Disaggregated Group Interests

Holding companies are not required to aggregate interests of controlled companies that act as investment managers, custodians, or trustees in the ordinary course of business for customers, provided those entities exercise their rights independently.

Securities Borrowing and Lending Exemption

The SBL Rules provide simplified disclosure for substantial shareholders, Approved Lending Agents (ALAs), and regulated persons.

Collective Investment Schemes

Interests held by holders, trustees, and custodians of SFC-authorised collective investment schemes, certain pension/provident funds, and qualified overseas schemes are generally exempt.

Intermediary Exemption

Licensed intermediaries (brokers/dealers) are exempt when acquiring shares as agent for clients, provided the shares are held for no more than 3 business days (with similar rules for exchange-traded futures and options).

Further Exemptions