Directors and Chief Executives – Disclosure of Interests under the Securities and Futures Ordinance (April 2003)

Discloseable Interests

The disclosure obligations for directors and chief executives (“directors”) of a listed company remain broader than those for substantial shareholders. Directors must disclose interests in any shares (not just voting shares) and debentures of:

• The listed company of which they are a director; and
• Any associated company.

There is no disclosure threshold — all interests, no matter how small, must be disclosed.

The SFO extends directors’ obligations to cover:

• Interests in equity derivatives (including cash-settled)
• Short positions
• Changes in the nature of interests in shares and debentures

Definition of Associated Company

An associated company includes:

• Holding companies and subsidiaries of the listed company
• Fellow subsidiaries of the listed company’s holding companies
• Any company in which the listed company holds more than 20% of the nominal value of the issued shares of any class

A company is a subsidiary if another company controls the composition of its board, controls more than half the voting power, or holds more than half of its issued share capital (with certain exclusions). This creates a full chain of subsidiaries up to the ultimate holding company.

When is Notification Required?

Initial Notification on Commencement of the SFO

Directors must disclose any previously undisclosed interests in shares or debentures of the listed company or its associated companies by 14 April 2003.

Newly discloseable interests typically include:

• Short positions in shares
• Interests in unissued shares (e.g., options granted by the company)
• Interests arising from cash-settled derivatives
• Certain concert party arrangements and interests as a “founder” of a discretionary trust

Further Notifications

Directors must notify any “relevant events” listed in Schedule 4. The notification period is 3 business days.

An Initial Notification with a 10 business days period is required when:

• A person becomes a director
• A company of which they are a director becomes listed
• A company becomes an associated company of a listed company of which they are a director

Interests in Shares under Equity Derivatives

Directors must disclose interests in equity derivatives (both listed/unlisted and cash/physical settlement) in the listed company and its associated companies. The rules for long positions and calculation of interests are the same as for substantial shareholders.

Short Positions

Directors must disclose all short positions. The definition and calculation methods are the same as for substantial shareholders. Long and short positions cannot be netted off and must be disclosed separately.

Calculation of Percentage Figure

Although directors have no percentage threshold, they are still required to state the percentage figure of their interests.

Changes in the Nature of Interests

Directors must disclose any change in the nature of a previously disclosed interest. This includes changes in title, legal/equitable interests, and interests in underlying shares of equity derivatives upon exercise.

Common triggers include exercising options/derivatives and giving shares as security (except to a qualified lender).

Only three situations do not constitute a change in nature:

1. Delivery of shares/debentures where the equitable interest was previously disclosed
2. Change in terms due to a change in the number of underlying shares
3. Security interest granted to a qualified lender

Note: Unlike substantial shareholders, directors must disclose changes arising from exercising rights under a rights issue.