Deemed Interests, Exemptions, Information Requirements, Penalties & Company Obligations – Disclosure of Interests under the Securities and Futures Ordinance (April 2003)

Deemed Interests

A director is taken to be interested in the interests of:

• His/her spouse and minor children (who are not themselves directors of the listed company)
• Any company which he/she controls (i.e., controls one-third or more of the voting power at general meetings, or whose directors are accustomed or obliged to act in accordance with his/her directions)
• Trusts (including interests under a discretionary trust)

The rules regarding cessation of interests are the same as those applicable to substantial shareholders.

Exemptions for Directors

Directors have fewer exemptions than substantial shareholders. They can only rely on the exemptions relating to:

• Basket derivatives
• Bare trustees
• Collective investment schemes

Important: Directors cannot use the de minimis change exemptions, the securities borrowing and lending (SBL) exemptions, or the bonus/rights issue exemptions available to substantial shareholders.

Information to be Disclosed

Initial Notification

For on-exchange transactions, directors must disclose the highest and average price paid for the interest in the 4 months preceding the relevant event.

For off-exchange transactions, they must disclose the nature of the consideration and the highest and average amounts paid in the same 4-month period.

Subsequent Notifications

Similar details (highest/average price or consideration) must be provided for acquisitions or disposals.

Note on Equity Derivatives: Details of consideration are generally not required, except when the listed company or an associated company grants derivatives to the director or when such rights are assigned.

Penalties for Failure to Disclose

Failure to disclose within the required timeframe or making false/misleading statements is a criminal offence, carrying the same penalties as for substantial shareholders:

• Maximum fine of $100,000
• Imprisonment for up to 2 years

Registration of Substantial Shareholders’ Interests and Short Positions

Listed companies must maintain a register of interests and short positions disclosed to them. This register can be an updated version of the previous register.

Key requirements:

• Entries must be made within 3 business days of receiving the information
• The index must be updated within 10 business days of a name being entered
• Details of parties to concert party agreements must be included

If the register is not kept at the company’s registered office, the company must notify the Registrar of Companies using the prescribed form.

Investigations of Shareholders by a Listed Company

Under the SFO, a listed company has the power to investigate the identity of holders of interests, short positions, and equity derivatives relating to its shares. It may be required to do so upon request by its members.

The company must:

• Inform the Stock Exchange, the SFC, and (for authorised financial institutions) the Hong Kong Monetary Authority of any information received — before the end of the next business day
• Prepare a report and make it available at its registered office within 10 business days of completing the investigation
• Deliver a copy of the report to the SFC and the Stock Exchange
• Record the information in its register of interests and short positions

Offences Relating to Investigations

It is an offence to fail, without reasonable excuse, to comply with an investigation or to provide false or misleading information.

A listed company and every officer in default commit an offence if they fail to prepare and deliver the required investigation report within the specified periods.