In February the listing rules respectively of the Main Board ("MB") and Growth Enterprise Market ("GEM") of The Stock Exchange of Hong Kong Limited (the "Stock Exchange") were amended. The amendments reduced the amount of printing required for listed companies in Hong Kong by allowing documents to be made available in either English or Chinese (rather than in both languages) and despatched electronically. The new rules came into effect on 15 February 2002.
In recent months the Hong Kong regulators have undertaken various initiatives to bring the Hong Kong financial markets into a paperless environment. The reforms discussed in this article will significantly simplify corporate communications between listed companies and their securities holders. In addition, at the time of issue of these new documentation rules, the SFC published a consultation paper on proposals for a scripless (ie paperless) securities market, proposing far-reaching reforms to the current paper-based securities market. These reforms, still being studied by the authorities at present, will be covered in a future edition of this briefing when more information is available.
A summary of the new Stock Exchange listing rules follows. Unless otherwise indicated, "listing rules" and "rules" in this paper refer to the listing rules of both MB and GEM.
A. Communications between company and securities holders
The rules required companies listed on the Stock Exchange to send various corporate documents, such as annual and interim reports, listing documents, circulars and notices of meetings, to holders of their securities.
The rules have been amended to allow listed companies to distribute such corporate communications electronically. This is, however, subject to three conditions:
- consistency with applicable laws and regulations
Note: For companies incorporated in Hong Kong, the current law expressly or impliedly permits electronic despatch of most kinds of corporate communication, such as financial information, circulars and notices for meetings. Such despatch, however, is subject in some cases to certain conditions.
Companies incorporated overseas are required to comply with standards that are no less onerous than those imposed under Hong Kong law on Hong Kong-incorporated companies.
- consistency with the company’s articles of association or other constitutive documents
- prior approval of the securities holder
Note: This must be an express, positive confirmation in writing, to the effect that the securities holder wishes to receive the relevant company’s communications by the means and in the manner proposed by the company.
b. Securities holders’ right of revocation
The listed company must give those securities holders who have chosen to receive electronic communications the right to revoke their choice at any time by reasonable written notice. For this purpose it must set out in each corporate communication:
- a statement that:
(a) securities holders may at any time choose to receive corporate communications either in printed or electronic form
(b) securities holders who have chosen electronic communications but for any reason have difficulty in receiving or accessing the information will promptly, upon request, be sent the same communications in printed form free of charge
- what the securities holder should do to notify the company of his choice to switch back to the printed form
c. Continuous publication on website
Where a listed company has made corporate communications available to its securities holders by publication on the company’s own website, such communications must remain there, on a continuous basis, for at least five years from the date of publication.
d. Amendments to constitutive documents
Companies already listed on the Stock Exchange whose articles do not allow electronic communication with securities holders must amend their articles in order to take advantage of the new rules.
Before the amendments, certain types of documents issued by a listed company wererequired to be in both English and Chinese. These included, for instance, financial information and circulars to be despatched to holders of the company’s securities.
a. conditions for single-language documents
The listing rules have now been amended to allow such documents to be in either English or Chinese only. This is, however, subject to the following conditions:
- adequate arrangements must have been made to obtain a statement from individual securities holders as to whether they wish to receive the English language version only or the Chinese language version only
- sending either version in accordance with the securities holder’s stated wish must be permitted under relevant laws and regulations and under the listed company’s constitutive documents
- securities holders must be given a choice of communications in either language only, or in both languages
b. ascertaining securities holders’ choice
Adequate arrangements must have been made by a listed company to ascertain its securities holders’ choice of language. Among other things, the company must inform them of:
- a deadline for notifying their choice
- the default arrangements that will be in place if the company does not hear from a securities holder before the deadline
c. right of revocation
Again, the company must give securities holders a right to revoke their choice and change the language of communication at any time by reasonable written notice. Each communication must state that the holders have such a right and set out the steps for notifying the company of such revocation and change.
B. Publication of Listing-Related Documents
Submission to the Stock Exchange
Printed copies of listing documents, application forms and other documents related to public offers of securities are required under the listing rules to be delivered to the Stock Exchange. A huge number of copies were previously required to be made and delivered, but the number has been drastically reduced after the rule amendments.
After the amendments, all listing documents published by a new applicant must still be available in printed form. However, additional copies of the listing document, together with relevant application forms for securities may be made publicly available on a CD ROM, if this is allowed under the relevant laws (eg the law of the company’s place of incorporation) and the company’s constitutive documents.
Additional copies of such documents can also be made available on the company’s website. This is currently optional for MB issuers but is mandatory for all GEM issuers. If so published, the documents must remain on the website on a continuous basis for at least five years from the date of publication.
If the documents are made available on a CD ROM and/or on the company’s website, such CD ROM and/or website must contain:
- a confirmation that the contents of the documents on the CD ROM and/or on the website are identical to those in the printed version
- a confirmation that the documents are also available in printed form
- the locations where the printed form is available
Any supplements or amendments to such documents must be made available in printed form and in the same other format(s) in which the main documents were first published.
Publication on GEM issuers’ websites
Companies listed on GEM are required to publish on their own websites certain announcements, notices and other documents which are published on the GEM website maintained by the Stock Exchange. The amended rules require that any documents thus posted on their websites must remain there on a continuous basis for at least five years from publication.
© Herbert Smith 2002
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