Worldwide: Governance & Securities Law Focus: Asia Edition – July 2014

In this newsletter, we provide a snapshot of the principal Asian, US, European and selected international governance and securities law developments of interest to corporates and financial institutions.


HKEx Publishes Revised Connected Transaction Rules

On 21 March 2014, The Stock Exchange of Hong Kong Limited (the "Stock Exchange") published amendments to the connected transaction rules under the Rules Governing the Listing of Securities on the Stock Exchange and the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange (collectively the "Listing Rules").

The revised rules will take effect from 1 July 2014. The revised rules follow a public consultation launched by the Stock Exchange in April 2013. The Stock Exchange has also taken the opportunity to rewrite the connected transaction rules in plain language and to align the definitions of "connected person" and "associate" used in various parts of the Listing Rules with those used for connected transactions where their purposes are to protect minority shareholders or avoid conflicts of interest.

Unless an exemption applies, a connected transaction is subject to the requirements of announcement, annual review and independent shareholders' approval. The revised rules aim to ease the compliance burden of listed issuers by simplifying the requirements and introducing new exemptions. Key changes include:

  • Exemptions for Connected Persons at the Subsidiary Level

    Connected persons include directors, chief executives and substantial shareholders (10% or more) of a listed issuer or any of its subsidiaries. Under the Listing Rules, there are two levels of connected persons: "connected person at the issuer level" and "connected person at the subsidiary level". Taking into account that a connected person at the subsidiary level is less likely to be able to influence the decisions of a listed issuer, the Stock Exchange has amended the rules so that:

    • a transaction on normal commercial terms entered into between a listed issuer and a connected person at the subsidiary level will be exempt from the independent shareholders' approval requirement; and
    • a director, chief executive or substantial shareholder of an insignificant subsidiary will be excluded from the definition of "connected person". With the exclusion, transactions between a listed issuer and persons connected with insignificant subsidiaries would fall outside the connected transaction regime.
  • Increase Monetary Limit for De minimis Transaction Exemption

    Currently, a full exemption applies where a connected transaction is entered into on normal commercial terms and the relevant consideration ratio, assets ratio, revenue ratio and equity capital ratio are all:

    • less than 0.1%;
    • less than 1%, and the transaction is a connected transaction only because it involves connected persons at the subsidiary level; or
    • less than 5%, and the total consideration is less than HK$1,000,000.
    The monetary limit of HK$1,000,000 set out above will be increased to HK$3,000,000 under the revised rules.
  • Removing the 1% Cap for the Exemption on Provision of Consumer Goods or Services

    The Stock Exchange has also modified the exemption which applies to a listed issuer buying or selling consumer goods or services. Under the current rules, the value of the transaction must be less than 1% of the listed group's total revenue or total purchases in order for the exemption to apply. The Stock Exchange has removed the 1% cap so that the exemption will apply irrespective of the transaction size so long as the other qualifying conditions are satisfied, e.g. the transaction must be on normal commercial terms and the goods or services must be of a type ordinarily supplied for private consumption.
  • Exemptions for Indemnity or Insurance Against Directors' Liabilities

    New exemptions have been introduced allowing listed issuers to grant indemnities to directors and to purchase insurance for directors against liabilities incurred in the course of performing their duties, provided that the indemnity or insurance is permitted under Hong Kong law and the law of the place of incorporation of the issuer.
  • Relaxing the Rules with Regard to Transactions With Third Parties

    Under the existing rules, connected transactions include certain acquisitions or disposals of interest in a target company from or to a third party where a shareholder of the target company is a director, chief executive or controlling shareholder (30% or more) of the listed issuer or any of its subsidiaries. The Stock Exchange has simplified the rules so that:

    • a disposal of interest in the target company by the listed issuer will no longer constitute a connected transaction; and
    • for acquisitions, the only type of transactions caught by the connected transaction rules is where a substantial shareholder of the target company is (or is proposed to be) a director, chief executive or controlling shareholder at the issuer level or an associate of any of them.

The revised connected transaction rules are available at:

Main Board:

Growth Enterprise Market:


SEC Developments

SEC Staff Issues Statement on Effect of Court Decision on Conflict Minerals Rule

On 29 April 2014, the SEC Division of Corporation Finance issued a statement on the effect of a recent decision by the US Court of Appeals for the District of Columbia Circuit (the "Court") on the SEC's reporting requirements regarding conflict minerals originating in the DRC and adjoining countries (the "Conflict Minerals Rule").

The Court had concluded that Section 13(p)(1) of the Securities Exchange Act of 1934 (the "Exchange Act"), adopted pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"), and the Conflict Minerals Rule "violate the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have 'not been found to be 'DRC conflict free'.'"

The statement issued by the Division of Corporation Finance on 29 April 2014 provided the following guidance:

  • The 2 June 2014 deadline for issuers to file any reports required under the Conflict Minerals Rule remained in effect;
  • The Form SD and any related Conflict Minerals Report should comply with and address those portions of the Conflict Minerals Rule that the Court upheld;
  • Companies that are not required to file a Conflict Minerals Report should disclose their reasonable country of origin inquiry and briefly describe the inquiry they undertook; and
  • Companies that are required to file a Conflict Minerals Report should include a description of the due diligence that the company undertook. If, after exercising due diligence, the company determines that any of its products have not been found to be "DRC conflict free" or if the company is unable to determine whether or not a product qualifies as "DRC conflict free," the company does not need to identify the products as "DRC conflict undeterminable" or "not found to be 'DRC conflict free,'" but should disclose, for those products, the facilities used to produce the conflict minerals, the country of origin of the minerals and the efforts to determine the mine or location of origin.

No company is required to describe its products as "DRC conflict free", having "not been found to be 'DRC conflict free'", or "DRC conflict undeterminable". If a company voluntarily elects to describe any of its products as "DRC conflict free" in its Conflict Minerals Report, it would be permitted to do so provided it had obtained an independent private sector audit as required by the rule. Pending further action, such a report will not be required unless a company voluntarily elects to describe a product as "DRC conflict free" in its Conflict Minerals Report.

Our related client publication is available at:

SEC Issues Guidelines on Using Social Media in Registered Securities Offerings

On 21 April 2014, the Staff of the Division of Corporation Finance of the SEC (the "Staff") released guidance to facilitate the use of social media for certain communications in registered securities offerings.

Recognising the interest in using technologies such as social media to communicate with security holders and potential investors, this guidance permits offering participants to use Twitter or other similar social media with character limitations to issue Rule 134 offering announcements and Rule 433 free writing prospectuses with respect to registered securities offerings.

Under the new SEC Staff guidance, offering participants are permitted to electronically communicate Rule 134 announcements and Rule 433 free writing prospectuses if:

  • the electronic communication is distributed through a platform that has technological limitations on the number of characters or amount of text that may be included in the communication (e.g., Twitter);
  • including the required statements in their entirety, together with the other information, the communication would exceed the limit on the number of characters or amount of text; and
  • the communication contains an active hyperlink to the required statements and prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.

The Staff also addressed the situation where an issuer distributes an electronic communication in compliance with Rule 134 or Rule 433 under the Securities Act of 1933 and a third party that is not an offering participant re-transmits that communication. This may arise in the context of some electronic communication platforms, such as those made available through certain social media websites, that permit users to re-transmit a posting or message they receive from another party. The Staff clarified its position that if the third party is neither an offering participant nor acting on behalf of the issuer or an offering participant and the issuer has no involvement in the third party's re-transmission beyond having initially prepared and distributed the communication in compliance with either Rule 134 or Rule 433, the re-transmission would not be attributable to the issuer.

The guidelines are available at:

PCAOB Adopts Auditing Standard and Amendments

On 10 June 2014, the Public Company Accounting Oversight Board ("PCAOB") adopted a new auditing standard and amendments to its auditing standards to strengthen auditor performance requirements in the following three areas that historically have represented increased risks of material misstatement in company financial statements:

  • related party transactions;
  • significant transactions that are outside the normal course of business for the company or that otherwise appear to be unusual due to their timing, size, or nature; and
  • financial relationships and transactions with its executive officers.

The guidelines are available at:

To read this Focus in full, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.