In this newsletter, we provide a snapshot of the principal Asian, US, European and selected global governance and securities law developments of interest to corporates and financial institutions.
The previous quarter's Governance & Securities Law Focus newsletter is available here.
ASIAN DEVELOPMENTS
HKEx – Revised Joint Policy Statement and Country Guides for Listing of Overseas Companies
Hong Kong regulators are continuing their efforts to attract listing of overseas companies. On 27 September 2013, the Securities and Futures Commission ("SFC") and The Stock Exchange of Hong Kong Limited ("Stock Exchange") published a revised Joint Policy Statement Regarding the Listing of Overseas Companies ("Revised JPS"). To facilitate implementation of the Revised JPS, the Stock Exchange published 20 Country Guides with regard to acceptable overseas jurisdictions on 20 December 2013.
Recognised Jurisdictions vs. Acceptable Jurisdictions
The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("Listing Rules") recognise Hong Kong, the People's Republic of China, Bermuda and the Cayman Islands as eligible places of incorporation for listed issuers ("Recognised Jurisdictions"). In addition, the Stock Exchange has approved, in principle, 21 jurisdictions of incorporation: Australia, Brazil, British Virgin Islands, Canada (Alberta), Canada (British Columbia), Canada (Ontario), Cyprus, England and Wales, France, Germany, Guernsey, Isle of Man, Italy, Japan, Jersey, Republic of Korea, Labuan, Luxembourg, Singapore, USA (California) and USA (Delaware) ("Acceptable Jurisdictions").
A listing applicant incorporated outside the Recognised Jurisdictions must demonstrate, to the satisfaction of the Stock Exchange, that it is subject to shareholder protection standards at least equivalent to those provided in Hong Kong, and will be assessed on the basis of:
- the criteria and standards set out in the Revised JPS; and
- where applicable, the relevant Country Guide in relation to the Acceptable Jurisdiction concerned.
The Revised JPS
To facilitate listing of overseas companies incorporated outside the four Recognised Jurisdictions, the SFC and the Stock Exchange issued a Joint Policy Statement Regarding the Listing of Overseas Companies on 7 March 2007 ("2007 JPS"). The 2007 JPS sets out a roadmap for overseas applicants by identifying the key shareholder protection standards expected of an acceptable jurisdiction. Since the issue of the 2007 JPS, the Stock Exchange has approved a wide range of Acceptable Jurisdictions and issued Listing Decisions to provide guidance for potential applicants from those jurisdictions.
The Revised JPS further streamlines and consolidates all relevant issues regarding primary and secondary listings of overseas companies in Hong Kong into one single document. Key elements of the Revised JPS include:
Shareholder Protection Standards
The Revised JPS refines the key shareholder protection standards that must be met, including (i) matters requiring super majority vote by shareholders, (ii) requirement for individual member's approval for any increase in the member's liability, (iii) members' approval for appointment and removal of auditors, and (iv) requirement to hold annual general meetings and matters relating to proceedings at general meetings.
An overseas applicant must demonstrate compliance with the key shareholder protection standards by a combination of domestic laws and regulations, its constitutional documents and other arrangements it has adopted.
Regulatory Cooperation Arrangements
The SFC and the Stock Exchange have expanded the regulatory cooperation expected to be in place with the overseas jurisdiction concerned. The statutory securities regulators of (i) the applicant's jurisdiction of incorporation; and (ii) the applicant's place of central management and control (if different) must both be full signatories of the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information ("IOSCO MMOU"), or have entered into an appropriate bi-lateral agreement with the SFC.
Acceptable Overseas Accounting and Auditing Standards
The Revised JPS sets out a list of overseas reporting standards that the Stock Exchange has accepted in the past, e.g. the Generally Accepted Accounting Principles in the United States of America ("US GAAP"), for dual listing in the US and Hong Kong, the Generally Accepted Accounting Practice in the UK ("UK GAAP"), and EU-IFRS (the IFRS as adopted by the European Union) for use by EU companies. Financial statements not adopting Hong Kong Financial Reporting Standards ("HKFRS") or International Financial Reporting Standards ("IFRS") must include a statement showing the financial effect of any material differences between the financial statements and financial statements prepared using HKFRS or IFRS.
An applicant may also apply from the Stock Exchange for a waiver for non-Hong Kong qualified reporting auditors. Generally, auditors that are not Hong Kong qualified would be considered acceptable if the firm (i) has an international reputation; (ii) is a member of a recognised body of accountants; and (iii) is subject to independent oversight by a regulatory body of a jurisdiction that is a signatory to the IOSCO MMOU.
Practical and Operational Matters
The Revised JPS provides guidance on practical or operational difficulties that an overseas listing applicant may encounter, e.g. conflicts between domestic laws and the Listing Rules, eligibility of securities for deposit, clearance and settlement in Central Clearing and Settlement System ("CCASS"), and cross-border clearing and settlement for dual-primary or secondary listed issuers.
Secondary Listing
The Revised JPS clarifies and simplifies the secondary listing regime in Hong Kong. A secondary listed issuer will principally be regulated by the rules and authorities of the jurisdiction where it is primary listed while a primary or dual-primary listed issuer will be subject to the full requirements of the Listing Rules.
Suitability for Secondary Listing
An overseas company that has its "centre of gravity" in the Greater China region will not be approved for secondary listing in Hong Kong. The Stock Exchange would expect the dominant market in the company's securities to be on an overseas exchange which meets the standards of shareholder protection at least equivalent to those provided in Hong Kong. In this connection, the Revised JPS recognises 15 overseas stock exchanges which meet the standards required under the Listing Rules ("Recognised Stock Exchanges"):
| Amsterdam Stock Exchange | Australian Securities Exchange | Brazilian Securities, Commodities and Futures Exchange |
| Frankfurt Stock Exchange | Italian Stock Exchange | London Stock Exchange |
| Madrid Stock Exchange | NASDAQ OMX | New York Stock Exchange |
| Paris Stock Exchange | Singapore Exchange | Stockholm Stock Exchange |
| Swiss Exchange | Tokyo Stock Exchange | Toronto Stock Exchange |
Waivers
The Stock Exchange has also codified its approach on granting waivers to overseas applicants seeking a primary, dual-primary or secondary listing in Hong Kong. In relation to secondary listing, the Revised JPS sets out extensive automatic waivers, e.g. waivers from notifiable and connected transactions requirements, waivers from the Corporate Governance Code and requirements for share option schemes, for an issuer that meets the following criteria:
- primary listing on the main market of one of the Recognised Stock Exchanges;
- market capitalisation in excess of US$400 million;
- listing on its primary market for at least five years. This track record criterion does not apply if the applicant is well-established and has a market capitalisation that is significantly larger than US$400 million; and
- good compliance record with the rules and regulations of its home jurisdiction and primary market.
Country Guides
Except for Canada (Ontario), the Stock Exchange has issued a Country Guide for each of the Acceptable Jurisdictions. The Country Guides replace the Listing Decisions previously issued and serve as comprehensive guides on how companies incorporated in the relevant jurisdictions can meet the requirement for equivalent shareholder protection standards under the Revised JPS. The Country Guide for Canada (Ontario) will be issued at a later date when an applicant incorporated in Ontario applies for a listing in Hong Kong.
Where an applicant adopts the arrangements set out in the Country Guide for its place of incorporation, it will not be required to provide a detailed explanation of how it meets the key shareholder protection standards specified in the Revised JPS.
Full texts of the Revised JPS and the Country Guides are available at:
http://www.hkex.com.hk/eng/rulesreg/listrules/listsptop/listoc/Documents/new_jps_0927.pdf; and http://www.hkex.com.hk/eng/rulesreg/listrules/listsptop/listoc/list_of_aoj.htm.
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