Hong Kong legislation guide
By Simon Berry and Carmen Guo
Latham & Watkins
Tel: +852 2912 2500 Fax: +852 2912 2600 Website: www.lw.com
Following the post-Lehman legislative trend, the Hong Kong Government and local regulators have been continuing work on updating Hong Kong’s regulatory regime. The reform of Hong Kong company law is also under way. Legislative developments in Hong Kong during the past 12 months are summarised below.
Disclosure of price sensitive information and short position
The Securities and Futures (Amendment) Bill 2011 was gazetted in June 2011. The amendment Bill imposes statutory obligations on listed corporations to disclose price sensitive ‘inside information’ as soon as reasonably practicable when such information has come to the knowledge of the listed corporation. The Bill contains limited safe harbours allowing listed corporations either not to disclose or to delay disclosure. Breaches of the relevant provisions would entail civil consequences.
In May 2011, the Securities and Futures Commission (SFC) issued a consultation paper on the securities and futures (short position reporting) rules inviting public comments on the proposed short position reporting regime. As proposed, a short position that reaches the threshold of 0.02% of the issued share capital of a listed corporation, or a market value of HK$30 million (US$3.85 million), whichever is lower, will have to be reported to the SFC on a weekly basis. The proposed reporting requirement will only apply to the constituent stocks of the Hang Seng Index, the H-shares Index, financial stocks and other stocks specified by the SFC.
Regulation of investment products
As the first step of the Government’s effort to reform the two public offering regimes under the Companies Ordinance (CO) and the Securities and Futures Ordinance (SFO), the Securities and Futures and Companies Legislation (Structured Products Amendment) Ordinance 2011 became effective in May 2011. Accordingly, the regulation of public offers of structured products in the form of shares and debentures is transferred from the prospectus regime under the CO to the regime for public offers of investments under the SFO. As regards the remaining reform proposals, including transferring the whole prospectus regime from the CO to the SFO, and changing the regulatory focus of the prospectus regime from the documents containing the offer to the act of offerings, it is anticipated that the SFC will issue a consultation paper some time in 2011.
Rewrite of the Companies Ordinance
In mid-2006, the Government launched a comprehensive overhaul of the CO to update and modernise Hong Kong company law. Given the extensive nature of the proposed changes, the Government is using a phased approach. Provisions that affect the operation of live companies in Hong Kong will be adopted in Phase I. In this regard, the Companies Bill was gazetted in January 2011 and is intended to enhance corporate governance, ensure better regulation, facilitate business operation, and generally modernise the legislation. The winding-up and insolvency-related provisions will be reviewed in Phase II. It is estimated that the Companies Bill, if enacted, may commence operation in around 2014.
Development of scripless market
Along with the rewrite exercise, various amendments to the CO have come into operation by phases pursuant to the Companies (Amendment) Ordinance 2010. Among others, these amendments provide for electronic incorporation and filing of documents to tie in with the development of the Integrated Companies Registry Information System developed by the Companies Registry. Some other notable measures in effect include empowering the Registrar of Companies to direct a change of company name, enlarging the class of persons who may bring or intervene in statutory derivative actions, providing for electronic communications by a company, and exempting listed companies from giving notice of closure of the register of members by advertisement in a newspaper. The Business Registration Ordinance was also amended to provide a one-stop company incorporation and business registration service.
With the Class Exemption Notice to the CO taking effect in February 2011, and subject to specified conditions, the use of electronic prospectuses with paper application forms is allowed. These will be for public offers of shares, debentures and interests in SFC-authorised collective investment schemes to be listed on the Hong Kong Stock Exchange.
Others
Starting June 2011, credit rating agencies and their rating analysis are subject to licensing by, and supervision of, the SFC.
In February 2011, the SFC released consultation conclusions on the evidential requirements under the Securities and Futures (Professional Investor) Rules (PI Rules). According to the consultation conclusions, the SFC will adopt a principle-based approach so that firms may, in addition to the methods set out in the PI Rules, use any other appropriate methods to establish investors are high net worth professional investors at the relevant date.