HKEX Solicits Views on Severe Weather Trading

Background

On 30 November 2023, Hong Kong Exchanges and Clearing Limited (HKEX) published a consultation paper (Consultation Paper) in relation to the proposed operations of the Hong Kong securities and derivatives markets during severe weather (SW) conditions (i.e. Severe Weather Trading, SWT).

SW conditions causing market closures has been a special feature of Hong Kong for decades. The proposed changes to the existing SWT measures (except for arrangements offered by OTC Clearing Hong Kong Limited) are made in response to the 2023 Policy Address by the Chief Executive to address the issue of forced market closures under SW conditions.

The Consultation Paper was published following discussions and information gathering with relevant stakeholders, including the members of the SWT Task Force, which is a dedicated task force formed by HKEX , the Securities and Futures Commission and the Hong Kong Monetary Authority for considering measures required for the smooth operation of the securities and derivatives markets during SW conditions.

The consultation period will end on 26 January 2024.

Key Features of the Proposed SWT Arrangements

Definition of SWT Day

HKEX proposes to introduce the definition of a SWT Day, which refers to any day falling between Monday to Friday which is not a public holiday on which Typhoon Signal No.8 or above is hoisted, a Black Rainstorm Warning is issued by the HK Observatory or an announcement of Extreme Conditions is made by the Government.

Hong Kong Securities Market

HKEX's key proposals regarding operational arrangements in the Hong Kong securities market on SWT Days are as follows:

Effect on Corporate Actions

The proposed continued closure of physical outlets of HKSCC and share registrars during SWT Days will affect certain corporate actions since deposit and withdrawal of physical securities will be suspended on a SWT Day and the relevant event dates may be postponed.

The impact of the proposed arrangements on the event date of a corporate action event depends on the type of corporate actions concerned, with key examples set out as follows:

• Payment of cash dividend: such event date will not be postponed if the issuer can pay via electronic means, while such date will be postponed if the issuer pays via paper cheques or non-electronic means. In the latter case, HKSCC will arrange for payment accordingly after the SW is cancelled.

• Corporate actions such as stock consolidation and splitting, change of board lot and transfer of listing from GEM to the Main Board: these corporate actions may be carried out on a SWT Day without affecting the event date.

For details of the impact of the implementation of the proposed SWT arrangements on various corporate action events, please refer to Appendix II of the Consultation Paper.

New Listings and Products

Given that the securities market will no longer be closed on a SWT Day under the proposed SWT arrangements, HKEX proposes that the listing and first-day of trading of new listings and products (including new equity securities, debt securities and interests in authorised investment schemes) proceed as normal under SW conditions and the applicants should comply with the requisite time limits set out in their listing plans. As such, HKEX reminded listing applicants to take into account the potential impact of SW when determining their listing timetables and reflect the same in the listing documents.

Market Communication

Even though market trading under the proposed SWT arrangements are largely akin to that of a normal trading day, as discussed above, differences in corporate action arrangements arise. Announcements will be made to alert participants and investors, particularly investors outside Hong Kong, on market trading and arrangements on a SWT Day.

The SWT arrangements are proposed to come into effect in July 2024.

Implications for Listing Applicants and Listed Issuers

Since the securities and derivatives markets will continue to operate under SW conditions as suggested in the Consultation Paper, a SWT Day is to be counted as a "business day" for purposes of interpreting the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (i.e. the Main Board Listing Rules) and the Rules Governing the Listing of Securities on GEM of The Stock Exchange of Hong Kong Limited (i.e. the GEM Listing Rules) (collectively, the Listing Rules). Consequential amendments to the Listing Rules may be introduced to accommodate practical difficulties for complying with obligations under SW conditions during a business day.

Suggested steps to be taken by issuers include:

• Reaching out to relevant parties, including service providers and information vendors, who facilitate their usual trading and clearing arrangements in anticipation for the SWT arrangements and initiating discussions to ensure service continuity and support during SWT Days.

• Devising and improving remote working policies and reviewing existing operations to make necessary changes for the SWT arrangements.

• Taking into account the impact of SWT arrangements in listing timetables.

Conclusions

With the advent of technology and the increasing prevalence of remote working, HKEX expects market participants to be capable of carrying out their business as usual (with certain exceptions) during a SWT Day. The proposed arrangements mark HKEX's effort in striking a balance between personnel and investor safety and maintaining the competitiveness of Hong Kong as an international financial centre.

We look forward to the proposed amendments to the Listing Rules and further details of the initiatives of the SWT Task Force.