HKEX and SFC Propose to Further Expand Paperless Listing Regime

Background

On 16 August 2024, The Stock Exchange of Hong Kong Limited (the Exchange) released a Consultation Paper on Proposals to Further Expand the Paperless Listing Regime and Other Rule Amendments. On the same day, the Securities and Futures Commission of Hong Kong (the SFC) released a Consultation Paper on proposals to abolish mixed media offers (MMOs) that are complementary to the Exchange's proposals.

Further to the Exchange's previous consultations on paperless initiatives in July 2020 and December 2022, the Exchange is seeking public feedback on proposals that would further expand the paperless listing regime. The Exchange aims to continue pursuing sustainability and looks to continue modernising market infrastructure, to keep in line with global standards and to improve efficiency for market participants.

Both consultations will conclude on 18 October 2024. After taking into account public comments, the SFC will table the notice to amend the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Cap. 32L) (Class Exemption Notice) at the Legislative Council (LegCo). Separately, the Exchange plans to conduct a staggered implementation of the individual proposals starting from the end of 2025.

Key proposals

The Exchange's proposals will see the introduction of digital options for certain communications, payments, and hybrid general meetings. The SFC's proposals are made in conjunction with the Exchange's proposal to remove the exemption permitting MMOs. The general aims of the proposals include to improve speed and efficiency of communications between securities holders and issuers, to facilitate operations during severe weather, and to reduce issuers' impact on the environment and natural resources.

1. Electronic instructions from securities holders to issuers: securities holders are to have the option to send certain instructions to issuers electronically.

   The Exchange proposes amending the Listing Rules to require issuers, to the extent allowed under laws and regulations applicable to them, to have mechanisms enabling securities holders, if they so wish, to send certain instructions to issuers electronically. Such instructions include:

   • instructions in respect of a meeting of securities holders, e.g. indications as to whether a security holder will attend such a meeting;

   • proxy-related instructions, such as the appointment and revocation of any proxies, and indications of how they would vote on any particular matter at the meeting; and

   • instructions made in response to actionable corporate communications, except for any communications made in response to any provisional allotment letter in connection with a rights issue.

   The Exchange notes that issuers may have to amend their constitutional documents to provide such enabling mechanisms. Issuers are advised to seek legal advice to determine how this proposal may be implemented.

   It was also noted that for certain instructions specific to a particular corporate action, with content that may vary widely, would require additional cost and effort to digitalise. Final details of the implementation of this proposal, including transitional arrangements, will be presented in the conclusions paper after considering respondents' feedback.

   This proposal will not be applicable to collective investment schemes (CIS) or issuers of debt securities offered to professional investors (Professional Debt Issuers). For issuers of structured products, the proposal applies to non-meeting instructions only. For issuers of debt securities offered to the public (Public Debt Issuers), the proposal applies to meeting instructions only.

2. Real-time electronic payment of corporate action proceeds: securities holders are to have the option to receive corporate action proceeds (including dividends) electronically via the Clearing House Automated Transfer System (CHATS).

   The Exchange proposes to amend the Listing Rules to require issuers to provide an option for securities holders to receive corporate action proceeds by CHATS by the announced payment date. CHATS is proposed as the payment option as it facilitates real-time settlement of payments in local currency as well as foreign currencies, so that securities holders with substantial shareholdings and / or securities holders residing overseas can receive corporate action proceeds in real time, in the same manner as smaller or local securities holders. Under this proposal, issuers may also provide additional payment options, such as payment by cheque, autopay and FPS. In any case, issuers are required to inform securities holders of the payment options available, and seek instructions from them on their choice.

   This proposal will not be applicable to issuers of structured products, Public Debt Issuers and Professional Debt Issuers.

3. Electronic subscription monies: in offers to existing securities holders, securities holders are to have the option to pay subscription monies electronically.

   The Exchange proposes that issuers should be required to provide an option for securities holders to pay subscription monies via electronic means, in respect of offers to existing securities holders. There is currently no Listing Rule requirement on how subscription monies must be paid to issuers in respect of such offers. While an option for electronic payment should be provided, securities holders will remain free to elect to pay via cheque or cashier order.  

   This proposal will not be applicable to issuers of structured products, Public Debt Issuers and Professional Debt Issuers.

4. Abolition of MMOs: MMOs will no longer be available for public offers of equity securities, debt securities and CIS.

   Pursuant to sections 38(3) and 342(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (C(WUMP)O), Main Board Listing Rules 12.11, 20.19A and 25.19A, and GEM Listing Rules 16.04C and 29.21A, listing documents must be issued in electronic format only, and the application forms must be made in the same medium, unless a MMO is adopted. MMOs allow paper application forms to be made available with electronic copies of prospectuses for a public offering of shares and debentures to be listed on the Exchange. The Exchange and SFC propose that MMOs no longer be available to issuers, such that:

   • forms for an application for a public offer of equity securities, CIS and debt securities will no longer be available in printed form;

   • subscriptions for a public offer of equity securities and by a CIS must be made only through online electronic channels; and

   • subscriptions for a public offer of debt securities will, as before, be conducted through well-established channels such as placing banks and / or Hong Kong Securities Clearing Company Limited.

   Under this proposal, the SFC will remove the exemption for MMOs under section 9A of the Class Exemption Notice and cease granting waivers allowing the use of MMOs for public offerings of CISs. The Exchange will amend the Listing Rules to remove the availability of MMOs for listing applicants and listed issuers.

   The SFC also proposes to make consequential amendments to the revised draft ePO Guidelines attached to the SFC's Consultation Paper on Proposed Code and Guidelines for Implementing an Uncertificated Securities Market in Hong Kong to remove the reference to MMOs.

5. Hybrid general meetings & e-voting: securities holders to be able to participate online at general meetings, and vote by electronic means.

   Hybrid general meetings or e-voting have been expressly allowed for Hong Kong-incorporated companies since the amendments to the Companies Ordinance (Cap. 622) and the Model Articles, but the manner of holding general meetings and voting is also governed by companies' constitutional documents, and for foreign-incorporated issuers, the laws and regulations in the issuers' jurisdiction of incorporation.

   The Exchange proposes that issuers must ensure their constitutional documents allow them to hold hybrid general meetings and allow e-voting, to the extent permitted by the laws and regulations applicable to them. For example, issuers may need to remove any provision that would prevent the holding of hybrid general meetings and the use of e-voting. Issuers are recommended to seek legal advice to determine what amendments will need to be made to their constitutional documents.

   This proposal will apply only to issuers of equity securities.

6. Web accessibility of issuers' corporate communications: the Exchange seeks market feedback on the incorporation of web accessibility guidelines into listing requirements.

   Citing previous stakeholder feedback that the Exchange should require corporate communications to conform with web accessibility guidelines, to ensure that persons with disabilities can exercise their rights as securities holders, the Exchange seeks views on whether web accessibility guidelines should be incorporated into or referred to in the Listing Rules or the Exchange's guidance. For instance, the Web Content Accessibility Guidelines, an international standard for web content accessibility intended for use by web developers to make web content more accessible to persons with disabilities.

   The Exchange will consider market views before making a detailed proposal.

7. Other Listing Rule amendments: the Exchange proposes other minor Listing Rules amendments to clarify or align certain requirements relating to documents issued under various Listing Rules, along with housekeeping amendments. The amendments include:

   • Adding a note to Main Board Rule 13.46(1) to clarify that the conditions for granting waivers from the publication and distribution requirements of annual results/reports also apply to issuers that are neither overseas issuers nor PRC issuers.

   • Amending paragraph 12B in Appendix D2 to the Main Board Listing Rules to align with Rule 3.13, which no longer requires that an independent non-executive director must provide an annual confirmation of his independence to the issuer.

   • Amending Main Board Rule 9.22(2)(c) for consistency with the documentary requirements for new listing applicants under Main Board Rule 9.11(33)(c), and amending Main Board Rule 9.11(33) to better reflect the documentary requirements for registration of a prospectus under the C(WUMP)O.

   • Removing GEM Rule 18.50C requiring that issuers must submit a copy of its annual report to the Exchange within 3 months after the end of the financial year, as there is no equivalent Main Board Listing Rule.

   • Aligning the market capitalisation information required on Main Board and GEM listing application forms.

   • Amending Main Board Rule 2.07C(4)(a) to clarify that prescribed announcements to be published by Professional Debt Issuers may be published during trading hours under the specified circumstances, as currently provided for Public Debt Issuers.

   • Amending Main Board Rule 37.06 so that listing applicants may submit, in addition to audited accounts for two financial years, audited interim financial statements for at least the first 6 months of the financial year ending no more than 15 months before the intended date of the listing document.

   • Revising Main Board Rule 37.49(b) to clarify that the Exchange expects Professional Debt Issuers to notify the Exchange of a proposal to amend any document securing or constituting the debt securities - not just trust deeds.

   • Revising Main Board Rule 37.53 to clarify that the Exchange expects Professional Debt Issuers or guarantors to submit interim financial statements as part of their continuing obligations.

   • Revising paragraphs 12(1) and 19(2) of Appendix E4 to the Main Board Listing Rules to require Public Debt Issuers to also inform and submit drafts to the Exchange for any proposal to amend trust deeds or other documents securing or constituting their listed debt securities, or equivalent documents.

   • Revising Main Board Rule 37.41 to clarify the period of validity of a debt programme.

   • Revising the definition of "supranational" under the Main Board Listing Rules for greater clarity, by referring to the list of multilateral agencies in the Securities and Futures Ordinance (Cap. 571).

   • Amending paragraph 20(1) of Appendix E4 to the Main Board Listing Rules to require all Public Debt Issuers to publish both English and Chinese versions of their financial statements.

   • Amending paragraph 9 of Appendix A2 to the Main Board Listing Rules for greater clarity, by replacing references to "general meeting" with "meetings of the holders of the debt securities".

Implementation

Subject to market feedback, the Exchange proposes a three-stage implementation timeline for its main proposals:

• Proposals 1 to 3 on electronic instructions, electronic payment of corporate action proceeds and electronic subscription monies are to be implemented around the end of 2025, to coordinate with the SFC's expected implementation timeline for the uncertificated securities market.

• Proposal 4 on the abolition of MMOs would be implemented following the amendment to the Class Exemption Notice. The SFC will table the proposal to LegCo after considering all public comments received.

• Proposal 5 on hybrid general meetings and e-voting would be implemented shortly after the conclusions to this consultation are finalised and published.

Conclusion

In recent years, the Exchange and the SFC have taken successive steps to digitise and modernise market infrastructure. This includes initiatives such as the Exchange's paperless listing reforms, the SFC's consultations on the implementation of an uncertificated securities market in Hong Kong, and severe weather trading -- which is due to be implemented this fall.

Market participants, including the investing public, can be expected to benefit from this latest round of reforms, which should increase the convenience of certain actions for securities holders. The proposals demonstrate the Exchange and the SFC's commitment towards improving the efficiency of Hong Kong's securities markets for the benefit of market participants, and keeping Hong Kong in line with other leading international markets.