HKEx issues Consultation Conclusions of Disclosure of Inside Information


On 3 August 2012, Hong Kong Exchanges and Clearing Limited (“HKEx”) has published a Consultation Paper on the Securities and Futures (Amendment) Ordinance 2012 (“SFO”). The consultation period was open for two months, seeking comments on the proposed amendments to the Rules. In November, a consultation conclusion paper was published, presenting the results of the consultation. Following are some changes HKEx decides to adopt after considering public’s response:



HKEx has consulted professional bodies on terminology redefinitions. HKEx has redefined Part XIVA of the SFO to “Inside Information Provisions”, price sensitive information to “inside information”, Exchange Listing Rules to “Listing Rules” (for main board), “GLR” (for GEM), and “Rules”.


SFC’s and Exchange’s role, responsibilities and jurisdiction

Some respondents have raised queries over the role and responsibilities of SFC and HKEx. HKEx decided to include such topic in the Rule to clear confusion. Also, SFC has sole jurisdiction over the enforcement of Inside Information provisions but HKEx retains a right to discipline if there are facts breaching other obligations under the Rules. HKEx will therefore not undertake any investigation on whether issuers have discharged the Statutory Disclosure Obligation or not. It also noted that if HKEx is aware of a possible breach of the Statutory Disclosure Obligation, HKEx will then refer the matter to SFC. However, if SFC decides not to investigate HKEx’s referral, HKEx may investigate and bring discipline action for possible breach on the Rules. The guiding principle is that enforcement of the law must take priority over the Rules. An issuer will not face enforcement actions by both SFC and HKEx on the same facts.



Rule 13.10

Rule 13.10 gives guidance on how issuers should respond to HKEx’s enquires on possible development of false market. Issuers must provide information to HKEx and publish a Standard Announcement if necessary. The announcement is to confirm directors have made due enquiry that they are not aware of (1) any reasons for price movement, (2) any information which must be announced to avoid a false market, and (3) any inside information under Inside Information Provisions that needs to be disclosed (collectively the “Confirmations”). A note has been added to Rule 13.10 stating that issuers do not need to disclose inside information if such information is exempted under Inside Information Provisions.

An announcement under the proposed Rule 13.10 will not always be required. However, HKEx believes providing Confirmations are necessary for fair and orderly operation of the market. HKEx also believes that compliance on requirement will be possible within an acceptable time frame. However, that time frame is not mentioned in the report.



Trading halt/ trading suspension

Trading halts are for those trading suspensions which do not exceed two trading days. If trading halt exceeds two trading days, it will automatically become a trading suspension. Issuers do not need to issue a further announcement if trading halt becomes trading suspension. Respondents have raised questions on whether the term “trading halt” is over-technical. HKEx took those comments into consideration and added a note in the Rules to define “trading halt”.

Rule 13.10A clarifies trading halt. Issuers are obligated to apply for trading halts if they did not promptly announce inside information. Respondents have raised concern over the consistency between SFO and proposed Rule 13.10A. In order for Rule 13.10A to be consistent with SFO, such rule should be qualified by a reasonableness requirement. HKEx took respondents concern into consideration and decided to adopt the proposed Rule with slight modification.



Debt securities

The new Rule 13.09(2)(a) ensures that inside information disclosed under the Inside Information Provisions will be announced to the investing public simultaneously. HKEx also clarifies the obligation on guarantors of debt securities to disclose information which may have a material effect on their ability to meet the obligations under the debt securities.

The majority of the respondents supported most of HKEx’s consultation proposals. The revised Rule changes will take effect from 1 January 2013.




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