HK Reviewing Disclosure Of Interests Rules
by Mary Swire, Lowtax.net, Hong Kong
02 January, 2015
The Financial Services Development Council (FSDC) has released a report on the regime covering the disclosure of interests in Hong Kong, with a view to enhancing the city's position as an international financial center.
To enhance transparency for investors, Part XV of the Securities and Futures Ordinance currently sets out the disclosure of interests requirements with respect to listed corporations in Hong Kong. The regime is intended to enable investors to identify:
- The persons who control, or are in a position to control, interests in shares in listed corporations; and
- Those who may benefit from transactions involving associated corporations of listed corporations.
It requires corporate insiders to give notice to both The Stock Exchange of Hong Kong Ltd and the listed corporation concerned on the occurrence of certain events:
- Substantial shareholders - individuals and corporations – who are interested in five percent or more of any class of voting shares in a listed corporation, must disclose their interests, and short positions, in voting shares of the listed corporation; and
- Directors and chief executives of a listed corporation must disclose their interests, and short positions, in any shares in a listed corporation (or any of its associated corporations) and their interests in any debentures of the listed corporation (or any of its associated corporations).
Market participants have for some time been expressing concerns about the overly complex disclosure rules in Hong Kong. These persons – including both local intermediaries who actively trade in the Hong Kong market and global financial intermediaries – are required to implement extensive compliance policies and complex IT infrastructure in order to comply with their disclosure obligations. Consequently, many investors have decided to limit their investment in the Hong Kong market to fall below the disclosure threshold.
It has also been noted that the complexity of Hong Kong's disclosure of interests regime renders the disclosures not as meaningful as originally intended, as the investing public may not have a thorough understanding of the existing disclosure rules and exemptions.
Chairman of the FSDC Laura M Cha said, "The report proposes changes that can help harmonize Hong Kong's disclosure regime with the disclosure rules in the world's key markets."
"A reform of the disclosure of interests regime in Hong Kong [would be] timely," she added, "as an increased investor base is being identified of late, especially with the recent launch of the Shanghai-Hong Kong Stock Connect and other regional initiatives to promote listings in Hong Kong."
The report proposes various potential improvements to the disclosure of interests regime, including expanding exemptions and reviewing those interests that must be disclosed; aligning the timeframe for buy and sell filing notices; providing a qualified overseas schemes exemption for certain collective investment schemes, pension funds, or provident funds; and decriminalizing breaches, except those with criminal intent.
Given the breadth of the proposed changes and areas for development within the current disclosure regime, representatives from the financial industry have instead suggested that Part XV should be rewritten, rather than merely amended.
See all of today's news