Charltons has wide experience advising listed companies, directors and substantial shareholders on disclosure of interests obligations under Part XV of the Securities and Futures Ordinance (Cap. 571 of the laws of Hong) (SFO).
We advise as to what constitutes an “interest” in shares under the SFO, and what are “deemed interests” (such as those held by family members, controlled corporations or trusts), “derivative interests” and “underlying shares”. We provide guidance in calculating the percentage figure of an interest in shares. We advise on what constitutes a “notifiable interest” under the SFO and what events will trigger an obligation to make a disclosure of interest, and how and when to give notice of an interest to the Hong Kong Stock Exchange and the listed corporation concerned. We also assist with preparation and filing of disclosure of interest forms. We also advise on applicable exemptions. In addition to advising on the relevant disclosure and filing requirements, Charltons can also assist clients who are subject to SFC investigations and enforcement proceedings in respect of breaches of the disclosure rules.
Our lawyers have considerable experience in dealing with the SFC, the Hong Kong Stock Exchange and other regulatory and governmental bodies in Hong Kong, and can provide an insightful and highly personalised service to clients to guide them through a complex and onerous securities disclosure regime.
In addition to disclosure of interests issues under the SFO, we advise on other significant regulatory issues relating to the acquisition or disposals of shares, such as the rules relating to disclosures during offer periods for takeovers of listed companies in Hong Kong, and notifications and / or approvals for changes in shareholdings for companies operating in regulated sectors, such as banking, securities, insurance, broadcasting or telecommunications.
Disclosure of Interests under Part XV of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)
Under Part XV of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (Hong Kong SFO), substantial shareholders and directors of a listed corporation are required to make disclosure filings to the Hong Kong Stock Exchange and notify the listed corporation of their interests in the listed corporation’s securities. The overriding objective of Part XV of the Hong Kong SFOis to enable those investing in listed corporations to obtain relevant information on a timely basis so they can make informed investment decisions. The regime requires corporate insiders to give notice to both the Hong Kong Stock Exchange and the listed corporation concerned on the occurrence of certain events, referred to as “relevant events” (explained further later in this article) under Part XV of the Hong Kong SFO.
Disclosure obligation of substantial shareholders in relation to interests held by them in the listed corporation
Individuals and corporations who are interested in 5% or more of any class of voting shares (which carries a right to vote in all circumstances at general meetings) in a listed corporation are regarded as “substantial shareholders” and they have a duty to disclose their interests, and short positions, in voting shares of the listed corporation (section 310(2)(a) of the Hong Kong SFO).
What constitutes an “interest”
a person has an “interest” in shares for the purpose of Part XV of the Hong Kong SFOif s/he has an interest of any kind whatsoever in the shares of the listed corporation (Section 322(2) of the Hong Kong SFO) (including interests in any underlying shares of equity derivatives and “deemed interests”, and even if rights to the shares are conditional)
the “deemed interests” of an individual are interests in the shares of the listed corporation held by the individual’s spouse and children under the age of 18 (natural or adopted) (section 316(1) of the Hong Kong SFO), a controlled corporation, a trust or persons who have agreed to act in concert to acquire interests in shares of the listed corporation (concert party agreements)
“controlled corporation” refers to any corporation of which one-third or more of the voting power at general meetings of the corporation is controlled by a person, directly or indirectly, or whose directors are accustomed to act in accordance with that person’s directions (section 316(2) of the Hong Kong SFO)
“trust” includes any trust of which a person is a trustee (other than as bare trustee) or a beneficiary (except a discretionary trust, unless the person is a “founder’ of the trust)
“concert party agreements” are often referred to as section 317 agreements, and refer to agreements between persons to acquire shares in a target company which dictates how any one or more of the parties may exercise their rights attached to those shares
references to “equity derivatives” include, inter alia, contracts giving a person rights, options or interests, or in respect of, the underlying shares of a listed corporation (including, without limitation, warrants, convertible bonds, ADRs and stock futures)
a substantial shareholder also has a duty to disclose “short positions” (of at least 1%) held by it (section 313(4) of the Hong Kong SFO). Interests in short positions cannot be netted off against long positions (i.e. your other discloseable interests) in the disclosures and percentage figures for short and long positions must be calculated and notified separately
a “short position” will exist, inter alia, where a person holds, writes or issues a financial instrument requiring that person to deliver shares or giving him/her a right to require another person to take delivery of underlying shares at specified dates / periods (e.g. call and put options) or borrows shares under a securities borrowing and lending agreement
When and how to disclose
Part XV of the Hong Kong SFO requires the filing of structured notification forms to facilitate disclosure. The relevant forms (“SDI Forms”) to be filed by substantial shareholders are:
Form 1 – Individual Substantial Shareholder Notice
Form 2 – Corporate Substantial Shareholder Notice
Form 3A – Director’s/ Chief Executive’s Notice of Interests in Shares of a Listed Company (to be filed if a director / chief executive is also a substantial shareholder).
These forms can be downloaded from the website of the Securities and Futures Commission at: http://www.sfc.hk/web/EN/rule-book/sfo-part-xv-disclosure-of-interests/di-notices.html. The SDI forms are required to be filed with the electronic filing system operated by the Hong Kong Stock Exchange which will then publish the disclosed information filed with it on its website.
A disclosure obligation arises on the occurrence of “relevant events” as defined under section 308 of the Hong Kong SFO. Relevant events include:
coming to have or ceasing to have a “notifiable interest” (i.e. 5% or more interest in the relevant share capital of a listed corporation)
a change in the percentage level (rounded down to the nearest whole percentage number) of a person’s continuing notifiable interest, subject to a “de minimis” exemption i.e. when the change in percentage crosses a whole percentage number above 5% (e.g. an increase in a person’s interest from 6.8% to 7.1% – crossing over 7% or a decrease from 8.1% to 7.8%
a change in nature of a person’s continuing notifiable interest (including change in title or interests (whether legal or equitable) to the relevant shares). Some examples are:
the declaration of a trust over shares in favour of a third party beneficiary
the creation of security over the relevant shares
the creation or exercise of rights under derivatives
when a person with a notifiable interest (i.e. 5% or above), has or ceases to have a short position of more than 1%
when a person with a notifiable interest experiences an increase or decrease in the percentage figure of a short position that results in the short position crossing a whole percentage level which is above 1%
holding an interest in 5% or more of shares of a corporation that is being listed or shares of a class that is being listed
if the 5% threshold is reduced (and the person has a notifiable interest immediately after the reduction) or the 1% threshold for short positions is reduced (and the person has a notifiable interested and a short position that is notifiable immediately after the reduction).
Disclosures generally have to be made within 3 business days after the relevant event or, if later, a person coming to know of the relevant event. Initial disclosures (e.g. on the listing of the relevant company’s shares) generally have to be made within 10 business days from the date of listing. A “business day” is defined to mean a day other than a public holiday and a day on which a black rainstorm warning or a gale warning is in force, and Saturdays and Sundays.
The forms and notices as prescribed by the Hong Kong SFO must be filed electronically. For events that trigger disclosure requirements, the prescribed forms and notifications must be submitted electronically through the Disclosure of Interests Online System.
Charltons conducted and completed one of the largest Part XV of SFO disclosure of interests filing exercises to date for one of our clients at the IPO stage.
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Disclosure of interests
Disclosure of Interests under Part XV of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)
Disclosure obligation of substantial shareholders in relation to interests held by them in the listed corporation
