Updates

On 16 August, 2024, Hong Kong’s Securities and Futures Commission (SFC) issued a Consultation Paper proposing significant amendments to the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Cap. 32L) to update Hong Kong’s regulatory framework governing public offerings. The key proposals include the abolition of the Mixed Media Offer (HKMMO) exemption, which currently permits issuers to distribute printed application forms without accompanying printed prospectuses, provided that electronic versions are available. Additionally, the SFC seeks to amend the Guidelines for Electronic Public Offers (Hong Kong ePO Guidelines) by removing references to HK MMOs, aligning them with the broader shift towards fully digital processes. The paper also proposes updates to the broader Class Exemption Notice to ensure all public offers adhere to a consistent standard, favoring electronic distribution of documents.

Under Hong Kong’s existing regulatory framework, companies are permitted to conduct public offers using HK MMOs which allow issuers to distribute printed application forms without requiring them to be accompanied by printed prospectuses, provided that the corresponding electronic prospectuses are made available online. Introduced in 2011, the HK MMO exemption was intended to offer flexibility and facilitate a gradual transition toward electronic documentation in public offerings. However, despite its innovative intent, the adoption of HK MMOs has been minimal. The majority of issuers, particularly those offering debt securities and Hong Kong’s collective investment schemes (HKCISs), opt against using this mechanism, finding it neither necessary nor particularly advantageous.

The SFC states that the proposed changes aim to simplify the public offering process and enhance regulatory consistency through the elimination of the HK MMO exemption. This shift to a fully electronic offering process reduces logistical burdens, minimizes environmental impact, and aims to ensure that all investors receive uniform information.

Under Hong Kong’s prevailing regulatory regime, encapsulated within Hong Kong’s Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (CWUMPO), provisions govern the issue of prospectuses offering shares or debentures to the public. Sections 38(3) and 342(3) of the CWUMPO mandate that any application forms for shares or debentures must be accompanied by a prospectus distributed in the same medium.

In 2011, however, a notable exemption was introduced through Section 9A of Hong Kong’s Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice, colloquially referred to as the Class Exemption Notice. This provision permitted companies to engage in HK MMOs, allowing them to distribute printed application forms without the necessity of accompanying printed prospectuses, provided that an electronic prospectus was readily accessible on specified websites.

Similarly, the SFC’s Codes governing HK CISs impose analogous requirements on SFC-authorized HKCISs listed or seeking to list on the Stock Exchange of Hong Kong (HKEX), in line with the SFC’s stated principle of uniform information dissemination.

The SFC is now proposing to abolish the exemption in Section 9A of Hong Kong’s Class Exemption Notice. Should these amendments be adopted, issuers in Hong Kong will no longer have the option of distributing printed application forms without printed prospectuses. This change would require all public offerings to distribute both application forms and prospectuses in the same medium, with a strong preference for electronic formats.

In tandem with this change, the SFC intends to revise Hong Kong ePO Guidelines. These revisions will remove references to HK MMOs, reflecting a transition towards a fully electronic public offer process in Hong Kong. The existing Hong Kong ePO Guidelines are designed to support the gradual transition from traditional paper-based public offerings to electronic formats, allowing issuers to utilize electronic facilities for displaying prospectuses and collecting applications. However, the guidelines also accommodated HK MMOs, where printed application forms could be distributed without accompanying printed prospectuses, provided electronic versions were available. Over time, the reliance on printed materials has become increasingly obsolete, and the HK MMO framework has seen minimal adoption and, according to the SFC, often leading to inefficiencies and potential confusion among investors.

The SFC is proposing amendments to Hong Kong’s ePO Guidelines with “a digital-first approach” by removing all references to HK MMOs. This would involve all documents in the public offering process being distributed electronically.

Certain sections of the Hong Kong’s Class Exemption Notice that facilitate HK MMOs will be repealed, such that prospectuses and application forms must be disseminated in an identical format. The Class Exemption Notice is a regulatory instrument under CWUMPO that allows the SFC to exempt certain classes of companies or prospectuses from specific legal requirements. Specifically, sections 38A (2) and 342A (2) CWUMPO empower the SFC to grant exemptions where compliance with certain provisions might be unduly burdensome, irrelevant, or otherwise unnecessary. Under Hong Kong’s Class Exemption Notice is the HK MMO exemption, introduced in 2011, which allowed companies to distribute printed application forms without the need to accompany them with printed prospectuses, provided that an electronic version of the prospectus was made available online.

The SFC Consultation Paper relating to HK MMOs and ePO guidelines proposes amendments to the Class Exemption Notice, in particular abolishing the HK MMO exemption. The SFC suggests repealing the sections that allow companies to use HKMMOs, thereby requiring all public offers to conform to a single standard where both application forms and prospectuses are distributed in the same medium.

The introduction of a paperless listing and subscription regime in 2021 was a step forward and the subsequent rollout of the Fast Interface for New Issuance (FINI) platform in November 2023 was based on a digital approach.

The paperless listing and subscription regime launched in July 2021, mandated that all listing documents be disseminated exclusively in electronic format, effectively phasing out the traditional reliance on printed materials. The implementation of the FINI platform in November 2023, enabled market participants and regulators to manage the entire end-to-end settlement process through a digital interface. FINI eliminated the need for physical application forms and was intended to accelerated the timeline for public offerings and enhance the accuracy of order processing.

The HK MMO faces several limitations, including low adoption rates, particularly among issuers of debt securities and HK CISs. The dual requirement of managing both printed and electronic documents as mandated by the existing HK MMOs further complicates operations. Additionally, the continued use of printed materials in HK MMOs is inconsistent with the Hong Kong market’s shift toward sustainability.

Feedback from market participants is expected to be submitted by 18 October 2024 either through the SFC website, email, or post/fax

(Source: https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=24PR134 & https://apps.sfc.hk/edistributionWeb/api/consultation/openFile?lang=EN&refNo=24CP4)