Introduction
The Securities and
Futures Ordinance ('SFO') which came into force on 1 April
2003 has broadened considerably the previous regime
governing the disclosure of interests in the shares and
debentures of Hong Kong listed companies with a view to
enhancing transparency in the Hong Kong market.
The
SFC has issued a paper detailing the relevant provisions and
setting out examples of how they work. The following is
intended as a summary of the new regime as it affects
substantial shareholders and directors and chief executives
of listed companies.
DISCLOSURE BY SUBSTANTIAL
SHAREHOLDERS
As under the previous regime, the
SFO requires disclosure when a person acquires or ceases to
have a notifiable interest and when there is a change in the
percentage level (ie. the figure rounded down to the next
whole number) of his interest.
Reduction of
Substantial Shareholding Threshold
The SFO reduces
the threshold for disclosure from 10% to 5% of a Hong Kong
listed company's issued voting share capital. Where there
are more than one class of listed shares, the percentage of
each class is taken separately.
When is Notification
Required?
Notification on Commencement of the SFO -
Initial Notification
Interests discloseable on the
commencement of the SFO should be filed on or before 14
April 2003.
Please see Schedule 1 for a list of
interests which became discloseable upon the SFO coming into
force.
Any interest already disclosed under the
previous regime need not be notified on commencement of the
SFO.
Further Notifications - Shortening of
Notification Period
Thereafter notification is
required on the occurrence of the relevant events set out in
Schedule 2. The SFO shortens the notification period for
such events from 5 days to 3 business days (which includes
Saturdays).
An Initial Notification will also be
required where a person has 5% or more of the shares of a
company which is being listed, 5% or more of shares of a
class being listed or given full voting rights or if either
the 5% threshold or 1% threshold for short positions is
reduced. In these limited circumstances the notification
period is 10 business days.
Disclosure of interests
in Equity Derivatives
Under the previous regime, the
disclosure requirements applied only to physically settled
derivatives. The SFO extends the disclosure obligations of
substantial shareholders to interests in the unissued shares
of listed companies which, if issued, would carry the right
to vote and also to cash settled derivatives. Hence,
interests in the 'underlying shares' of all equity
derivatives (whether issued or unissued) are discloseable,
including interests in options, subscription warrants,
convertible bonds, ADRs and stock futures.
A holder,
writer or issuer of equity derivatives will be taken to have
a long position in the underlying shares and must add these
to his other interests in determining his disclosure
obligations if:
(i) he has a right to take the
underlying shares;
(ii) he has an obligation to take
the underlying shares; or
(iii) he has a right to
receive money or to avoid or reduce a loss if the price of
the underlying shares increases,
before or on a
certain date or within a certain period (whether the right
or obligation is conditional or absolute).
Disclosure of Short Positions
The SFO
extends the disclosure obligations of substantial
shareholders to cover 'short positions'. A person is
regarded as having a short position in shares if he:
(i) holds, writes or issues financial instruments
under which:
(a) he can require another person to
take the underlying shares;
(b) he is obliged to
deliver the underlying shares; or
(c) he has a right
to receive money or to avoid or reduce a loss if the price
of the underlying shares declines,
before or on a
certain date or within a certain period (whether the right
or obligation is conditional or absolute); or
(ii)
he borrows shares under a securities borrowing and lending
agreement.
Hence the writing of a call option,
holding of a put option and stock borrowings will be
discloseable. However a person (not being a director) with a
short position will only be required to disclose it if he
already has a 5% interest in a class of a listed company's
voting share capital ie. he must be a substantial
shareholder before he has a duty to disclose a short
position. Further the short position must be at least 1%.
Thereafter, as with long positions, a change in the short
position will only require disclosure if it results in the
short position crossing a percentage level or in the person
ceasing to have a short position of at least 1%.
Short positions cannot be netted off against long
positions and the percentage figures for short and long
positions must be calculated and notified separately.
How many shares is a person taken to be interested
in in the case of equity derivatives?
Holders,
writers and issuers of equity derivatives are taken to be
interested in, or have a short position in, the number of
shares to be delivered, or by reference to which the amount
payable is derived or (in the case of stock futures only)
the relevant contract multiplier.
Calculation of a
person's interest
Long Positions
The
percentage
figure of an interest in shares should be
determined using the following formula:
|
nominal
value of shares in which a person is interested * X 100
nominal value of the issued shares of the listed company of
the same class |
Short Positions
To calculate
whether a short position constitutes 1% or more, a similar
formula can be used:
|
nominal value of shares in
which a person has a short position * X 100
nominal value of
the issued shares of the listed company of the same class |
* Note that this will include all issued shares and
shares underlying equity derivatives whether issued or
unissued.
The forms require the percentage figure to
be rounded to 2 decimal places. To find the percentage level
of the interest the percentage figure is rounded down to the
next whole number.
The date for calculating the
relevant percentage is the date of occurrence of the
relevant event and the number of shares in which a person is
interested and the total number of issued shares should be
determined on that day.
Please note
that this summary is for general information purposes only.
Specific legal advice should be sought when appropriate.
