No.1 April 2003
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Disclosure of Interests under the Securities and Futures Ordinance
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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 levelof 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.
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