From time to time, The Stock Exchange of Hong Kong Limited (SEHK) publishes guidelines to issuers on how to handle market comments and negative publicity about accounting and corporate governance matters. This Legal Update aims to explain some of the major principles to assist compliance by issuers.
Listing Rules Requirement
The general principle is contained in Rule 13.09 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (Listing Rules) which requires an issuer to disclose promptly any information which:
- is necessary to enable investors and the public to appraise the position of its group;
- is necessary to avoid the establishment of a false market in its securities; or
- might reasonably be expected to have a material effect on market activity in and the price of its securities.
SEHK sets out more specific guidelines as follows:
Where there is rumour or speculation regarding an issuer circulating in the market
- The issuer's directors should immediately assess with due care whether it triggers a disclosure obligation under the Listing Rules.
- If the rumour or speculation has, or is likely to have, an impact on the issuer's share price so that there may be a potentially false market, then the issuer should make a clarification announcement or request a suspension of trading of its securities pending a clarification.
Where an issuer makes a negative statement denying a wholly unfounded rumour
- The issuer should consider doing so by making a formal announcement, instead of merely making comments to a single publication or by way of a press release.
- The rationale is that the whole market should be informed instead of just the readers and viewers of selected newspapers or media services.
- If the denial has or is likely to have a material effect on the issuer's share price, then the issuer should make a formal announcement.
- When the issuer is concerned that the response to the rumour will or is creating a disorderly market, it should promptly publish a corrective announcement.
Where an issuer is contacted by SEHK in relation to a rumour
- Although SEHK will not necessarily require an announcement, it will expect a full justification for the issuer’s proposed course of actions and confirmation of the issuer’s true position so that it can properly monitor the development.
- The issuer and its advisers should not mislead SEHK as the issuer is under an obligation under the Listing Rules to provide the relevant information.
- Subsequently, SEHK may investigate the issuer's response to the rumour, in particular if SEHK is suspicious about being misled at any point.
Actions required by issuers to ensure compliance with the continuous listing obligations
- To implement effective policies and procedures to actively monitor their share prices and any news, comments or reports relating to them that are circulating in the market.
- To adopt effective systems to help the directors continuously and closely monitor developments so that they can accurately respond to SEHK's enquiries on a timely basis regarding the issuers' affairs. Where necessary, they should publish announcements to correct or prevent a false market.
- To adopt the practice of publishing announcements regarding their business operations and developments (e.g. trading update) more regularly to enhance transparency and keep the market up to date. This practice may also reduce the likelihood of a need for unplanned announcements.
The relevant SEHK guidelines include:
- A letter entitled "Continuous disclosure obligations of issuers" dated 10 May 2012 which can be downloaded via the link below:
- A letter entitled "Recent economic developments and the disclosure obligations of listed issuers" dated 31 October 2008 which can be downloaded via the link below:
The new statutory price sensitive information disclosure regime will become effective on 1 January 2013. For details, please refer to our Legal Update entitled "New Statutory Price Sensitive Information Disclosure Regime to Take Effect on 01 January 2013".