2023年10月31日

Hong Kong Stock Market: Automatic Share Buy-backs on HKEX during Blackout

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The Hong Kong Stock Exchange (HKEX) issued a new guidance letter (HKEX-GL117-23) on 27 October 2023  setting out the criteria for allowing issuers to conduct automatic share buy-back programs, which may be effected throughout the blackout period.

The issuance of this new advisory falls within the scope of the recently announced Hong Kong Policy Address 2023 on strengthening the competitiveness of the Hong Kong stock market, which stated that the report of the Task Force on Enhancing Stock Market Liquidity (established in August 2023 to make recommendations to the Hong Kong Chief Executive) has been accepted.  The Task Force’s proposals include reducing the stamp duty on stock transfer and facilitating share repurchase by issuers.

Under the Hong Kong Listing Rules, an issuer is prohibited from share repurchases on the HKEX during the blackout period (i.e. one month prior to the release of financial results) and  while in possession of undisclosed inside information (together the "Restricted Period").   

The HKEX has granted waivers (the "Waivers") from compliance with the said restriction for automatic share buy-back programs adopted by issuers that are dual-listed on the HKEX and the London Stock Exchange (or New York Stock Exchange) where their share buy-backs in foreign jurisdictions are exempted or fall within the safe harbour under the relevant laws. 

Under the new HKEX-GL117-23, Hong Kong issuers, whether single or dual listed on the HKEX, may apply for the Waiver, provided that their automatic share buy-back programs (the "Programs") are structured in a manner as to mitigate the risks of abuse of undisclosed inside information and price manipulation.  

Below is a summary of the major criteria that the HKEX will consider in granting the Waiver:

  • The issuer’s size and liquidity of its shares - As a reference, the HKEX would consider (i) a market capitalisation of at least HK$10 billion;and (ii) an average daily turnover volume (ADTV) of at least HK$10 million in the six months immediately prior to the adoption of the Program as a benchmark for eligibility for the Waiver.

  • The Program – It should be (i) established outside the Restricted Period and cannot be modified or terminated (unless required by applicable laws) during the Restricted Period;(ii) of sufficient duration; and (iii) as best practice, be imposed with a cooling-off period between the commencement of buy-backs under the Program and the Restricted Period.

  • An irrevocable non-discretionary arrangement with a single independent broker – The arrangement should include (i) a binding contract which sets out the trading parameters for share buybacks prior to the commencement of the Program; and (ii)appropriate systems and controls with Chinese walls between the broker and the issuer (or its connected persons).

  • Dealing restrictions – In addition to the existing price restriction under the Listing Rules (i.e. no share repurchases at a price higher by 5% or more than the average closing price for the five preceding trading days), further dealing restrictions will be imposed as conditions for the Waiver: (i) trading under the Program should be limited to 25% of the average daily trading volume of the immediately preceding 20 trading days; and (ii) participation in opening and/or closing auctions/periods should be restricted.

Key Takeaway:

It should be noted that in addition to the objective criteria set out above, issuers will also need to demonstrate that strict compliance with the Restricted Period is unduly burdensome in order to successfully obtain the Waiver.  It remains to be seen what HKEX would accept as valid reasons for being unduly burdensome.

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