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Legal Update

Disclosure Obligations of Listed Issuers

9 September 2011
Mayer Brown JSM Legal Update

Quick Read

The Stock Exchange of Hong Kong Limited (SEHK) issued a reminder to listed issuers on 9 August 2011 to draw their attention to their obligations to disclose price sensitive information under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (Listing Rules), especially in view of the recent turmoil of the equity and credit markets.

SEHK reminded listed issuers of a letter entitled "Recent economic developments and the disclosure obligations of listed issuers" issued on 31 October 2008 (Letter). This Letter discusses listed issuers' obligations to monitor their financial performance and financial condition continuously, and to update their expectations of performance on a regular basis.

How Does This Affect You?

SEHK urges listed issuers to review whether the recent financial turmoil has significantly impacted their financial position or expected performance and if so, they should inform investors of the relevant information in a timely manner. It would be helpful for listed issuers to study the Letter as it explains the applicable continuous disclosure standards expected by SEHK and provides interpretative guidance and observations on SEHK's expectations.

Disclosure Obligations

While Rule 13.09(1) of the Listing Rules sets out the primary general disclosure obligations of listed issuers, the Letter sets out guidance on various specific situations which are summarised as follows:

When preparing periodic and other structured disclosure

Listed issuers are required from time to time to disclose information in certain prescribed periodic or structured formats such as periodic financial reports, circulars and listing documents. In the course of preparing the disclosure, listed issuers may discover potentially price sensitive information falling within the scope of Rule 13.09(1) which is previously unknown to the directors. In this case, a listed issuer must immediately make separate disclosure of the information to bring it to the market's attention and it should not wait until the relevant prescribed document is published. The prescribed periodic and structured format disclosure obligations run in parallel with and are in addition to the continuous disclosure obligations under Rule 13.09(1). They are not substituting one another.

When negotiating transactions, fund raising or other proposals

A listed issuer may be asked to provide confidential information to third parties in the course of negotiating transactions, fund raising or other proposals. The listed issuer should properly and carefully assess whether the information in any of the documents, individually or collectively, is potentially price sensitive in nature before providing the information. One example is that a review of management accounts may reveal financial trends which are potentially price sensitive. In this case, subject to the conditional relief explained below, the listed issuer must make immediate disclosure while the negotiations proceed.

Legitimate delay in disclosure

The following circumstances may justify delay in disclosure of potentially price sensitive information:

  • A listed issuer may delay in disclosing potentially price sensitive information regarding transactions or the raising of finance so as not to prejudice its interests in those negotiations. The listed issuer may also legitimately provide information in confidence to other relevant parties provided that the confidentiality of the information is maintained and the delay in disclosure will not lead to the establishment of a false market.
  • There are many inherently price sensitive matters, where premature release of information before the major elements have been finalised would be misleading rather than informative. This might include, for example, the development of a new product or the planning of a major redundancy program. However, once these issues have been finalised, the listed issuer should make a regulatory announcement immediately.

Once confidentiality is lost in relation to the above situations, whether inadvertently or deliberately, the listed issuer must make relevant disclosure without delay.

Internal developments

Unexpected events may happen which indicate that something is significantly wrong regarding the operation or business of a listed issuer. In this case, the listed issuer should investigate the situation to gather sufficient information so as to decide whether disclosure of information is required. The listed issuer should make a "holding" announcement if further work is required to fully investigate the situation before complete information can be disclosed. The listed issuer should disclose further information when it is ready to give more precise details.

Significant uncertainties may exist regarding the outcome of any development. Under these circumstances, the listed issuer should give a detailed account of the nature and scale of the uncertainties and explain the actions it has taken or is taking so that the market can be properly informed.

In the exceptionally remote situations where these general approaches cannot be implemented without the risk of creating a false (misinformed) market, the listed issuer should immediately ask for a suspension of trading of its securities pending clarification of the position. This announcement should indicate the nature of the matter pending clarification.

External developments

Listed issuers are not required to disclose general external information which may already be in the public domain (such as foreign currency rates, market price of commodities or changes in a taxation regime). However, if the information has a particular impact on a listed issuer, then the listed issuer may be required to disclose the impact.

Handling of market rumours

Generally, SEHK does not require a listed issuer to make a negative statement denying a wholly unfounded rumour. However, if the listed issuer decides to make such a denial, it should consider doing so by making a formal announcement, rather than just making such a remark to a single publication or by way of a press release. If the denial is likely to have a material impact on the share price of the listed issuer, then a formal announcement is required. By the same token, the listed issuer should issue a corrective announcement without delay if it is concerned that its reaction to a wholly unfounded rumour will create or is creating a disorderly market.

You can download copies of the Letter via the link below:

http://www.hkex.com.hk/eng/rulesreg/listrules/listletter/Documents/20110809.pdf

For inquiries related to this Legal Update, please contact the following persons or your usual contacts with our firm.

Jeckle Chiu ( )

Juliana Lee ( )

Learn more about our Hong Kong office and Corporate & Securities practice.

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