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Legal Update

Hong Kong Exchanges and Clearing Limited Publishes Consultation Conclusions on Proposed Changes to Connected Transaction Rules and Requirements for Circulars and Listing Documents of Listed Issuers

31 May 2010
Mayer Brown JSM Legal Update

Hong Kong Exchanges and Clearing Limited (the "Exchange") published on 20 May 2010 its Consultation Conclusions on (i) Proposed Changes to Connected Transaction Rules in respect of the consultation paper issued by it on 2 October 2009 (the "Connected Transaction Rules Consultation Conclusions"); and (ii) Proposals to Streamline Requirements for Circulars and Listing Documents of Listed Issuers in respect of the consultation paper issued by it on 18 September 2009 (the "Circular and Listing Documents Requirements Consultation Conclusions").

The Connected Transaction Consultation Conclusions and the Circular and Listing Documents Requirements Consultation Conclusions proposed amendments to the Main Board Listing Rules and the GEM Listing Rules (together the "Listing Rules") which will take effect on 3 June 2010.

How will the proposed changes affect you as an issuer?

  • You should review and update your list of connected persons:
    • Under the new Listing Rules, transactions on normal commercial terms with persons connected only at a subsidiary level will now be exempt from all reporting, announcement and independent shareholders' approval requirements if the size of the subsidiary is insignificant to the issuer.
    • You should note that the size of the relevant subsidiary will be considered insignificant to the issuer only if the applicable percentage ratios are (i) less than 10% for each of the latest three financial years; or (ii) less than 5% for the latest financial year. Where the relevant subsidiary is a party to the transaction or its securities are the subject of the transaction, the consideration ratio must be less than 10% unless the transaction is of a revenue nature in the issuer's ordinary and usual course of business.
    • Where a non-wholly owned subsidiary is connected to the listed issuer only because it is (i) a substantial shareholder of another subsidiary or (ii) an associate of a person connected only at the subsidiary level, such non-wholly owned subsidiary will no longer be regarded as a connected person.
    • Promoters of PRC issuers, PRC Governmental Body for non-PRC issuers, and management shareholders of GEM issuers will no longer be regarded as connected persons.

  • You should reassess who will be considered "associates" under the new Listing Rules:
    • The holding company of an investee company (i.e. a company over which a connected person and/or any party closely related to this connected person, individually or together, has control) or a fellow subsidiary of this holding company, as well as a company controlled by the investee company (not being a subsidiary of the investee company), and its subsidiary, holding company or fellow subsidiary will no longer be considered associates.
    • A company in which a connected person’s relative has a majority control will be considered an associate.

  • It is no longer necessary to despatch circulars (other than information circulars) within 21 days of issuing the initial announcement for a transaction:
    • Issuers will instead be required to disclose the expected date of despatch (and if such date is more than 15 business days after publication of the initial announcement, the reasons why this is so) in the initial announcement. Further announcement should be made if there is a delay in the depatch of the circular by the date previously announced, stating the reason and the new expected despatch date.

  • You should be aware of the change in timing for despatching information circulars from calendar days to business days, for instance, in relation to the despatch of revised or supplementary circulars

In addition to the above, a number of new exemptions will be introduced while certain existing exemptions will be relaxed under the connected transactions regime. Other amendments to streamline the issuers' documents and codify existing practices, such as those relating to the disclosure of financial information, will also be made. For a full summary of the amendments proposed by the Connected Transaction Consultation Conclusions and the Circular and Listing Document Requirements Consultation Conclusions, please refer to the Note to Subscribers for the Amendments to the Rules Governing the Listing of Securities, Update No.96, issued on 20 May 2010 by the Exchange.

Please also refer to the following hyperlinks for more details on the proposed amendments:

 If you have any queries in relation to the proposed amendments introduced by the Connected Transaction Consultation Conclusions and the Circular and Listing Document Requirements Consultation Conclusions, please feel free to contact us:

Patrick Wong ( )

Derek Tsang ( )

Jacqueline Chiu ( )

Jeckle Chiu ( )

Learn more about our Hong Kong office, Corporate & Securities and Company Secretarial practices.

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