Complying with Hong Kong’s Listing Rules – An Overview for Market Entrants

October 22, 2021

When a company lists on the Hong Kong Stock Exchange ("HKSE"), it is obliged to comply with the Listing Rules and other applicable laws and regulations. To help those businesses planning an initial public offering ("IPO") or recent market entrants, we take an overview of the regulatory requirements that a firm's directors must collectively observe.

Any issuer that seeks a listing on the HKSE has first to appoint two authorized representatives who will act, at all times, as the issuer’s principal channel of communication with the HKSE. The said representatives must be either two directors, or one director and the company secretary. The timescale for satisfying the Listing Rules will be agreed in consultation with the company's compliance officer.

 

Financial Reporting Requirements

The Listing Rules stipulate the minimum level of information that a listed issuer has to include in any preliminary announcement of its results, interim reports, and annual reports.

The regulations also specify the timescales for publishing the annual results/annual report and the content of the accompanying financial statements:

  • The annual results announcement should be published no later than three months after the end of the financial year.
  • The annual report has to be published no later than four months following the end of the financial year.

Tight timescales also apply to the interim results:

  • The interim results announcement has to be made no later than two months after the end of the six-month financial period.
  • The interim report should be published within three months of the six-month financial period end.

Furthermore, the company's annual general meeting ("AGM") needs to occur within six months of the end of the financial year.

 

The Regulation of Board and Committee Meetings

Another highly regulated area pertains to the frequency of board and committee meetings:

  • The entire board needs to meet at least four times in any year – the implication being that this will be as close to a quarterly occurrence as possible.
  • The audit committee is governed by its terms of reference but will typically meet at least twice annually to review the annual and interim results with the auditors. It should also have discussions with the external auditor every six months.
  • Other bodies, such as the remuneration committee and nomination committee, are obliged to gather at least once during each financial year and subject to their3 respective terms of reference.

 

Good Governance – Requirements and Best Practice

The Corporate Governance (“CG”) Code has two levels of good corporate governance recommendations, one of which relates to the code provisions, while the other, the recommended best practice, should be viewed as a target to be achieved over time. Appendix 14 to HKSE Listing Rules contains more information on the code provisions and recommended best practice.

HKSE’s environmental, social, and governance ("ESG") reporting guide, under Appendix 27 to the Listing Rules, comprises two levels of disclosure obligations:

  1. Mandatory disclosure requirements
  2. 'Comply or explain' provisions

Listed issuers must include the information as prescribed in the mandatory disclosure requirements for the period covered via the ESG report. Also, listed issuers must report in the ESG report following the “comply” or “explain” provisions requirement and, if applicable, detail why higher standards have not been met. The ESG report may be presented in the issuer’s annual report or as a separate publication. It should also be made available on the HKSE’s website and the company's website.

The CG Code contains specific provisions that the board and the various associated committees must acknowledge and discuss. For example, all directors should participate in continuous professional development to enhance or refresh their knowledge and skills to ensure their contribution to the issuer remains relevant and informed. The issuer should arrange and pay for its directors' training to improve their knowledge and ability to execute their roles.

 

Securities and Futures Commission Guidelines

Strict guidelines apply to the activities of all parties who are privy to knowledge that could influence movements in the share price. Directors and other employees are expected to follow Listing Rules on the securities dealings in the company. A minimum level is defined by guidelines known as the Model Code, but the company can choose to apply more stringent standards should it wish. This covers aspects, such as insider dealing – where an employee is prevented from trading in shares or other securities to take advantage of information that is not widely known – and other areas where disclosure is expected. The Listing Rules and the CG Code specify the minimum levels of information that are expected to be published on the company's website. At the same time, the Securities and Futures Ordinance / the HKSE rules define events that require disclosure.

Obligations in this respect start at the time of the listing.

  • Within 10 days, all substantial shareholders, including members of the company management team and the board, must disclose their shareholdings/interests.
  • Any change to those positions/nature of shares interest must be notified within three days of the event triggering the disclosure requirement.
  • Companies need to maintain registers documenting this information and to report the location of these to the registers.

The Hong Kong Companies Ordinance dictates which documents are required to ensure ongoing compliance with the rules in place at any given time. This includes any alterations, such as company name changes, the appointment of new directors or changes in their personal particulars, and any move to a new registered office.

An overseas company that does not have a registered Hong Kong base should comply with the obligations listed in Part 16 of the Hong Kong Companies Ordinance. These rules detail the requirements concerning the completion of an annual return, sending published accounts, as well as the filing of relevant returns reporting the alterations of company name, change of directors and secretary or their personal particulars, or any change of registered office/principal place of business in the place of incorporation or Hong Kong, to the Registrar of Companies, and the timescales that apply to submitting those documents.

 

Regular Reviews – A Company's Obligations

Once an enterprise lists, its board of directors has to perform a series of assessments to ensure the company complies with business regulations. The board's composition must be appraised annually, as should risk-management processes and internal controls. Financial information is subject to review at least twice a year by the audit committee and external auditors. In addition, a firm's adherence to corporate governance and regulatory compliance guidelines, as well as shareholder communications policies, need to be regularly examined.

These practices may seem time consuming, but they exist for a reason – to guard the interests of both the enterprise and its investors to enhance sustainability in business.

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