All initial public offerings (IPOs) must be paperless from July 5, 2021 and documents put on display by issuers to support listings and transactions must be made available online from October 4, 2021.
Notwithstanding its status as the world’s leading bourse in terms of IPO fundraising volume[1], the Hong Kong Stock Exchange (HKEx) stands in stark contrast to its major international counterparts in that it presently still requires all listing documents to be made available in printed form for the purposes of allowing physical collection and inspection. Against the backdrop of technology advancement in recent years and a high internet penetration rate in Hong Kong, such a practice, as the HKEx concedes, is impractical, out-of-date, and environmentally unfriendly. The COVID-19 pandemic, and the consequent systemic shifts in how corporates now conduct their businesses and further embrace technology, have additionally injected a strong impetus for change.
On July 24, 2020, the HKEx published a consultation paper (Consultation Paper) seeking public feedback on proposals regarding (i) a Paperless Listing & Subscription Regime, (ii) Online Display of Documents, and (iii) Reduction of the Types of Documents on Display. The HKEx subsequently published its conclusions to the Consultation Paper on December 18, 2020, announcing that it would adopt all of the aforesaid proposals (with several minor modifications).
These newly introduced – and long-overdue – paperless initiatives are part of an effort to further modernize and enhance the competitiveness of Hong Kong’s listing regime. They can effectively bolster Hong Kong’s self-positioning as an international green and sustainable finance center, and thus are welcomed developments.
Presently, the HKEx’s listing rules (Listing Rules) require issuers to make available the listing documents of equities, debt securities and collective investment schemes in printed form. The Listing Rules also require issuers to make sufficient copies of the listing documents available to the public, free of charge, at the addresses set out in the formal notice[2] during the public offer period.
As alluded to above, the mandatory printing of prospectuses creates considerable environmental costs, and is inconsistent with the widespread availability and usage of the internet in Hong Kong. Furthermore, the possibility that retail investors may congregate in mass at any given location to collect listing documents in person, in the context of the COVID-19 pandemic, gives rise to a swathe of health and safety concerns. Presently in Hong Kong, there is a prohibition on gatherings of more than four persons in any public place pursuant to the Prevention and Control of Disease (Prohibition on Group Gathering) Regulation; given that the pandemic has yet to subside, and notwithstanding the rollout of the COVID-19 Vaccination Programme on February 23, 2021 by the Hong Kong government (which currently targets to have the majority of the Hong Kong population vaccinated for free within 2021), it is anticipated that this public gathering prohibition will continue to remain in force in varying degrees for some time.
Effective July 5, 2021, the Listing Rules will be amended to require
Issuers may continue to elect for Mixed Media Offers[3] (MMO) – where paper application forms are issued with electronic prospectuses – which are exempted from the aforesaid requirements. Therefore, unless an issuer has chosen to adopt an MMO, physical copies of prospectuses and application forms should not be made available to the public under the new regime. Issuers are advised to gauge beforehand whether there might be a high demand for paper application forms despite their low usage in recent years; if so, it may be prudent to adopt an MMO.
Presently, the Listing Rules require issuers to place various documents on display for physical inspection[4] and such documents remain inaccessible by the public online. Issuers are typically required to display these documents for inspection at a place in Hong Kong (e.g., the issuer’s office or its legal advisor’s office) for a fixed period of time after the issue of the prospectus.
Such documents include, but are not limited to:
Effective October 4, 2021, the Listing Rules will be amended to replace the requirement that issuers display the aforesaid documents for physical inspection, with the requirement for such documents to be published online – on both the HKEx’s website and the issuer’s website – for the same period of time as they are currently required to be available for physical inspection.
Presently, the Listing Rules require issuers to obtain shareholders’ approval for certain notifiable transactions and connected transactions. The issuer must issue a circular for the transaction in question and make available certain documents for inspection.
Effective October 4, 2021, the Listing Rules will be amended to remove requirements to display the following documents (in the context of the issuance of a circular for a notifiable/connected transaction):
The underlying rationale for issuers not needing to display documents falling within categories (i), (ii), and (iii) above, is that such documents, in any event, are already published on the HKEx’s website and the issuers’ websites. As for documents falling within categories (iv) and (v), they do not directly relate to the transaction that forms the subject of the circular in question and, as such, the HKEx’s view is that they do not constitute information necessary and pertinent to informing how a shareholder should vote on the transaction.
The HKEx has several other completed and ongoing paperless initiatives. These include
It is also worth noting that the Hong Kong government has announced in its 2021-22 budget (delivered on February 26, 2021) that by mid-2022, (i) all government forms and licence applications can be submitted electronically, and (ii) e-payment options will be made available for making payments in respect of most government bills and licences. These initiatives constitute part of the Hong Kong government’s expedited efforts in developing its e-Government services amid the COVID-19 pandemic, and align with the Hong Kong government’s goal of achieving carbon neutrality before 2050.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Hong Kong
Edwin Luk
Billy Wong
June Chan
Keith Cheung
[1] Hong Kong has been the top-ranked IPO venue globally, in seven out of the past 12 years. According to the HKEx’s 2020 Annual Market Statistics Report, Hong Kong ranked as the second largest IPO market globally (after NASDAQ), with IPO equity funds raised last year standing at approximately $51.28 billion (representing a 26.5% year-on-year increase and the highest amount raised in a single year since 2010).
[2] Such addresses would typically be the offices of the Hong Kong underwriters and designated branches of the receiving banks or the placing banks.
[3] An offer process whereby an issuer distributes paper application forms for public offers of securities without a printed prospectus, provided that (i) the prospectus is available on the HKEx’s website and the issuer’s website, and (ii) the issuer makes printed prospectuses publicly available free of charge upon request at specified locations.
[4] Scenarios which trigger inspection requirements include, for example, listing applications, major transactions, very substantial acquisitions and disposals, connected transactions, debt securities issuance, structured products issuance, and share option schemes.
[5] Under the Listing Rules, material contracts are contracts, not being contracts entered into in the ordinary course of business, entered into within the two years immediately preceding the issue of the listing document in question.
[6] Ibid.
[7] This excludes contracts that are expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation).