Hong Kong Stock Exchange enhances the disciplinary regime under the Listing Rules

In the event an individual who is subject to a PII Statement continues to occupy the position specified in the statement after such date as determined or specified by the Listing Committee or the Listing Review Committee, follow-on actions will be triggered which include the denial of facilities of the market to that listed issuer for a specific period, in addition to suspension or cancellation of the listing of that listed issuer’s securities under the Listing Rules.

After a PII Statement with follow-on actions has been made against an individual, the listed issuer identified in the statement must include a reference to the PII Statement in all of its announcements and corporate communications, unless and until that individual is no longer a director or senior management member of the relevant listed issuer. The other listed issuers of which the individual is a director are required to announce the PII Statement as soon as practicable. Any other listed issuers which appoint the individual as a director are required to disclose in the appointment announcement that the director is subject to a PII Statement.

The follow-on actions and the publication requirement in respect of the PII Statement above also apply in respect of a case of Director Unsuitability Statement, however, only against the listed issuer named in the statement and will not automatically apply to other listed issuers of which the individual continues to hold office of a director. Instead, the Stock Exchange may take separate and independent action in relation to that listed issuer and the director.

Introduction of Secondary Liability

Under the Listing Rules, the Relevant Parties^Note(2) are subject to disciplinary sanctions. However, the Listing Rules do not impose any obligation on some of the existing Relevant Parties (i.e. senior management of listed issuers and their subsidiaries, and significant shareholders). In addition, the Listing Rules do not impose secondary liability for breach of Listing Rules, i.e. the responsibility of a person or entity which arises when the party directly liable fails to discharge an obligation. To impose disciplinary action against the Relevant Parties, the Stock Exchange has introduced secondary liability for breach of the Listing Rules where the Stock Exchange determines the person has caused by action or omission or knowingly participated in a contravention of the Listing Rules.

New parties included within “Relevant Parties”

The Stock Exchange has decided to include following new parties within the scope of “Relevant Parties” under both Main Board Rules and GEM Rules:

1. employees of a professional adviser of a listed issuer or any of its subsidiaries;
2. guarantors of structured products; and
3. a party who provides an undertaking to or who enters into an agreement with the Stock Exchange, such as an offeror in a mandatory offer who may give an undertaking to the Stock Exchange to take appropriate steps to ensure that sufficient public float in the shares exists after the offer closes.

Pursuant to GEM Rule 3.11(i), guarantors for an issue of debt securities also falls under the definition of “Relevant Parties” under the GEM Rules, but not the Main Board Rules. To align the list of Relevant Parties under the Main Board Rules and GEM Rules, the Stock Exchange has included guarantors for an issue of debt securities as a Relevant Party under the Main Board Rules.

Removal of independent financial advisers as a standalone Relevant Party

Pursuant to Main Board Rule 2A.10(j), “independent financial advisers” of a listed issuer is an existing Relevant Party under the Main Board Listing Rules but not the GEM Rules. The Stock Exchange removed independent financial advisers as a separate Relevant Party for disciplinary action but made it clear that the term “professional advisers” includes independent financial advisers.