Member Article

Under Part XV of the Securities & Futures Ordinance (SFO), where a company has an interest (or a short position) in Hong Kong listed shares, its holding company is deemed to have that interest; this attribution is carried the whole way up a corporate chain to the ultimate holding company. This imposes onerous monitoring requirements on financial services groups. There is, however, an “disaggregation exemption” which (in summary) provides that the interests / short positions of “investment managers” need not be attributed to their holding companies if the companies operate independently without any reference to those holding companies or any of their subsidiaries (including other investment mangers). Unfortunately, as defined “investment managers” only covers managers regulated in certain recognised jurisdictions, which includes the UK and the US but does not include Singapore. All interests (and short positions) of “non-recognised” investment managers cannot be disaggregated, and must therefore be attributed to all of its holding companies. One issue which needs to be considered is whether having a centralised voting system means companies are not acting independently. Also asset management groups may have house views, investment policies or strategies which are applicable to their various asset management operating units, ranging from matters such as market / sector weighting to hedging current exposure to individual company preferences / avoids. If the operating managers have regard to policies of this nature, this is likely to prevent the exemption applying. Advice should be sought on specific arrangements.