Member Article

In January 2005, the Hong Kong Securities & Futures Commission (“SFC”) issued a Consultation Paper on the disclosure of interests in securities of Hong Kong listed companies under Part XV of the Securities & Futures Ordinance (“SFO”). Conclusions to the consultation were issued in May 2005. The most significant of these include the following: Investment managers: non-aggregation Interests (and short positions) of companies are attributed to their holding companies and other “controllers”. This can make for onerous monitoring and disclosure requirements for financial services groups’ holding companies, and the SFO contains an exemption which provides that the interests and short positions of certain “qualified” investment managers which operate independently of other group companies. This exemption has flaws which restrict its applicability, for instance where, as is common, different investment management entities within a group co-ordinate their activities. The SFC is proposing various changes which are intended to make it easier to qualify for the exemption in circumstances where qualified investment managers co-ordinate their activities, and for investment management operations which are within the same legal entity as other operations. To count as a “qualified” investment manager for these purposes, the investment manager must be regulated in an approved jurisdiction - including Hong Kong, the UK and the USA but not, for example, Singapore. The SFC is not intending to widen this category in the short term, despite pressure to do so. Security interests given by substantial shareholders The giving of securities interests to “qualified lenders” can currently be exempt from disclosure on both the chargor’s and chargee’s parts. This has been subject to considerable public debate, and the SFC has canvassed opinion on a range of possible changes, including the acceleration of disclosure where security is being enforced. No conclusions were reached, and the SFC is setting up a working group to consider this difficult area further. Changes in the nature of interests The issue of what changes in relation to a person’s interests require disclosure is one of the most difficult, and least understood, areas of the disclosure regime. The range of events which may give rise to a disclosure obligation is extraordinarily wide and arbitrary. The SFC is proposing to restrict disclosure obligations to a few specified types of change; this would be a welcome reform of a most unsatisfactory area of the law. Other areas The SFC also proposes to: • relax the “exempt custodian interest” exemption so as to be applicable even where custodians have certain residual rights to the relevant shares; • exclude Saturdays from the three-day time period for notification. William Mackesy is the author of Disclosure of Interests in Securities of Hong Kong Listed Companies, the only detailed textbook on this subject, which is available from Deacons at [email protected].