The Stock Exchange of Hong Kong

(i) Published its Consultation Conclusions on Proposed Amendments to the Environmental, Social and Governance Reporting Guide (the “ESG Guide”). It also updated its FAQ Series 18 on the subject.

What you should know:

• The proposed amendments are substantially the same as those proposed in the consultation, save for the implementation timeline in phases
• Also clarified the role of the board in ESG, including how this relates to internal controls and risk management
• For companies with a financial year commencing 1 January, all proposed changes (except “Environment” KPI upgrade) will affect the 2016 annual report. The “Environmental KPI upgrade” will affect the 2017 annual report

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What you should do/watch out for:

• ESG reporting – companies should start planning and implementing the relevant internal policies and processes. e.g. getting the board ready, and facilitating its determining the company’s priorities or “materiality” in ESG reporting
• “Business review” requirements – it is applicable to all listed issuers regardless of its place of incorporation, following Listing Rule amendments effective for financial years ending on or after 31 December 2015. (e.g. for December year-end companies, impacting its 2015 annual reports). It requires disclosure in certain environmental matters, which is separate from ESG reporting

(ii) Issued a Guidance Letter on trading halts

What you should know:

• Trading halts should be kept to as short as is reasonably possible to ensure investors are not denied reasonable access to the market. Issuers are expected to manage their affairs so that a trading halt can be avoided or be kept as short as is reasonably possible. There are some useful examples of good practices listed issuers should adopt
• There are two useful decision trees setting out how SEHK determines if a trading halt is necessary under various scenarios
• Trading halt requirements are separate from the legal obligation to disclose “inside information” under the Securities and Futures Ordinance (“SFO”)

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What you should do/watch out for:

This Guidance Letter is relevant for all companies. Companies should walk through the two decision trees and work out, under various scenarios, whether a trading halt and/or disclosure of “inside information” under SFO is needed. Sample announcements should be prepared as appropriate.

(iii) Issued a Guidance Letter on “cash company” rules

What you should know:

• Under the relevant Listing Rule, a cash company is a company whose assets consist wholly or “substantially” of cash or short-dated securities. Once a company is found to be a cash company, it will not be regarded as suitable for listing, and trading in its securities will be suspended
• There is no prescribed quantitative threshold for assessing whether a company’s assets consist “substantially” in cash. However, a company with less than half (50%) of its assets being in cash as a result of the fund raising would not normally be caught
• The cash position will be determined at the date of the completion of the fundraising. Hence, disclosure of future business plans or signing of agreements committing to use the proceeds will not help

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What you should do/watch out for:

Companies contemplating similar large-scale “fund raising” exercises should watch out, and approach SEHK to seek its guidance on the application of the rules as early as possible.

(iv) Updated FAQ Series 1 (Rule amendments relating to Corporate Governance and Listing Criteria Issues) and Series 31 (Relating to review of Listing Rules on Disclosure of Financial Information with reference to the New Companies Ordinance)

What you should know/do:

These are of a minor house-keeping nature only.

Competition law

What you should know:

The Competition Ordinance came into effective on 14 December. The Competition Commission entered into a Memorandum of Understanding with the Communications Authority affirming their commitment to exercising their functions with a consistent interpretation and application of the provisions of the Ordinance, and to facilitate efficient and effective handling of such matters.

It was noted that the Hong Kong Liner Shipper Association (on behalf of carriers operating through Hong Kong) has filed an application for a “block exemption”.

What you should do/watch out for:

Companies should monitor developments, including enforcement actions by the Commission in this area.