Note to subscribers for the amendments
to the rules governing the listing of securities on the Growth Enterprise Market
(the “GEM Listing Rules”)

Update No. 49

March 2014

Dear Sirs, 

GEM Listing Rule amendments to Connected Transaction Requirements
and Definitions of Connected Person and Associate

We enclose reprinted pages of the GEM Listing Rules and the filing instructions.  The reprinted pages incorporate amendments to implement proposals in the consultation conclusions on “Review of Connected Transaction Rules” and “Proposed Changes to Align the Definitions of Connected Person and Associate in the Listing Rules” published in March this year.
We have amended the GEM Listing Rules to:
Connected transactions
	make plain language amendments to Chapter 20;
	exempt transactions with connected persons at the subsidiary level from the shareholders’ approval requirement;
	remove the exemption for qualified property acquisitions involving qualified connected persons;
	exclude persons connected with insignificant subsidiaries of the issuer from the definition of connected person;
	exclude from the definition of associate any trustee of an employee share scheme/ occupational pension scheme if the connected persons’ interests in the scheme are together less than 30% and the scheme is established for a wide scope of participants;
	in defining a “30%-controlled company”, exclude any company in which the connected person and his/its associates together have an interest of less than 10%, other than the indirect interest held through the issuer;
	exclude from the definition of connected transaction the following transactions with third parties, where a controller is, or will be, a shareholder of the target company:
	any disposal of interests in the target company to a third party where a controller at the issuer level is the target company’s substantial shareholder; any acquisition/disposal of interests in the target company from/to a third party where a controller at the subsidiary level is the target company’s substantial shareholder; and transactions with third parties described in paragraphs (ii) to (iv) of current Rule 20.13(1)(b);
	increase the monetary threshold for fully exempt connected transactions from HK$1 million to HK$3 million;
	remove the 1% cap on transaction value which is currently a condition for the exemption for provision/receipt of consumer goods or services to/from a connected person;
	exempt indemnities provided to, or purchase of insurance for, directors against liabilities incurred in the course of performing their duties;
	for connected transactions involving options arrangements:
	classify the termination of an option granted by a connected person as if the option is exercised unless the issuer has no discretion over the termination; and introduce alternative classification Rules for the transfer, non-exercise or termination of an option granted by a connected person;
	align the auditors’ confirmation on continuing connected transactions with the relevant practice note issued by the Hong Kong Institute of Certified Public Accountants;
	clarify that the independent board committee’s opinion on a connected transaction must also cover whether the transaction is on normal commercial terms and in the issuer’s ordinary and usual course of business;
Definitions of connected person and associate
	rename the definitions of connected person and associate in Chapter 1 as “core connected person” and “close associate” respectively; and
	apply the Chapter 20 definitions of connected person and/or associate in the following areas:
	the reverse takeover Rules in Chapter 19 which will apply to significant acquisitions from the incoming controlling shareholder and his/its associates; significant corporate actions (e.g. withdrawal of listing or refreshment of general mandate), spin-off proposals and directors’ service contracts that require shareholders’ approval, where the controlling shareholder or directors and their associates may not vote; grant of share options to connected persons under Chapter 23; in the case of a new listing application, the sponsor’s confirmation on whether it is a connected person of the new applicant; in the case of a connected transaction by a listed issuer, the independent financial adviser’s confirmation on whether it is, or holds more than 5% interest in, an associate of the counterparty of the transaction; and other Rules where the use of the Chapter 20 definitions of connected person and associate are corollary to the connected transaction requirements.

Coming into effect

The amendments will come into effect on 1 July 2014.

Please click HERE to see the revised Chapter 20 of the GEM Listing Rules.

Please click HERE to see the consequential GEM Listing Rule amendments relating to connected transactions.

Please click HERE to see the GEM Listing Rule amendments relating to the definitions of connected person and associate.

Yours faithfully,

For and on behalf of
The Stock Exchange of Hong Kong Limited

David Graham
Chief Regulatory Officer and Head of Listing