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Secondary Listings in Hong Kong

This education document is intended as a general guide to highlight some basic facts and characteristics of investing in securities of secondary listed issuers.  HKEX and/or its subsidiaries endeavor to ensure the accuracy and reliability of the information provided, but do not guarantee its accuracy and accept no liability (whether in tort or contract or otherwise) for any loss or damage arising from any inaccuracies or omissions.  If investors require further information for investing in secondary listed issuers, they should refer to the company’s listing documents and corporate communications on the HKEXnews website (http://www.hkexnews.hk), read the company’s Company Information Sheet (if published) and consult their brokers or other professional advisors prior to making any decision.

Secondary listings in Hong Kong           
 
Overseas issuers which have (i) a primary listing on another exchange; and (ii) the majority of their equity securities traded outside Hong Kong may apply for a “secondary” listing on the Main Board of the Exchange. Secondary listings, which are subject to less stringent regulation by the Exchange than primary listings, are principally regulated by the rules and authorities of the jurisdiction where they are primary listed and are also common in other overseas exchanges, such as Australian Securities Exchange and Singapore Exchange Limited.
 
There are currently two routes to secondary listing on the Exchange, either through:
 
(a)  JPS route: overseas issuers which do not have a centre of gravity in Greater China Note 1 can secondary list by complying with the requirements under Section 5 of the Joint Policy Statement regarding the Listing of Overseas Companies (“JPS”); and
   
(b) Chapter 19C route: Qualifying Issuers Note 2, that may or may not have a centre of gravity in Greater China, can secondary list by complying with the requirements under Chapter 19C of the Listing Rules.
 
The key requirements of these two routes to secondary listing are summarised below:
 
  JPS route Chapter 19C route
Centre of Gravity in Greater China Prohibited(*) Permitted
Stock Exchange of Primary Listing Recognised Stock Exchanges Note 3  (*) Qualifying Exchanges Note 4
“Innovative Company” Requirement Not required Required Note 5
Minimum Market Capitalisation at Listing US$400m(*) Non-Greater China Issuers Note 6 without a WVR structure:
HK$10 billion
Other Qualifying Issuers: HK$40 billion; or HK$10 billion with at least HK$1 billion of revenue in the most recent audited financial year
Minimum Track Record on Primary Exchange 5 years of listing and good compliance record (unless market capitalisation significantly larger than USD400 million) (*) 2 full financial years of good compliance 
 
                 (*) These eligibility requirements Note 7 only apply if a JPS route secondary listing issuer (“eligible secondary listing issuers”) wishes to be granted automatic waivers (see below).
 

Overseas issuers must also demonstrate how the domestic laws, rules and regulations to which they are subject, and their constitutional documents, in combination, provide certain standards of shareholder protection at least equivalent to those provided in Hong Kong. By virtue of the secondary listing status, such regulation is kept at minimum Note 8  for eligible secondary listing issuers, Non-Greater China Issuers and Grandfathered Greater China Issuers Note 9 on the basis that the standards of shareholder protection required by the Recognised Stock Exchanges are considered to meet the requisite standards Note 10 whilst Non-Greater China Issuers and Grandfathered Greater China Issuers are required to fulfil certain core shareholder protection standards Note 11. For this purpose, the Exchange may require an issuer seeking a secondary listing to amend its constitutional documents.

Waivers and exemptions for secondary listings

Unlike issuers primary listed on the Exchange, secondary listings are principally regulated by the rules and authorities of the jurisdiction where they are primary listed and the dominant market of their securities are also on that overseas primary exchange. On this basis, the Exchange exempts or waives certain requirements of the Listing Rules for issuers with, or seeking, a secondary listing.

Automatic waivers

Automatic waivers from full compliance with certain Listing Rules are available to eligible secondary listing issuers satisfying the relevant criteria in the JPS Note 12 and Chapter 19C route secondary listing issuers. Such secondary listing issuers are not required to apply to the Exchange for these waivers which are granted automatically.

For certain Listing Rules, the effect of the automatic waiver is limited to the particular circumstances described (e.g. issues of securities outside the Exchange’s markets). Nonetheless, a number of Listing Rules which the investing public in Hong Kong may be familiarised with and would otherwise apply in case of a primary or dual primary listing on the Exchange are waived in their entirety primarily on the basis that reliance can be placed on the regulations of the exchanges where these secondary listing issuers are primary listed. The Listing Rules automatically waived include but not limited to:  

compliance with the Model Code for Securities Transactions by Directors of Listed Issuers;
establishment of audit committee and remuneration committee;
appointment of company secretary with the requisite qualifications or experience;
compliance with the reporting, announcement, circular, shareholders’ approval, annual report (where applicable) with respect to notifiable transactions and connected transactions;
compliance with the Corporate Governance Code;
content requirements for annual and interim reports;
publication of environmental, social and governance report; and
certain continuing disclosure requirements (such as next day return, advance to an entity, financial assistance and guarantees to affiliated companies, pledging of shares by controlling shareholder, loan agreements with covenants relating to specific performance of controlling shareholder and breach of loan agreement).
   
A list of the automatic waivers is set out in the Appendix to the JPS as codified under Rule 19C.11 of the Listing Rules Note 13.

Non-compliant VIE and WVR structures Notes 14, 15, under Chapter 19C route

Many issuers adopt a VIE structure whereby such issuers and their subsidiaries do not have direct ownership of the operating companies or the operating licenses and rely on contractual arrangements to control them. Grandfathered Greater China Issuers are allowed to secondary list with their existing VIE structures in place via the Chapter 19C route without full compliance Note 16 with the VIE guidance issued by the Exchange Note 17. This would mean that a Grandfathered Greater China Issuer with a VIE structure may not be subject to the Exchange’s requirements with respect to VIE structures, such as any VIE structure adopted must be “narrowly tailored” to achieve its business purpose and minimise potential for conflict with the relevant PRC laws and regulations.
 
Further, Grandfathered Greater China Issuers and Non-Greater China Issuers are allowed to secondary list with their existing WVR structures via the Chapter 19C route without full compliance Note 18 with the safeguards in respect of weighted voting rights (“WVR”) Note 19, under Chapter 8A of the Listing Rules. This would mean that a Non-Greater China Issuer with a WVR structure or a Grandfathered Greater China Issuer with a WVR structure may not be subject to Hong Kong WVR safeguards, such as the restriction not to increase the number or proportion of WVR shares after the date of listing; nor will it be required to comply with the requirement for certain resolutions to be subject to voting on a one vote per share basis.

Non-Grandfathered Greater China Issuers Note 20 and JPS route secondary listing issuers must, unless otherwise waived, comply with the Exchange’s requirements set out in the VIE guidance and WVR safeguards under Chapter 8A of the Listing Rules (where applicable).

Common waivers and specific waivers

Secondary listing issuers may also apply to the Exchange for the common waivers set out in the Appendix to the JPS as well as waivers from compliance of other Listing Rules based on their specific circumstances. These waivers are not automatically granted and the Exchange will consider such applications on a case by case basis with reference to the individual merit and in light of all relevant facts and circumstances.

For further details (including the facts and circumstances of the applications and conditions granting the waivers) of such waivers granted, please refer to the relevant “Waivers and Exemptions” sections of the Company Information Sheets of the secondary listing issuers.

Stock marker “S”

With the exemptions pursuant to the automatic waivers and other concessions available to secondary listings, secondary listing issuers will not be subject to certain provisions of the Listing Rules, including, among others, rules on notifiable transactions, connected transactions, share option schemes and content of financial statements as well as certain other continuing obligations. As a result, they adopt different practices as to those matters as compared with other issuers primary or dual primary listed on the Exchange.

Secondary listings may also be subject to other risks such as significantly fluctuating trading prices as a result of the failure to develop or sustain an active trading market for the securities on the Exchange and/or ineffective liquidity arrangements.

Accordingly, the Exchange requires all secondary listing issuers to be prominently identified through a unique stock marker “S” at the end of their stock name to help investors to differentiate them from other listed issuers.
 
Notes____________________________________________________________________________________________________
1 For factors to determine whether an issuer has a “centre of gravity in Greater China”, please see paragraphs 99 and 100 of the JPS and Rule 19C.01 of the Listing Rules. 
“Qualifying Issuers” refer to issuers primary listed on a “Qualifying Exchange”, namely The New York Stock Exchange LLC, Nasdaq Stock Market and the Main Market of the London Stock Exchange plc (and belonging to the UK Financial Conduct Authority’s “Premium Listing” segment).
Listing on a “Recognised Stock Exchange” refers to a full listing on the main market of (a) The Amsterdam Stock Exchange (NYSE Euronext – Amsterdam); (b) The Australian Securities Exchange (ASX); (c) The Brazilian Securities, Commodities and Futures Exchange (BM&FBOVESPA); (d) The Frankfurt Stock Exchange (Deutsche Böurse); (e) The Italian Stock Exchange (Borsa Italiana); (f) The London Stock Exchange (LSE); (g) The Madrid Stock Exchange (Bolsa de Madrid). (h) NASDAQ OMX (US); (i) The New York Stock Exchange (NYSE Euronext (US)); (j) The Paris Stock Exchange (NYSE Euronext – Paris); (k) The Singapore Exchange (SGX); (l) The Stockholm Stock Exchange (NASDAQ OMX – Stockholm); (m) The Swiss Exchange (SIX Swiss Exchange); (n) The Tokyo Stock Exchange (TSE); or (o) The Toronto Stock Exchange (TMX).
See Note 2 above.
5 See paragraphs 3.1 to 3.4 of Guidance Letter HKEX-GL94-18.
“Non-Greater China Issuer” refers a Qualifying Issuer that is not a Greater China Issuer and “Greater China Issuer” refers to a Qualifying Issuer with its centre of gravity in Greater China. Also see Note 1 above.
7 See paragraph 93 of the JPS.
See Appendix to JPS and Rule 19C.06 of the Listing Rules.
9 “Grandfathered Greater China Issuer” refers to a Greater China Issuer primary listed on a Qualifying Exchange on or before 15 December 2017.
10 paragraph 90 of the JPS.
11  See Rule 19C.07 of the Listing Rules.
12 See Note 7 above.

13

Rule 19.57 of the Listing Rules is automatically waived only for Chapter 19C route secondary listing issuers as migration of the bulk of trading to the Exchange’s market is governed by Rule 19C.13 of the Listing Rules instead.
14 “VIE structure” refers to a structure that allows a person or entity to control and receive the economic benefits of a variable interest entity through contractual arrangements despite not having a majority of, or at all any, voting rights or legal ownership.
15  “WVR structure” refers to a structure of an issuer that results in any shareholder having “weighted voting rights” where the voting power attached to a share of a particular class that is greater or superior to the voting power attached to an ordinary share, or other governance right or arrangement disproportionate to the beneficiary’s economic interest in the equity securities of the issuer.
16 See paragraph 5 of Guidance Letter HKEX-GL94-18.
17 Listing Decision HKEX-LD43-3.
18  See Rule 19C.12 of the Listing Rules.
19 See Note 15 above.
20 “Non-Grandfathered Greater China Issuer” refers to a Greater China Issuer primary listed on a Qualifying Exchange after 15 December 2017.