Market Turnover


Exchange Publishes Consultation Papers on its Connected Transaction Rules

26 Apr 2013

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx) today (Friday) published consultation papers to seek views on:

  • Proposed changes to its Listing Rules (Rules) on connected transactions; and
  • Proposed changes to align the definitions of connected person and associate in its Rules.

Consultation Paper on Review of Connected Transaction Rules 

The main consultation paper reviews the Exchange's current model for regulating connected transactions conducted by Hong Kong listed issuers and the regulation of related party transactions in other jurisdictions.  It seeks market views on a number of proposals to simplify the connected transaction Rules and address anomalies, including:

  • Simplifying the language of the Rules by replacing the current Main Board Chapter 14A / Chapter 20 of the Growth Enterprise Market (GEM) Rules with the "Guide on Connected Transaction Rules" issued in April 2012;
  • Introducing further exemptions for connected persons at the subsidiary level;
  • Refining the definition of connected person to exclude certain persons who are unlikely to control or exert significant influence over the issuer;
  • Clarifying that the deeming provision will cover a shadow director or de facto controlling shareholder of the issuer and any person who is accustomed to acting according to a connected person's directions or instructions;
  • Excluding from the connected transaction Rules certain transactions involving the issuer group buying or selling interests in target companies from or to third parties where the risk of abuse by the controller(s) is limited;
  • Removing the one per cent cap on transaction value which is now a condition for exempting the provision or receipt of consumer goods or services from the connected transaction Rules;
  • Introducing exemptions for provision of indemnities to directors against liabilities incurred in the course of performing their duties;
  • Revising the requirements for transfer, non-exercise or termination of options;
  • Making minor amendments to the regulatory framework for continuing connected transactions; and
  • Clarifying the requirements relating to independent board committees' opinions on connected transactions.

Consultation Paper on Proposed Changes to Align the Definitions of Connected Person and Associate in the Listing Rules

The second consultation paper reviews the Listing Rules that use the general definitions of "connected person" and "associate" in Chapter 1 of the Rules.  The paper highlights the differences of the Chapter 1 definitions and those used in Main Board Chapter 14A / GEM Chapter 20 for the purpose of the connected transaction requirements.   It seeks market views on proposals to:

  • Align the meanings of connected person and associate in certain parts of the Rules with those used in Main Board Chapter 14A / GEM Chapter 20; and
  • Revise the definitions in Chapter 1 to distinguish them from those used in Main Board Chapter 14A / GEM Chapter 20.

"We believe that our overall regulatory approach to connected transactions is appropriate and does not merit a fundamental redesign," said David Graham, HKEx's Chief Regulatory Officer and Head of Listing.  "The aim behind the proposed changes is to refine, simplify and improve the clarity of the Rules and the ease of compliance by issuers while maintaining the same level of investor protection."

The Consultation Papers on Review of Connected Transaction Rules and Proposed Changes to Align the Definitions of Connected Person and Associate in the Listing Rules can be downloaded from the HKEx website.

Interested parties are encouraged to respond to the Consultation Papers by submitting response to the questionnaires onReview of Connected Transaction Rules and Proposed Changes to Align the Definitions of Connected Person and Associate in the Listing Rules.

The deadline for replies to the Consultation Papers is 26 June 2013.


Updated 26 Apr 2013