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1 Hong Kong Exchange and Clearing Limited Press Conference on Enhancing Corporate Governance and Market Quality 30 January 2004.

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Presentation on theme: "1 Hong Kong Exchange and Clearing Limited Press Conference on Enhancing Corporate Governance and Market Quality 30 January 2004."— Presentation transcript:

1 1 Hong Kong Exchange and Clearing Limited Press Conference on Enhancing Corporate Governance and Market Quality 30 January 2004

2 2 Corporate Governance Update on Progress Paul Chow Chief Executive

3 3 Update on Progress u Release of Exposure Paper on Draft Code on Corporate Governance Practices and Corporate Governance Report u Implementation of corporate governance Rule amendments u Consultation conclusions and Rule amendments on initial listing criteria and continuing listing obligations

4 4 Update on Progress (2) u Initiatives under Hong Kong’s Corporate Governance Action Plan u International standards as a benchmark u Improving the transparency of our rules and practices  Address perceived inadequacies in the Rules  Codify existing Exchange practices  Make the Rules clearer and more concise (where possible)

5 5 Exposure of Draft Code on Corporate Governance Practices and Corporate Governance Report Richard Williams Head of Listing

6 6 u Public exposure of the draft Code and Corporate Governance Report u To allow the market to comment on:  timing of the proposed implementation of the Code  detailed wording of the draft Code Objective of the Exposure Paper

7 7 u Non–mandatory u Two tiers of board practices  1 st tier: Code provisions – comply or explain approach Non-compliance does not constitute a breach of the Listing Rules  2 nd tier: Recommended Best Practices – listed issuers encouraged to disclose their non- compliance Structure of Draft Code

8 8 u Section A: Directors u Section B: Directors’ remuneration u Section C: Accountability and Audit u Section D: Delegation by the Board u Section E: Communication with Shareholders Code Provisions

9 9 Major Recommended Best Practices u INEDs comprising at least one-third of the board u Establishment of a nomination committee with a majority of INEDs u Quarterly reporting for Main Board issuers u Continuous training for directors u Disclosure of senior management’s emoluments on a named basis

10 10 Corporate Governance Report u Three levels of disclosure requirements  1 st level: Mandatory disclosure requirements  2 nd level: Code provision disclosure – need to explain non-disclosure  3 rd level: Recommended disclosure

11 11 u Comments on or before 31 March 2004 u Target for publication of Code – end 1 st half 2004 u New Code effective for accounting periods commencing:  1 January 2005 for all the Code provisions and related disclosure obligations (except for those on “internal control”)  1 July 2005 for the Code provisions on “internal control” and related disclosure obligations  Early adoption encouraged Proposed Timetable

12 12 Corporate Governance Rule Amendments Anne Chapman Vice President, Listing

13 13  New chapters of Main Board Rules on notifiable transactions and connected transactions  Revised classification of notifiable transactions and connected transactions  Revised definition of “reverse takeovers”  Revised definition of “connected persons”  Revised definition of “associate” of a connected person  Refreshment of general mandate  Disclosure of directors’ remuneration Major areas of corporate governance Rule amendments

14 14 u New Chapters of Main Board Rules  Chapter 14 (Notifiable transactions)  Chapter 14A (Connected transactions)  Alignment of the format and structure of Main Board and GEM Rules Major Rule Amendments (1)

15 15 u Classification of notifiable transactions  Categories of notifiable transactions: Introduced “VSD” Introduced “reverse takeovers” (existing GEM Rules) into Main Board Rules  Five size tests: Total assets test which replaces the existing net assets test Consideration to market capitalisation test which replaces the existing consideration to net assets test Revenue test as a new stand-alone test Profits test (no change) Equity capital test (no change)  Revised percentage thresholds: Alignment of thresholds with international standards Major Rule Amendments (2)

16 16 u Classification of connected transactions  Existing requirement: Assets test and consideration test only  New requirement: All size tests (except for profits test) apply Revised percentage thresholds apply Existing de minimis thresholds of $1 million and $10 million retained Major Rule Amendments (3)

17 17 u Reverse takeovers:  Treated as a deemed new listing Comply with new listing requirements  Revised definition: Acquisitions involving a change in control and triggering VSA threshold Acquisitions within 24 months after a change in control which individually or together trigger VSA threshold Major Rule Amendments (4)

18 18 Major Rule Amendments (5) u Revised definition of “connected person”  Includes connected persons at subsidiary level  Includes, for the purpose of connected transactions, non wholly owned subsidiaries of which connected person(s) at the issuer’s level (individually or together) is/are a substantial shareholder  Includes, for the purpose of connected transactions, “relatives” of a connected person as his deemed associates : includes his spouse, parents, children and siblings includes his mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, grandparents, grand-children, uncle, aunt, cousin, nephew and niece, whose association with the connected person is such that, in the opinion of the Exchange, the proposed transaction should be subject to the connected transaction provisions

19 19 Major Rule Amendments (6) u Revised definition of “associate” :  in relation to an individual, a trustee-controlled company a subsidiary of a trustee-controlled company a holding company of a trustee-controlled company and a subsidiary of any such holding company  in relation to a corporation, a trustee a trustee-controlled company a subsidiary of a trustee-controlled company a holding company of a trustee-controlled company and a subsidiary of any such holding company

20 20 Major Rule Amendments (7) u Limit on general mandate:  Existing limit of 20% of issued share capital retained  Further consideration will be given to lowering the limit u Refreshment of general mandate  Revised requirements: Refreshment subject to shareholders’ approval once a year Independent shareholders’ approval for subsequent refreshments in a year GEM and Main Board rules aligned

21 21 Major Rule Amendments (8) u Disclosure of directors’ remuneration in annual reports  Existing Main Board Rule: By bands only  Existing GEM Rule: On an individual but “no name” basis  New Main Board and GEM Rules: On a “named” basis

22 22 Implementation  New Rules effective on 31 March 2004  Transitional arrangements : Refer to the attachment to the HKEx’s press release  New Rules will be published on HKEx’s website at today

23 Consultation Conclusions on Proposed Amendments to the Listing Rules Relating to Initial Listing Criteria and Continuing Listing Obligations Keniel Wong Senior Vice President, Listing

24 24 The Consultation Conclusions focus on: u initial listing eligibility criteria u continuing obligations u disclosure requirements at the time of initial listing Focus

25 25 Introduction of alternative financial standards to the profit requirement:  Market capitalisation / revenue test  Market capitalisation / revenue / cash flow test Market Capitalisation Public Float  Number and spread of shareholders Initial listing eligibility criteria

26 26 Market capitalisation / revenue test  Market capitalisation: at least HK$4 billion  Revenue: at least HK$500 million  requirement for a higher minimum number of shareholders : 1,000 Initial listing eligibility criteria

27 27 Waiver of the 3-financial-year trading record requirement for listing applicants  applying to list under market capitalisation / revenue test  Pre-requisites: management experience management and ownership continuity Initial listing eligibility criteria

28 28 Market capitalisation / revenue / cash flow test  Market capitalisation: at least HK$2 billion  Revenue: at least HK$500 million  Positive cash flow: at least HK$100 million Initial listing eligibility criteria

29 29 Minimum expected market capitalisation at the time of listing u Current requirement:  at least HK$100 million u Increased to at least HK$200 million u Definition of “market capitalisation” Initial listing eligibility criteria

30 30 Public float u Current requirement:  25% (if market capitalisation does not exceed HK$4 billion)  floor: 10% (discretionary, if market capitalisation exceeds HK$4 billion) u New:  25% by reference to aggregate market capitalisation of all securities of applicant  floor: 15% (discretionary, if market capitalistaion exceeds HK$10 billion) Initial listing eligibility criteria

31 31 Number and spread of shareholders u increased to 300 u for issuers applying to list under the market capitalisation / revenue test, minimum requirement is 1,000 u top 3 public shareholders hold not more than 50% of public float Initial listing eligibility criteria

32 32 Public float u suspension if public float falls below 15% u may consider waiver in general offer situation – 3 months u not extended to share repurchase situation u where lower % accepted for issuers (with market capitalisation over HK$10 billion)  lower % only applicable at time of listing  % fixed  applicable throughout issuers’ listing on the Exchange  will not be considered post listing u confirmation of sufficiency in annual reports Continuing obligations

33 33 Timeliness of accounts u immediate suspension – on failure to publish financial results on due date u transitional period Continuing obligations

34 34  Over-allotment option and price stabilising activities u Persons in control of the listing applicant u Management experience / qualification u Applicant group prospects Disclosure requirements at the time of Initial Listing

35 35  Effective Date : 31 March 2004 u Except:  for initial listing eligibility criteria: Form A1 submitted before this date, and listed within three months afterwards  for continuing obligations: a transitional period up to 31 December 2004 in respect of new rule on timely publication of financial information Implementation


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