HK Proposes Improved Disclosure Rules
Wednesday, March 31, 2010

Hong Kong’s Secretary for Financial Services and the Treasury, Professor K C Chan, has announced a proposal to oblige listed corporations to disclose price sensitive information (PSI) in a timely manner to facilitate investors in making informed investment decisions.

At the release of the consultation paper, Professor Chan said that the government supported the cultivation of a continuous disclosure culture among listed corporations. Therefore, it is proposed to specify in the law that a listed corporation be obliged to disclose to the public as soon as practicable PSI that has come to the knowledge of the corporation.

In defining PSI, the government proposes following the approach of the United Kingdom and other countries of the European Union - that is, to adopt the concept of "inside information" currently used in the insider dealing regime, and to oblige listed corporations to make timely disclosure of such "inside information".

"We propose that the directors and officers of listed corporations must take reasonable measures from time to time to ensure that proper safeguards exist to prevent the corporation from breaching the statutory disclosure requirements," he stated.

He stressed that the government recognises the need to strike a reasonable balance between ensuring market transparency and fairness in the provision of information to investors, and safeguarding the legitimate interests of listed corporations in preserving certain information in confidence, to facilitate their operations and business development.

In that respect, the consultation proposal sets out a number of safe harbours to allow listed corporations to not disclose or delay disclosing certain PSI - for example, when the disclosure would constitute a breach against an order made by a Hong Kong court or any provisions of other Hong Kong statutes; when the information is related to impending negotiations or incomplete proposals, the outcome of which may be prejudiced if the information is disclosed prematurely.

"The proposed disclosure regime would create a statutory framework with a clearer set of PSI disclosure obligations and safe harbours for compliance by listed corporations, instead of relying on the existing listing rules - a contractual relationship between the Hong Kong Stock Exchange and each listed corporation,” he explained. "It would help demonstrate to the market our commitment to enhancing market transparency and quality, thereby enhancing Hong Kong's position as an international financial centre and the premier capital formation centre in the region.”

The government further proposes that the statutory disclosure requirements be enforced by the Securities and Futures Commission (SFC). The SFC would promulgate guidelines on what constitutes PSI and when the safe harbours would be applicable to facilitate compliance by listed corporations. The SFC is in parallel consulting the public on its draft guidelines.

Subject to public comments, the government plans to introduce a bill to the Legislative Council to codify such disclosure requirements in the Securities and Futures Ordinance in the 2010/11 legislative session. The public are invited to give their views before the end of the consultation on June 28, 2010.