Way Forward for Hong Kong Listing Regime Changes

Hong Kong Exchanges and Clearing Limited (HKEX) and The Stock Exchange of Hong Kong Limited (the Exchange) on Friday, 15 December 2017, announced the conclusions to the New Board Concept Paper (Concept Paper) published on 16 June 2017.

On the same day,  the consultation conclusions on the Consultation Paper on the Review of the Growth Enterprise Market (GEM) and Changes to the GEM and Main Board Listing Rules (GEM Consultation Paper) were also published.

Together, these would bring new important changes to Hong Kong’s listing regime, especially including measures to facilitate listings of companies from emerging and innovative sectors, and aimed to enhance Hong Kong’s competitiveness as a global financial centre.

As announced by the Exchange on its official website:

The Exchange has determined to proceed to expand the existing listing regime by introducing two new chapters to the Main Board Listing Rules to allow the listing of (i) Biotech issuers which are pre-profit / pre-revenue; and (ii) issuers from emerging and innovative sectors that have weighted voting rights (WVR) structures, subject to additional disclosure and safeguards.

Companies with WVR structures would be required to have a minimum expected market capitalisation of $10 billion and, if below $40 billion of market capitalisation, would need to meet a higher revenue test of $1 billion in the full financial year before listing. Pre-revenue companies listing under the new Biotech chapter would be required to have a minimum expected market capitalisation of $1.5 billion.

Detailed proposed amendments to the existing Listing Rules for the implementation of the changes are expected to be available for consultation in the first quarter of 2018, with anticipation to have the market ready by second half of 2018 for more innovative companies choose Hong Kong as listing destination.

HKEX’s official news release contains further information on the proposals and way forward.

Hong Kong to introduce Investor ID model for Stock Connect Northbound trades

On 30 November 2017 the Hong Kong Securities and Futures Commission (“SFC”) announced that an agreement has been reached with China Securities Regulatory Commission (“CSRC”) on proposals to introduce an investor identification model for Northbound trading under the Mainland – Hong Kong Stock Connect[1] (“Investor ID Model”).  Hong Kong Exchange and Clearing Limited (“HKEX”) also published an Information Paper, a circular, a FAQ and had arranged a Briefing to Participants on Northbound Investor ID Model.

In the SFC announcement, it was expressed that the Investor ID Model is critical to safeguard market integrity and to strengthen the protection of investors in both markets, and that the SFC also aims to implement an investor identification regime to cover all trading on the SEHK in the longer term.

This Legal Update: InvestorIDStockConnectNB is intended to shed some light on the key features of Investor ID Model with a particular focus on its implications on asset management companies. For more operational details of the Investor ID Model please refer to HKEX’s Information Paper and FAQ.

[1] Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, both provide for mutual stock market access between Hong Kong and the Mainland.

Hong Kong SFC clarifies competence requirements for existing licensed persons intending to provide asset management services

On 23 June 2017, the Securities and Futures Commission of Hong Kong (the “SFC”) issued the “Circular to clarify competence requirements for existing licensed persons intending to provide asset management services” (the “Circular”), with an aim to provide further guidance on how the SFC assesses the competence of a corporation or a responsible officer (“RO”) to carry on asset management activities.

The Circular focuses on the eligibility criteria for licensed persons to be approved to carry out Type 9 regulated activity of asset management with respect to industry experience that may be relevant and acceptable, and also on the conditions for seeking exemptions from passing the required local regulatory papers.

As the title of the Circular suggests, it is directed to existing licensed persons that may consider expanding their scope of business into asset management.  In a press release on the Circular, the SFC’s expresses that it welcomes existing licensees to broaden their business scope in light of the growth in Hong Kong’s asset management industry.

The Circular also emphasizes that the SFC will consider each application for exemption based on the specific circumstances of each case and that interested firms are encourage to approach the SFC to discuss their proposed business plans.

The Circular can be seen as the SFC’s effort to inform the industry that the SFC will continue to take a pragmatic approach in considering licensing applications, and spells the SFC’s intention to encourage existing licensed entities to apply to engage in Type 9 regulated activity of asset management as a stand-alone business, to spur further growth of Hong Kong’s asset management industry.

Considering the mention of the broader industry experience that the SFC would take into account including investment research, private equity and proprietary trading, as well as industry experience in other recognized local or overseas markets, the Circular also suggests the SFC’s welcome attitude for qualified and experienced investment professionals around the globe to seek to be licensed in Hong Kong to engage in asset management.

For details, please refer to our firm’s publication: SFC Clarifies Competence Requirements for Asset Management Services











SFC Consultation Paper on Online Distribution and Advisory Platforms

On 5 May 2017 the Securities and Futures Commission (“SFC”) issued the ‘Consultation Paper on the Proposed Guidelines on Online Distribution and Advisory Platforms’ (“Proposed Guidelines”).

In view of the increasing use of electronic distribution channels, the use of algorithms to construct investment portfolios and to provide investment advice(e.g. automated portfolio construction or model portfolios based on a client’s personal circumstances) (commonly referred to as “robo-advice”), SFC issued the Proposed Guidelines to (1) provide guidance and control on the design and operation of online platforms; (2) clarify how suitability requirements would be triggered in terms of online trading; and (3) provide additional safeguard proposed for the sale of complex products on online platforms on an unsolicited basis.

The Proposed Guidelines will be applicable to all SFC licensed or registered persons when conducting their regulated activities in providing order execution, distribution and advisory (including discretionary and automated) services in respect of investment products via online platforms (“Platform Operators”).

We would urge asset management companies to take a closer look to the Proposed Guidelines and provide necessary feedback before the end of the consultation period (4 August 2017) since there is a growing trend for fund houses to develop their own trading platform, and provision of robo-advice. These activities will be caught under the Proposed Guidelines. It would also be helpful to be aware of these requirements when fund houses select distributors and assess whether they are compliant with such requirements.  Lastly, fund houses may wish to take a closer look at the proposed definition of ‘Complex Products’ as set out in the Proposed Guidelines as this will likely impact fund distribution and product design.

Here’s our Legal Update on the Proposed Guidelines under consultation: SFC Consultation Paper on Online Distribution and Advisory Platforms (May 2017)

SFC Further Guidance on Suitability Obligation

Following the regulatory changes in 2016 that increased suitability requirements on licensed persons when soliciting or recommending investment products to clients, the Hong Kong Securities and Futures Commission (SFC) has on 23 December 2016 issued two sets of Frequently-Asked-Questions (FAQs) to clarify and provide further guidance to the industry on meeting the suitability obligation.

The first set of FAQs on Triggering of Suitability Obligations clarifies the circumstances under which the suitability obligation would apply.  The second set of FAQs on Compliance with Suitability Obligations by Licensed or Registered Persons provides further guidance on the SFC’s expectations on satisfying the suitability obligation.

Please refer to our legal update for further information: SFC Further Guidance on Suitability Obligation

Hong Kong Securities & Futures Commission introduces Managers-in-Charge Regime

The Hong Kong Securities and Futures Commission (SFC) has issued its “Circular to Licensed Corporations Regarding Measures for Augmenting the Accountability of Senior Management” which introduces additional specific requirements and expectations of the SFC regarding senior management personnel of licensed corporations (referred to below as “the Managers-in-Charge Circular”).

The Managers-in-Charge Circular was published on 16 December 2016 and shall be effective from 18 April 2017 (“Commencement Date”).  It is intended to enhance accountability and transparency of senior management of licensed corporations in the conduct of business operations. Existing licensed corporations will need to submit to the SFC additional information on and particulars of their senior management personnel who are responsible over 8 core functions (the “Managers-in-Charge”) within 3 months of the Commencement Date, latest by 17 July 2017.  With effect from the Commencement Date, applicants for license with the SFC to engage in regulated activities in securities and futures businesses will need to submit such additional information on their proposed Managers-in-Charge together with the intended human resources and organizational structure when applying to the SFC for license.   Any change in the appointment or particulars of the Managers-in-Charge of a licensed entity should be notified to the SFC within 7 business days.

Core Functions

The new Managers-in-Charge framework would impact senior management persons over the following 8 categories of functions within a licensed corporation:

  1. Overall Management Oversight (eg. Chief Executive Officer, President);
  2. Key Business Line (of the regulated activities – eg. Chief Investment Officer, Head of Equity, Head of Corporate Finance, Chief Rating Analyst, Head of Fund Marketing);
  3. Operational Control and Review (eg. Chief Operating Officer, Head of Operations, Head of Internal Audit);
  4. Risk Management (eg. Chief Risk Officer, Head of Risk Management);
  5. Finance and Accounting (eg. Chief Finance Officer, Financial Controller, Finance Director);
  6. Information Technology (eg. Chief Information Officer, Head of Information Technology);
  7. Compliance (eg. Chief Compliance Officer, Head of Legal and Compliance);
  8. Anti-Money Laundering and Counter-Terrorist Financing (eg. Head of Financial Crime Prevention, Head of Compliance).

Information regarding the job position and reporting lines of the Managers-in-Charge will need to be submitted, together with details on the identity and residence of the Managers-in-Charge.

Read our full publication here:  Managers-in-Charge Regime

Investing via the Shenzhen–Hong Kong Stock Connect – Disclosure and Approval Requirements for SFC authorized funds

Further to the Shanghai-Hong Kong Stock Connect announced in 2014, in August 2016, a good two years later, it was jointly announced by the China Securities Regulatory Commission (CSRC) and the Hong Kong Securities and Futures Commission (SFC) that the Shenzhen–Hong Kong Stock Connect will soon be implemented.  It is anticipated that the Shenzhen-Hong Kong Stock Connect will be launched in November 2016.

Expanded universe of stocks for cross-market access

Stock Connect refers to the program that allows mutual stock market access between Mainland China and Hong Kong, whereby Mainland investors may access eligible Hong Kong stocks within scope through their domestic Mainland securities firms, while Hong Kong investors may access eligible Mainland stocks within scope through Hong Kong brokers. Hong Kong investors already able to access selected stocks listed on the Shanghai Stock Exchange under the Shanghai-Hong Kong Stock Connect will now also have access to selected stock lists on the Shenzhen Stock Exchange (SZSE) through the Shenzhen-Hong Kong Stock Connect.

The Shenzhen-Hong Kong Stock Connect will expand the universe of Mainland stocks that may be accessed by Hong Kong and international investors through the Hong Kong Stock Exchange, in particular eligible constituent stocks of the SZSE Component Index and SZSE Small/Mid Cap Innovation Index.  To be eligible, relevant constituent stock should have a market capitalization of RMB6 billion or above.  All SZSE-listed shares of companies which also has H-shares listed in Hong Kong would also be within scope.   On the other hand, Mainland investors will be able to access constituent stocks of the Hang Seng Composite LargeCap Index and Hang Seng Composite MidCap Index, any constituent stock of Hang Seng Composite SmallCap Index with market capitalization of HK$5 billion or above, and shares of all companies with both listed H shares and A shares.

ChiNext access restricted

However, while the range of accessible stocks have broadened for investors’ cross-market access, the regulators have stipulated that, for the Northbound link, at the initial stage, only institutional professional investors as defined under Hong Kong law and regulations will be able to invest in shares listed on the ChiNext Board of SZSE.

The restriction that only institutional professional investors may access ChiNext stocks may be considered to be in line with the SFC enhanced investor protection measures including around increased regulatory requirements around suitability of investments and financial products for investors, which may now be exempted only for institutional professional investors or corporate professional investors that satisfy relevant conditions under a designated assessment of investment decision-making process and investment personnel.[1]  The definition of “institutional professional investors” as defined in the Securities and Futures Ordinance (Cap 571) (SFO) covers mostly regulated financial institutions such as licensed investment intermediaries, banks, insurance companies, central banks.  Collective investment schemes authorized by the SFC under Section 104 of the SFO (SFC Authorised Funds), registered schemes or constituent funds under the Mandatory Provident Fund Schemes Ordinance (Cap 485) (MPF Schemes) and registered schemes under the Occupational Retirement Schemes Ordinance (Cap 426) (ORSO Schemes).

Accordingly, investors who are not “institutional professional investors” under Hong Kong law and regulations and initially unable to access ChiNext stocks under the Shenzhen-Hong Kong Connect may only have exposure through SFC-Authorized Funds.  Investment by MPF Schemes in Mainland securities are limited to 10% of the scheme’s net asset value.

SFC Updated FAQ re Shenzhen-Hong Kong Connect

On 25 October 2016, the SFC updated question No. 19 under its “Frequently Asked Questions on Post Authorization Compliance Issues of SFC-authorized Unit Trusts and Mutual Funds” (SFC’s FAQ) regarding disclosure and approval requirements for participation in Stock Connect, to include Shenzhen–Hong Kong Stock Connect within scope.  Details are set out in our latest publication: shenzhen-hong-kong-stock-connect-requirement-for-sfc-authorized-funds.

[1] Please refer to our firm’s publication dated 20 July 2016 “New Changes to Hong Kong Professional Investors regime” regarding the enhanced investor protection and suitability requirements.


自内地与香港基金互认安排(“基金互认”)于2015年7月1日起正式实施至今,已有多达40余只内地基金成功南下获得香港证监会认可于香港市场公开销售。按照基金互认的相关规定,内地基金在获得香港证监会认可后(“内地互认基金”),除须符合相关内地法律法规及基金合同的要求外,还须遵守香港证监会不时颁布的有关内地互认基金获认可后的持续合规要求以及基金于香港销售方面的要求。下文就内地互认基金获香港证监会认可后的持续合规问题,从持续信息披露、基金销售文件更改以及基金广告/推广材料等多方面进行分析和阐释:  内地互认基金香港认可后持续合规解析








[1] 经合组织已建立一个门户网站,提供有关已承诺实施自动信息交换之司法辖区税务居住地规则的信息: http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-residency/#d.en.347760