HKEX Announces Consultation on Proposals to Further Expand Paperless Listing Regime

The Hong Kong Stock Exchange (HKEX) recently published a consultation paper proposing a further expansion to the paperless listing regime first introduced in 2021 to reduce the use of paper in the listing regime. The additional paperless proposals demonstrate the HKEX’s consistent commitment to adopting sustainable practices in the listing processes.

The six key proposals are discussed below:

1. Electronic Instructions from Securities Holders to Issuers

The HKEX proposes to require issuers to put in place mechanisms and provide securities holders with an option to send instructions electronically, namely:

• Instructions regarding a meeting of securities holders, including an indication as to attendance at such meeting and proxy-related instructions (Meeting Instructions); and
• Instructions made in response to actionable corporate communications (Non-Meeting Instructions)

(collectively, Requested Communications)

If securities holders choose to send Requested Communications by electric means, issuers are expected to verify the authenticity under their own choice of authentication mechanisms.

This proposal is applicable to issuers of equity securities to receive both Meeting Instructions and Non-Meeting Instructions. For public debt issuers, the proposal is applicable with respect to Meeting Instructions. For issuers of structured products, the proposal is applicable with respect to Non-Meeting Instructions. The proposed implementation date of this proposal is around the end of 2025 when the uncertificated securities market (USM) regime is implemented.

2. Real-Time Electronic Payment of Corporate Action Proceeds

The HKEX proposes that issuers should provide securities holders with an option to receive proceeds in connection with its corporate actions, including the distribution of dividends and other entitlements; refunds in respect of applications for, and/or (where applicable) excess applications in connection with, rights issues; open offers and offers made to a specified group of such holders on a preferential basis; and payment in connection with takeovers and privatizations (Corporate Action Proceeds) electronically by a Clearing House Automated Transfer System (CHATS) by the announced payment date.

Apart from CHATS, issuers may also provide other additional payment options. Where there are multiple payment options available, issuers must inform securities holders of the options and seek instructions on their choice. Issuers would bear any outward charges arising from the payment of Corporate Action Proceeds by CHATS.

This proposal is applicable to issuers of equity securities and issuers of Collective Investment Schemes (CIS). The proposed implementation date of this proposal is around the end of 2025 when the USM regime is implemented.

3. Electronic Subscription Monies

There are currently no requirements under the Listing Rules on how subscription monies must be paid to listed issuers for offers made to their existing securities holders. On that account, the HKEX proposes requiring listed issuers to provide securities holders with an option to pay subscription monies via electronic means in such circumstance.

The proposal does not prescribe the electronic payment option that issuers must provide for their securities holders, but issuers are required to disclose to the securities holders how they may pay subscription monies. Under the proposal, issuers would still be required to accept payments by paper cheques or cashier orders at the choice of securities holders. Securities holders would continue to bear any charges incurred when paying subscription monies electronically.

This proposal is applicable to issuers of equity securities and CIS. The proposed implementation date of this proposal is around the end of 2025 when the USM regime is implemented.

4. Abolition of Mixed Media Offers

To contribute to a fully electronic IPO process, the HKEX proposes that Mixed Media Offers (MMOs) would no longer be available to issuers.

Under the proposal:

• There would no longer be an option to issue paper applications forms for a public offer of equity securities, a CIS, and debt securities.
• Subscriptions for a public offer of equity securities and by a CIS shall be made through online electronic channels only, while subscriptions for public offerings of debt securities will continue to be conducted through their well-established channels, including through placing banks and/or Hong Kong Securities Clearing Company Limited.

This proposal is applicable to issuer of equity securities, CIS, and public debt issuers. The implementation date for this proposal is yet to be confirmed, but is proposed to be no earlier than the date on which the Companies Ordinance (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the laws of Hong Kong) permitting MMOs is repealed.

5. Hybrid General Meeting and E-Voting

The Listing Rules currently do not stipulate the form in which a general meeting must be held or the means by which votes must be cast for the purpose of the meeting. As such, the HKEX proposed a requirement on issuers that their constitutional documents should enable them to hold hybrid general meetings and allow E-voting to the extent permitted by the laws and regulations applicable to them. That being said, it will not be mandatory to hold hybrid general meetings or adopt E-voting.

To follow the proposal, issuers may need to:

• remove any provision in their constitutional documents that has the effect of preventing the holding of hybrid general meetings and the use of E-voting; and/or
• include express provisions that enable hybrid general meetings and E-voting in their constitutional documents.

In the meantime, issuers must ensure that securities holders’ rights to speak and vote will be maintained in a hybrid general meeting.

This proposal is only applicable to issuers of equity securities. Subject to the outcome of the consultation, the HKEX proposes an implementation date that allows a short transition period.

6. Web Accessibility of Issuers’ Corporate Communications

The HKEX received suggestions from stakeholders that the HKEX should incorporate the conformance of corporate communications with web accessibility guidelines into the Listing Rules or Corporate Governance Code. One example of web accessibility guidelines is the Web Content Accessibility Guidelines, which are an international standard for web content accessibility developed by the World Wide Web Consortium.

It is believed that compliance with such guidelines would increase accessibility to issuers’ corporate communications by persons with disabilities and ensure they are able to exercise their rights as securities holders.

Consequently, under this proposal the HKEX seeks market feedback on such incorporation of web accessibility guidelines.

CONCLUSION

These proposals demonstrate the HKEX’s continued attention on and ongoing effort to refine the paperless listing regime. The submission deadline for feedback to the above proposals is October 18, 2024. Issuers should familiarize themselves with these proposals at the earliest opportunity, particularly in relation to hybrid general meetings and allowing E-voting, which may require immediate attention if such proposals are fully adopted.