Disclosure Requirements - Hong Kong
Disclosure Category: 1
Disclosure by Clearstream Banking S.A. (CBL) to regulators or market authorities is mandatory under the terms of the Securities and Future Ordinance (the "Ordinance"), Section 181.
CBL may be required, under the terms of the Securities and Futures Ordinance (the “Ordinance”), Section 329, to disclose, upon request, to issuers of securities listed in Hong Kong, the identity and holdings of customers.
CBL may be required, under General Rules of CCASS section 824 (Charter 8), with HKSCC as the nominee holder, to disclose, upon request to relevant China authority/ChinaClear on listed Mainland China shares via the Stock Connect programme, the identity and holdings of customers.
Customers holding shares tradable in Hong Kong and/or via the Stock Connect programme, consent and are hereby deemed to consent to disclosure and to the appointment of the requestor (for example, the listed company or its agent) as their attorney-in-fact, under power of attorney, to collect from CBL such information as is required to be disclosed. Customers who do not want to grant such authority to CBL should refrain from holding such shares in their account with CBL.
It is the investor's responsibility to ensure that the required disclosure has been made. Customers must accept full responsibility for the consequences if such disclosure is not made.
A shareholding that reaches 5% must be disclosed to the HKEx and to the listed company within three business days (including Saturday) after the day on which the duty to disclose arose. Any subsequent change must also be so notified.
In addition, customers are advised that local laws and regulations in Hong Kong (including the Ordinance, Section 329) may require CBL to disclose securities trading and holding information and the identity of the final beneficial owners of certain securities.
In order to comply with such legislation, customers safekeeping corporate securities and related derivative instruments that are listed in Hong Kong are required to disclose beneficial owner details upon request. Listed companies may request such information directly from local custodians and account holders or may appoint an agent to manage such requests.
The nature and time frame for the disclosure will be in accordance with the terms of the request.
A shareholding that reaches 5% of a listed Mainland China incorporated company's shares, held and controlled domestically and overseas issued on an aggregate basis through Stock Connect, QFII/RQFII or other investment channels, must disclose in writing to the CSRC and the relevant PRC Exchange, and to the listed company within three business days. Any subsequent change in such holdings by 5% will require further disclosure to be made within 3 days.
If an investor holds a listed Mainland China incorporated company's shares that has H-shares listed on the SEHK and is interested in more than a certain threshold (as may be specified from time to time) of any class of voting shares in such Mainland China incorporated company, the investor is under a duty of disclosure pursuant to Part XV of the SFO.
Article 18 - If, within the bond circulation period, a single investor holds more than 30% of a particular outstanding bond, China Foreign Exchange Trade System (CFETS) shall disclose the holding information to all market participants, once provided by bond registration, custody and settlement institutions.
Article 19 – Transaction types taken by parent company or its subsidiaries (branches):
- Transaction counterparties are independent legal entities, however one counterparty is under control of the other in regards to investment proportion, shareholding or contractual agreement;
- Transaction counterparties are independent legal entities (or branches) and under the control of the same parent company (or head company);
- One transaction counterparty is the head company and the other counterparty is its branch
Article 20 - Bond transactions between asset manager's proprietary account and trust account, or between two different trust accounts:
- In the transaction, one party is a financial institutional participant, and the other counterparty is the portfolio manager of the same financial institution or non-legal entity product managed by the same financial institution;
- Both counterparties in the transaction are non-legal entity participants, and are managed by the same financial institution.
Article 21 - Before participating in transactions mentioned in Article 19 and Article 20 of the Bond Connect Rule Book, investors must establish trading management procedures, formalise pricing mechanisms, internal controls, internal assessment procedures, information disclosure and submit relevant documentation to CFETS.
Article 22 - Both counterparties or assets managers in the transaction must disclose information about the transactions mentioned in Article 19 and Article 20 to all market participants within the first five business days of each month. Information disclosure statements must include details such as names of transaction counterparties, underlying securities, dealing prices and volumes, etc.
Background and legal basis
Sections 310 and 324 of the Ordinance set out the legal framework for holders of securities listed in Hong Kong to disclose significant shareholding interests. Section 329 of the Ordinance outlines the power of a listed corporation to investigate ownership of interests in its shares.
Article 13 of the Certain Provisions on Shanghai-Hong Kong Stock Connect Pilot Program (the "CSRC Stock Connect Rules") and the SSE China Connect Rules (Articles 34 and 36) establish the rules for holders of Mainland incorporated company's shares listed in both China and Hong Kong on the disclosure of interests obligation. The same disclosure rules apply to Shenzhen-Hong Kong Stock Connect.
Bond Connect disclosure requirements follow the CFETS Trading Rule, Chapter 4 “Information Disclosure Requirements on Specific Transactions”
Obligation to report threshold crossings
The acquisition of 5% and/or more of any company listed in Hong Kong requires that the shareholding be disclosed, with the obligation to report falling upon the beneficial owner; that is, the party eligible to vote.
For disclosure of interest notifications, filing of Part XV notifications must be submitted electronically through a new Disclosure of Interests Online system (DION system) introduced by HKEx.
Under Section 329 of the Ordinance, bare trustees and exempt custodians are not required to report interests in securities unless requested by the listed company. It remains the duty of beneficial owners of shares to disclose their notifiable interests.
It is a criminal offence, under penalty of a fine of up to HKD 100,000 or up to two years imprisonment, for a person to fail, without reasonable grounds, to fulfil the obligation to make a disclosure.
CSRC may adopt the following regulatory measures, depending on the violation:
- Order for corrective action;
- Regulatory dialogue;
- Issue of warning letters;
- Record in the creditworthiness database the details of the offense or the failure to perform the public undertaking and make a public announcement;
- Blacklist the offender as an inappropriate candidate;
- Adopt any other regulatory measure pursuant to law.
CFETS shall process violations against PBOC requirements and take the following actions according to the seriousness of the violation:
- Verbal warning;
- Written warning;
- Circulate notice of criticism;
- Trading login suspension.
CFETS will then report to PBOC and put the National Association of Financial Market Institutional Investors (NAFMII) in copy.