Stock Exchange proposes changes to improve effectiveness of the delisting framework

29 September 2017, Equity , Capital Markets, Legal Alert

On 22 September 2017, The Stock Exchange of Hong Kong Limited (the “Exchange”) published a consultation paper proposing Listing Rule changes to improve the effectiveness of the delisting framework.

The table below summarises the key points of the Exchange’s proposals and compares them with the current position:

Current position 

 Exchange’s proposals

Delisting framework for Main Board issuers

The current Main Board Listing Rules set out delisting procedures applicable only in two specific circumstances:

  • for issuers without sufficient operations or assets (“PN 17 companies”) – Practice Note 17 sets out a 3 stage delisting procedure (of at least 6 months each); and
  • for issuers that are no longer suitable for listing – the Exchange may publish a delisting notice specifying a period within which the issuers must remedy the issues to avoid delisting.

The current rules do not provide a process for delisting under the other criteria.  The rules set out the general principle that the continuation of a suspension for a prolonged period without the issuer taking adequate action to obtain restoration of listing may lead to the Exchange cancelling the listing.  The rules however do not specify what amounts to “prolonged period” or “adequate action”.

 

To add a separate delisting criterion to allow the Exchange to delist an issuer after its continuous suspension for a prescribed period (“Fixed Period Delisting Criterion”).  The fix period is proposed to be 12, 18 or 24 months.

Transitional arrangement

The Exchange proposes the following transitional arrangements for Main Board issuers whose securities are under suspension immediately before the effective date of the Fixed Period Delisting Criterion (“Effective Date”):

  • for PN 17 companies which has been subject to Practice Note 17 immediately before the Effective Date, Practice Note 17 will continue to apply; and
  • for other issuers, if, as at the Effective Date, trading in an issuer’s securities has been continuously suspended:

    • for less than 12 months, the fixed period under the Fixed Period Delisting Criterion would commence immediately from the Effective Date;
    • for 12 months or more, the fixed period under the Fixed Period Delisting Criterion would be deemed to have commenced 12 months before the Effective Date if the fixed period is to be 24 months. If the fixed period is to be 12 or 18 months, it would be deemed to have commenced 6 months before the Effective Date.

To specify a new delisting process that will apply to all the other delistingcriteria (the “New Delisting Process”). 

Under the New Delisting Process, the Exchange may (a) publish a delisting notice and give the issuer a period of time to remedy the relevant issues to avoid delisting, or (b) delist the issuer immediately in appropriate circumstances.  This process is similar to the one currently applicable to issuers that are no longer suitable for listing.

To remove Practice Note 17 because if the above proposals are adopted, the Exchange may delist PN 17 companies under either the Fixed Period Delisting Criterion or the New Delisting Process.

The Exchange envisages that initially, it would normally apply the Fixed Period Delisting Criterion which provides a reasonably long period of time for issuers to remedy issues and resume trading. Where appropriate, the Exchange may give the issuer a specific remedial period under the New Delisting Process.

Delisting framework for Growth Enterprise Market (“GEM”) issuers

The GEM delisting framework is similar to that of the Main Board except that GEM Listing Rules provide for a delisting procedure applicable to all the existing delisting criteria. Under this procedure, the Exchange may publish a delisting notice specifying a period (ordinarily, of 6 months) within which the issuer must remedy the issues to avoid delisting.

Similar to the proposal for Main Board issuers
- To add the Fixed Period Delisting Criterion.  The fixed period is proposed to be 6 or 12 months.

Transitional arrangement

For GEM issuers whose securities are under suspension as at the Effective Date, the fixed period will commence from the Effective Date.

 

The deadline for submission of responses to the consultation paper is 24 November 2017.