In order to maintain the integrity of Hong Kong stock market and to ensure a fair and informed market, a new Part XIVA of the Securities and Futures Ordinance (“SFO”) which imposes new statutory obligations on listed corporations and their officers to disclose price sensitive information (“PSI”) to the public will come into effect on 1 January 2013.
To assist listed corporations and their officers to comply with their statutory obligations to disclose PSI under Part XIVA of the SFO, the Securities and Futures Commission (“SFC”) has issued the “Guidelines on Disclosure of Inside Information” (“Guidelines”) in June 2012. The Guidelines do not have the force of law, but a breach of the Guidelines will be taken into account in considering whether the statutory disclosure requirements have been complied with.
We summarize the major issues in Part XIVA of the SFO and the Guidelines as follows :-
What is “PSI”?
PSI has the same meaning as “relevant information” defined under section 245 of the SFO which applied to insider dealing. According to section 307A(1) of the SFO, PSI, in relation to a listed corporation, means specific information which is :-
(a) about :-
(i) the corporation;
(ii) a shareholder or officer of the corporation; or
(iii) the listed securities of the corporation or their derivatives;
(b) not generally known to the persons who are accustomed or would be likely to deal in the listed securities of the corporation but would if generally known to them be likely to materially affect the price of the listed securities.
The three key elements of the definition of “PSI” are :-
(1) it must be specific information;
(2) it must be information that is not generally known; and
(3) it is information that is likely to have a material effect on the price of the listed securities.
When and how should PSI be disclosed?
Section 307B(1) of the SFO requires a listed corporation to disclose the PSI to the public as soon as reasonably practicable after any PSI has come to its knowledge. “As soon as reasonably practicable” means the corporation should immediately take all steps that are necessary in the circumstances to disclose the information to the public. The knowledge of an officer would be relevant and according to Part 1 of Schedule 1 of the SFO, “officer” means “a director, manager or secretary of, or any other person involved in the management of the corporation”. Under the Guidelines, “manager” means a person, who under the immediate authority of the board, is charged with management responsibility affecting the whole or a substantial part of the corporation”.
Therefore, listed corporations should have appropriate and effective internal control and reporting systems and procedures should be established and maintained by the corporation to ensure (a) any material information which comes to the knowledge of one or more of its officers be promptly identified, assessed and escalated for the attention of the board to decide the need of disclosure and (b) a timely and structured flow of relevant financial and operation data so that its obligations to disclose PSI in relation to any material change in the corporation’s financial condition, in the performance of its business or in its expectation as to its performance can be duly complied with.
It should be noted that according to section 307C(2) of the SFO, a disclosure of PSI must be made in a manner that can provide for equal, timely and effective access by the public and can be made by way of the electronic publication system operated by the Hong Kong Stock Exchange.
Responsibility of Officers
Section 307G(1) of the SFO provides every officer of a listed corporation must take all reasonable measures from time to time to ensure that proper safeguards exist to prevent a breach of a disclosure requirement in relation to the corporation. If a listed corporation is in breach of a disclosure requirement, an officer of the corporation is also in breach of the disclosure requirement if (a) his intentional, reckless or negligent conduct has resulted in the breach; or (b) he has not taken all reasonable measures from time to time to ensure that proper safeguards exist to prevent the breach.
Notwithstanding the general principle above, the SFO has provided certain safe harbours for listed corporations. A corporation is not required to disclose PSI under section 307B if disclosure is prohibited by Hong Kong law or court order, but this does not apply to information the disclosure of which is prevented by contract.
According to section 307D(2) of the SFO, a corporation is also not required to disclose PSI under section 307B if :-
(1) the corporation takes reasonable precautions for preserving the confidentiality of the information;
(2) the confidentiality of the information is preserved; and
(3) one or more of the following applies :-
(a) where the information concerns an incomplete proposal or negotiation;
(b) where the information concerns a trade secret which is a proprietary information owned by the corporation;
(c) where the information concerns the provision of liquidity support from the Exchange Fund of the Government or from an institution which performs the functions of a central bank (including one located outside Hong Kong) to the corporation or a group member of the group of which the corporation is a member; or
(d) where the disclosure of the information is waived by the SFC under section 307E(1) of the SFO due to circumstances where disclosure of the information is prohibited under or would constitute a contravention of a restriction imposed by :-
(i) legislation of a place outside Hong Kong;
(ii) an order of a court exercising jurisdiction under the law of a place
outside Hong Kong;
(iii) a law enforcement agency of a place outside Hong Kong; or
(iv) a government authority of a place outside Hong Kong in the exercise
of a power conferred by legislation of that place.
Civil Sanctions and Liabilities
The SFC may institute disclosure proceedings in the Market Misconduct Tribunal (“MMT”) directly if it appears to the SFC that a breach of a disclosure requirement has or may have taken place and the MMT is empowered to impose various civil sanctions on listed corporations and their officers under section 307N of the SFO for any breach of disclosure requirement.
Apart from the civil sanctions of the MMT under section 307N of the SFO, according to section 307Z of the SFO, a person who is in breach of the disclosure requirement is liable to pay compensation by way of damages to any other person for any pecuniary loss sustained by the other person as a result of the breach if it is fair, just and reasonable in the circumstances of the case that the person should be so liable.
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