Background

Considering Hong Kong’s status as a leading international financial centre and the increasing growth of participation by international and Mainland investors, Hong Kong Exchanges and Clearing Limited (“HKEx”) published the conclusions from a consultation paper on the Proposal on Severe Weather Trading of Hong Kong Securities and Derivatives Markets on 18 June 2024. The operational model and arrangements that allow Hong Kong’s securities and derivatives markets to remain open during severe weather conditions, i.e. Severe Weather Trading (“SWT”) are now finalised and will take effect from 23 September 2024, subject to regulatory approval.

As a result of the aforesaid arrangement, the Securities and Futures Commission (the “SFC”) published a new Practice Note 27 (PN27) on 28 June 2024 to explain the implication and impact on the Codes on Takeovers and Mergers and Share Buy-backs (the “Codes”) under severe weather. Currently, securities and derivatives markets will be suspended in the event of an issuance of Typhoon Signal No. 8 or above or Black Rainstorm Warning by the Hong Kong Observatory, or an announcement of Extreme Conditions made by the Government (collectively the “SW conditions”). Since 2018, SW conditions have caused market closure in Hong Kong on 11 occasions in accordance with pre-defined rules and practices, lasting from a few hours to a whole trading day.

To enhance the competitiveness of Hong Kong’s markets, HKEx, after consultation of a wide range of market participants, announced that SWT will be implemented from 23 September 2024.

In light of the HKEx’s announcement, SFC has published the PN27 for the purpose of providing some guidance on matters regulated under the Codes in the event of SW conditions.

Implications on timing requirements under the Codes

1.       A business day is defined as “a day on which the Stock Exchange is open for the transaction of business”. Therefore, if the HKEx is open for trading on a day on which SW conditions are in effect, such day shall count as a business day for the purpose of the related timing requirements under the Codes.

2.       As electronic submission, disclosure and dissemination of documents and electronic payment of fees are either permitted or mandated under the Codes, SFC observes that market participants are generally able to follow the timetable prescribed by the Codes regardless of weather conditions. In case the relevant parties encounter genuine practical difficulties in complying with any requirements due to SW conditions, SFC should be consulted at the earliest opportunity.

Certain processes still customarily involve hard copy and are likely to be disrupted in the event of SW conditions and thus, SFC adopts a pragmatic approach in applying the requirements under the Codes in respect of the following deadlines (“Key Deadlines”) under SW conditions:

a.       The closing date for an offer and the latest time for acceptance under Rules 15.1, 15.8 and 28.4, and the submission and publication deadline for a closing announcement under Rule 19.1;

b.       The final day for an offer under Rule 15.5;

c.       The final time for an acceptor to exercise withdrawal rights under Rule 17 and the last day for withdrawal under Note 2 to Rule 18;

d.       The last day for an offeror to despatch or post relevant share certificates, or make the share certificates available for collection under Rules 17 and 20; and

e.       The last day for an offeror to settle consideration under Rule 20.

If any of the SW conditions are in effect at 12:00 noon and/or thereafter on any of the above Key Deadlines, the deadline will be postponed to the next business day and timing requirements defined with reference to the relevant Key Deadline under the Codes would be adjusted accordingly. There is no need to apply to SFC for a specific consent or ruling when the offer timetable is so adjusted as a result of SW conditions provided that the general mechanism for adjusting the Key Deadlines and other related dates under SW conditions is set out in an offer document.

3.       The general mechanism for adjustment does not apply to the deadline for dealing disclosures under Rule 22 or the despatch of a shareholders’ document because these processes can normally be done electronically.

Announcement and disclosure about
arrangements under SW conditions

1.       Offer documents should explain in the “Timetable” section the general arrangements under SW conditions. This should include how the Key Deadlines and other related dates (where applicable) are to be adjusted in the event of SW conditions.

2.       The relevant notices and circulars should set out the meeting arrangements regarding meetings convened for obtaining shareholders’ approval of a transaction regulated under the Codes in the event of SW conditions.

3.       An announcement should be made to update the market as soon as practicable if the transaction timetable is to be postponed as a result of SW conditions. For the avoidance of doubt, a draft of the relevant update announcement should in all cases be submitted to SFC for vetting at the earliest opportunity and in any event no later than 4:00 p.m. on the affected date (or such later time as SFC may in exceptional circumstances permit).

Conclusion

The introduction of the SWT represents an important innovation in Hong Kong’s financial markets to address extreme weather events. Given that the HKEx will implement the SWT arrangement from 23 September 2024, market participants including the investing public should familiarise themselves with the relevant arrangements and new operation model to ensure that they are well-prepared when the SWT is triggered.