Introduction

The Securities and Futures Commission (“SFC”) has recently published its latest Takeovers Bulletin[1], which includes important reminders and clarifications on submission protocols and the treatment of securities held by connected exempt principal traders (“EPTs”). These updates are essential for market practitioners involved in takeovers, mergers, and share buy-backs in Hong Kong.

Revisions to submissions

The SFC has observed that some market practitioners are not fully complying with the submission requirements set out in Practice Note 20 when revising draft documents following the Executive’s comments. To ensure clarity and avoid delays, practitioners must provide the following with each subsequent draft:

1.      A response table to the Executive’s comments, specifying the page numbers of revised sections;

2.      A compared version of the document highlighting all changes (additions as markups, deletions as strikethroughs);

3.      A set of revised pages, including those amended for reasons beyond the Executive’s feedback; and

4.      A clean version of the full revised document.

These steps are crucial to help the Executive promptly identify any issues arising from amendments, thereby facilitating timely resolutions in the interest of clients.

Securities held by connected EPTs for non-discretionary clients

Rules 35.3 and 35.4 of the Takeovers Code generally restrict connected EPTs from voting securities or assenting to offers before they become unconditional. However, the SFC clarifies that it would normally disapply these rules in respect of the securities that a connected EPT holds securities as a simple custodian for and on behalf of non-discretionary clients, where contractual arrangements are in place to strictly prohibit the EPT from exercising discretion in voting or tendering, and that the connected EPT conducts reasonable due diligence and make appropriate enquiries to ascertain whether the underlying clients are eligible to vote or accept the offer.

Where a connected EPT intends to vote or tender such securities before the offer’s acceptance condition is met, early consultation with the Executive is required. In this circumstance, the EPT should submit the following documents for the Executive’s consideration:-

1.      A list of relevant clients and their security holdings;

2.      Confirmation of client eligibility; and

3.      Details of client instructions.

Submissions should be made at least two business days before the relevant shareholders’ meeting or tender date to allow for follow-up.

Key takeaways

Submission discipline is critical and relevant parties should follow Practice Note 20 closely to avoid processing delays and ensure regulatory compliance. Meanwhile, connected EPTs must carefully assess their custodial roles and engage with the SFC early if client securities are to be voted or tendered in an offer context.

Market practitioners are encouraged to review the full Bulletin and updated practice notes on the SFC website. For complex scenarios, early engagement professional advisors is recommended.