Introduction

On 16 December 2022, the Stock Exchange of Hong Kong Limited (the “Stock Exchange”) published a consultation paper seeking public feedback on proposals to expand the paperless listing regime. This article highlights the Stock Exchange consultation conclusions (the “Consultation Conclusion”) published on 30 June 2023 on the changes to the current paperless listing regime in respect of electronic dissemination of corporate communications by listed issuers.

Current corporate communications requirements

Currently, Rule 2.07A(2) of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) provides that corporate communication may be sent or otherwise made available by a listed issuer to it securities holders using electronic means only where it has previously received from an express, positive confirmation in writing from that holder that he/she wishes to receive the corporate communication by the means and in the manner proposed by the listed issuer. Corporate communication is currently defined to include annual reports and interim reports of the listed issuers.

In respect of communications by means of a website, Rule 2.07A(2A)(b) of the Listing Rules provides that a holder of the listed issuer’s securities is deemed to have given consent that the issuer may send such communications by means of its own website, provided that: (a) the holders have resolved in a general meeting (or its constitutional documents contain a provision to the effect) that it may do so; (b) the holder has been asked individually by the issuer for such consent; and (c) the issuer has not received a response indicating the holder’s objection within 28 days (the “Deemed Consent Mechanism”).

Under Rule 2.07A(2A)(d) of the Listing Rules, a listed issuer must also notify its securities holders of the presence of the corporate communication on the website, the address of the website, the place on the website where it may be accessed and how to access the corporate communication. It shall send a separate notification of these matters to the holders each time there is a new document or information available on the website. If a holder has not provided electronic contact details for receiving this notification by electronic means, the listed issuer must notify that holder by non-electronic means.

According to the Consultation Conclusions, the Stock Exchange is of the view that the current Deemed Consent Mechanism and the notification of new online publications are complex and do not facilitate electronic-only dissemination, which results in a significant paper usage. Notification in hard copy form of a corporate communication is also usually received by a securities holder with a delay of several days after publication of that communication on the Stock Exchange’s website which may render the notification useless.

Mandating electronic-only dissemination

In this connection, the Stock Exchange proposed to amend the Listing Rules to mandate that listed issuers must disseminate corporate communications to their securities holders electronically if this is permitted by their applicable laws and regulations and their constitutional documents. It is proposed that a listed issuer only send corporate communications in printed form to a securities holder upon the request of that holder, and each listed issuer must disclose, on its website, the relevant arrangements for holders to make such a hard copy request.

To resolve concerns over the difficulty which certain investors may have in accessing issuers’ corporate communications electronically, such as retail elderly investors who may not have electronic contact details or may not be proficient in the use of the internet and holders of securities who did not sign up for alerts or regularly check the issuers’ website for updates, the Stock Exchange concludes that it will state explicitly in their guidance that where a listed issuer receives any instructions indicating a securities holder’s preference to receive hard copies of the issuer’s corporate communications (or refusal to receive them by electronic means), such instructions should be regarded as a request for hard copy unless such instructions have been revoked, superseded or expired.

Implied consent regime

The Stock Exchange proposed to remove the current Listing Rules provisions concerning the arrangements a listed issuer must make to avail itself of the consent mechanism for disseminating corporate communications electronically. This would enable listed issuers (to the extent permitted by the laws and regulations applicable to them) to rely on implied consent from its securities holders for electronic dissemination of corporate communications. This would simplify the process of disseminating corporate communications and to reduce the administrative burdens of listed issuers.

Despite concerns raised by some respondents to the consultation that some securities holders may not fully understand the implication of implied consent or may not be familiar with accessing electronic communications, the Stock Exchange considers that it has put in place measures (as mentioned above) to protect the interests of investors who wish to receive corporate communications in hard copy. The Stock Exchange will also work with relevant parties to consider the issue of implied consent for the corporate communications of Hong Kong-incorporated listed issuers, which is currently disallowed by the Companies Ordinance (Chapter 622 of the Laws of Hong Kong).

Dissemination of Actionable Corporate Communications

The Stock Exchange further proposed to require an issuer to send Actionable Corporate Communications to securities holders individually and in electronic form if functional electronic contact details have been provided to the issuer. In order to keep securities holders sufficiently informed of the opportunity to exercise their rights, issuers would not be able to satisfy this requirement by publishing Actionable Corporate Communications on their websites and the Stock Exchange’s website only.

The Stock Exchange concluded that Actionable Corporate Communications will be defined as “any corporate communication that seeks instructions from an issuer’s securities holders on how they wish to exercise their rights or make an election as the issuer’s securities holders”. The Stock Exchange will set out a list of that will be considered Actionable Corporate Communications in guidance materials to be published on its website.

The Stock Exchange further concludes that while a security holder would have the option to make a request to receive Actionable Corporate Communications in the form of hard copy, a listed issuer would not be required under the Listing Rules to take the initiative to obtain indications from each securities holder as to his/her/its preferred method of communication. Whether and how consent is required to be obtained for electronic dissemination of Actionable Corporate Communications must follow the requirements under the applicable laws and regulations and the constitutional documents of each listed issuer.

It will be the responsibility of securities holders to provide electronic contact details (if any) that are functional when an issuer solicits such information from them unless they request to receive Actionable Corporate Communications in hard copy. A listed issuer will be considered to have complied with the proposed Listing Rules requirements if it has used reasonable efforts to contact a securities holder using the electronic contact details provided. Issuers shall also clearly inform securities holders of the purpose of obtaining their electronic contact details when soliciting such information from holders and draw holders’ attention to the consequence of providing non-functional electronic contacts.

In relation to the question on what constitutes an “electronic form” of Actionable Corporate Communication, the Stock Exchange does not intend to prescribe detailed requirements on this matter in order to allow flexibility for issuers to devise their own arrangement. Meanwhile, the Stock Exchange clarifies that the interpretation used in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong), i.e. “a communication is one that is generated in digital form by an information system and can be transmitted and stored”, may be a useful reference.

Where a listed issuer does not have functional electronic contact details of a securities holder, the Stock Exchange proposed and concluded that an Actionable Corporate Communication must be sent to the holder in hard copy form (including a request for the security holder’s electronic contact details to facilitate electronic dissemination of Actionable Corporate Communications in the future).

Takeaway

The above amendments will be effective on 31 December 2023. Prior to the effective date, existing listed issuers and listing applicants seeking to list on the Stock Exchange and their legal advisers should ascertain whether their constitutional documents allow them to disseminate corporate communications to their securities holders electronically. Listed issuers will be required to amend their constitutional documents if their constitutional documents disallow the listed issuer in doing so.