The Stock Exchange of Hong Kong Limited (the “Exchange”) published on 2 February 2016 a new Guidance Letter (HKEX-GL86-16): “Guide on Producing Simplified Listing Documents Relating to Equity Securities for New Applications” (the “Simplification Guide”) to encourage listing applicants and their advisers to produce a succinct listing document that is user friendly for both retail and professional investors.
Structure of the Simplification Guide
The Simplification Guide is divided into three parts:
- general guidance on producing clear and concise listing documents (the “General Guidance”) – see Section 3 of the Simplification Guide
- consolidated and updated version of the following Exchange's guidance letters on disclosures in listing documents (the “Consolidated Guidance”) – see Section 4 of and Appendix 1 to the Simplification Guide
- “Summary and Highlights” section (an update of HKEX-GL27-12)
- “Risk Factors” section (an update of HKEX-GL54-13)
- “Industry Overview” section (an update of HKEX-GL48-13)
- “History and Development” section (an update of HKEX-GL49-13)
- “Business” section (an update of HKEX-GL-50-13)
- “Financial Information” or “Management discussion and analysis on the historical financial information (MD&A)” section (an update of HKEX-GL59-13)
- “Applicable laws and Regulations” section (an update of HKEX-GL72-14)
- “Directors, Supervisors and Senior Management” section (an update of HKEX-GL62-13)
- “Use of Proceeds” section (an update of HKEX-GL33-12)
- Application Forms and “How to Apply for Hong Kong Offer Shares” section (an update of HKEX-GL64-13)
- online hyperlinks to: sample “Summary of the Constitution of the Company and the Companies Law” sections of listing documents of applicants incorporated in Bermuda, the Cayman Islands and Mainland China (the “Specimen Sections”); and the corresponding sample constitutional documents for the applicants (the “Sample Constitutional Documents”) – see Section 5of the Simplification Guide
General Guidance – a quick summary
Four general drafting principles
- Critically assess whether each piece of information needs to be disclosed. Include the information only if it is:
- relevant and material, i.e. its omission or misstatement would affect an investor in making an informed assessment about the applicant
- necessary to comply with a specific content requirement under applicable laws and regulations or the Listing Rules
- specific to the business of the applicant
- Simplify the language, i.e. use everyday conversation language; use short phrases/sentences
- Avoid using defined terms or technical jargon
- Simplify the layout (e.g. use descriptive headers and sub-headers to break up information into small digestible parts; use tables and bullets) and organise disclosures in a logical manner
Practical suggestions for the drafting process
- Use a lead writer/editor to be responsible for the quality of the listing document as a whole
- Avoid copying disclosures from other listing documents
- Tabulate financial information
- Make cross references
- Summarise material agreements, Listing Rules, legislation or other regulations in plain language
- Avoid marketing language
- Step back and review after a draft is prepared and consider whether any information can be removed, summarised, or structured in a better way
Changes to the Consolidated Guidance
The changes to the Consolidated Guidance are limited to:
- deleting certain overly specific content guidance which is only relevant in a limited number of cases. For example, the specific content guidance for product returns and warranty does not apply to all listing applicants and has been deleted. This helps to ensure that the guidance remains high level and principles-based;
- removing any repetition after consolidating the various guidance letters on disclosures in listing documents, mostly included under the title “Simplification Series”; and
- updating the guidance based on the Exchange’s most recent experience. For example, in respect of listing applicants in the banking and securities sectors, the content guidance is updated so that the following financial information/ ratios are to be disclosed in the Summary section of a listing document:
- in respect of the banking sector, net interest spread, net interest margin, capital adequacy ratio, non-performing loan ratio and loan to deposit ratio; and
- in respect of the securities sector, the amount of securities underwritten, average commission rate, trading volumes, average rate of return, asset under management and balances of margin financing and securities lending.
Timetable for compliance with the Simplification Guide
The Exchange will not return a listing application merely because it does not follow the General Guidance, the Specimen Sections or the Sample Constitutional Documents, but will remind applicants to do so.
Applicants which intend to submit their listing applications on or before 30 April 2016 may comply with either the Consolidated Guidance or the guidance letters on disclosures in listing documents, mostly included under the title “Simplification Series”, when preparing their listing documents.
For applicants which intend to submit their listing applications after 30 April 2016, they should comply with the Consolidated Guidance.
Exchange’s seminar for market practitioners
The Exchange will hold seminars on 1, 4 and 8 March 2016 to help market practitioners better understand and apply the Simplification Guide. Any market practitioners interested in the seminar may register for enrolment until 5 February 2016 (1:00 p.m.).
Designated webpage for the Simplification Guide and related resources