Corporate Action Guidelines  Presentation for Listing Rules Seminar 2009 HKEX

Iris Leung

What are corporate actions?
Corporate actions  are events initiated by a listed company that affects the rights attaching to the company’s issued shares. 
Some events are simple, mandatory and no action is required from shareholders (e.g. cash dividend) while others are more complex, optional and a response from shareholders is required (e.g. rights issue, privatisation私有化).

What are corporate actions?

Purpose of a corporate action can be:

Distribute income (e.g. cash or stock dividend, bonus issue)

Raise capital (e.g. rights issue, open offer)

Restructure issued capital (e.g. share subdivision/consolidation, warrant exercise)

Reorganise the company (e.g. spin-off, takeover and privatisation)

Why Corporate actions disclosure so important?
1. A corporate action may affect how the securities are traded in the secondary market and may trigger operational tasks to:
　a)　the stock exchange (e.g. adjusting previous day closing price on ex-date or setting up temporary trading counter for NPR);
　b)　the clearing house / stock depository (e.g. setting calendar for entitlements, adjusting stock master file, collecting and distributing entitlements to account holders)
　c)　the brokerage firms / custodian banks / nominee companies (e.g. adjusting internal systems and taking appropriate actions to protect the interest of its customers’ stock portfolio and ensure funds flows in good order)
2. To protect shareholder interests and to ensure the orderly trading of the company’s shares in the secondary market, it is important for issuers to schedule the corporate actions properly and to disclose timely, accurate and adequate information about their corporate actions.

Consequences of inappropriate corporate actions disclosure
1. Incomplete, unclear or delayed information about a corporate action will expose shareholders and the market to risks of market confusions, affecting the fair and orderly trading of the respective securities.
2. It may expose shareholders and market participants to a risk of financial loss due to their failures to take appropriate actions in the corporate event.
3. It will also reduce efficiency of market intermediaries (e.g. brokerage firms, custodian banks, institutional investors) in processing corporate actions and managing their investment portfolio.

Listing Rules and Corporate Actions
Listing Rules have high-level guidance on issuer disclosure and scheduling of corporate actions.
 General obligation to inform the Exchange and announce to the market any changes in the rights attaching to any class of listed securities (MB Rule 13.51 (3) and GEM Rule 17.32 )
 A few requirements governing the timing or technical arrangements of corporate actions (e.g. MB Rule 13.66/GEM Rule 17.78 about 14-day notice period for book closure)
 Letter to issuers (11 May 2007) on purpose of book closure and other deadlines for shareholder actions

HKEx’s action
1. To improve issuer disclosure and scheduling of corporate actions, Listing Division and relevant Departments of HKEx formed a working group last year to review and develop best practices on corporate actions.
2. The working group released its first two deliverables in November 2008, including:-
 Guide on Disclosure of Record Date, Book Closure and Latest Time for Lodging Transfers of Shares (“Guide on Book Closure”)
 Guide on Trading Arrangement for Selected Types of Corporate Actions (“Guide on Trading Arrangement”)
3. In 2009, the working group focuses on the development of another new issuer guide on entitlements.

The Issuer Guides on corporate actions Disclosure
Do not form part of the Listing Rules
Do not in any way amend or vary an issuer’s obligations under the Listing Rules
Do not remove the need for issuers and their directors to make own judgement on their disclosure
In case of doubt, issuer should contact their Listing Officers