The Hong Kong Stock Exchange (HKEX) released a consultation paper in October 2021, and after receiving feedback from market participants, published its consultation conclusions on 29 July 2022. The HKEX has finalized the amendments to Chapter 17 Listing Rules relating to the Employee Share Schemes of Hong Kong Listed Issuers and the amendments will come into effect on 1 January 2023.
Overview of Changes
The new Chapter 17 Listing Rules will be extended to govern all share schemes involving grants of share awards and share options. The changes aim to provide issuers the flexibility to grant share awards and options, whilst still protecting shareholders from excessive dilution by setting scheme mandate limits as well as restrictions on certain scheme and grant terms. The rule changes are separated into four categories:
- Category I relates to share schemes funded by new shares (i.e. with dilutive impact)
- Category II relates to share schemes funded by existing shares (i.e. no dilutive impact)
- Category III relates to subsidiary share schemes for listed issuers
- Category IV relates to other rules regarding share schemes.
An executive summary page with key changes to the Listing Rules are available at HKEX website for your reference.
What do issuers need to do?
Existing share schemes currently in use, or new share schemes being adopted, will need to be reviewed to ensure compliance with the Listing Rules. HKEX has recommended that listed issuers (who are adopting new share schemes or refreshing a scheme mandate under an existing share scheme) and new listing applicants, need to comply with the new Chapter 17 rules by 1st January 2023*.
Listed issuers should also consider these new rules when it comes to making amendments to existing schemes or terminating existing schemes and creating new ones.
In addition, the source of scheme shares will determine the category of rules within Chapter 17 that apply. A trust model is commonly adopted for share award schemes in the market to safeguard unvested shares, the interests of plan participants, as well as providing issuers the flexibility to accumulate shares in advance of the vesting date. It is therefore important to consider the potential impacts to any associated trust arrangements.
How will Computershare support our clients?
As Asia’s preeminent Employee Share Plan management and trustee services provider, Computershare has actively participated in the consultation process by providing our responses to HKEX. We support HKEX’s initiative to provide a consistent regulatory framework to govern both Share Option Schemes and Share Award Schemes for Hong Kong listed issuers.
In consideration of the additional disclosure requirements, Computershare is looking to deploy a solution to assist our clients in meeting the disclosure requirements from 1 January 2023.
For Computershare clients with existing share schemes, Computershare can work with you on an individual basis to identify if any amendments need to be applied to your current Plan Rules and/or Trust Deed (if applicable).
For Computershare clients considering adopting a new share scheme, Computershare is developing a standard set of legal documents including both Plan Rules and Trust Deed that are fully compliant with the amended Chapter 17 of the Listing Rules.
We will be in touch with our clients soon to provide more details about the key changes to the Listing Rules. Computershare clients can contact their relationship manager for any questions and to learn more about how Computershare can provide support.
Discover how Computershare can help you with your employee share plan needs