The new amendments to Chapter 17 Listing rules became effective on 1 January 2023.
Chapter 17 of the HKEX Listing Rules now applies to all share schemes of listed issuers and their principal subsidiaries, involving the issue of shares or grant of options over shares or other securities by listed issuers to, or for the benefit of, executives and/or employees.
Primary changes
Below are the major changes when issuing new shares:
Eligible participants
The categories of eligible participants are limited to three categories of employee participants, related entity participants and service providers.
Vesting period
A vesting period of at least 12 months is required, except for grants to employee participants that may be subject to a shorter vesting period in certain narrowly defined circumstances.
Scheme mandate
All options and awards to be granted under company’s share and/or option schemes are limited to 10% scheme mandate in aggregate. This limit can be refreshed every three years with shareholders’ approval.
The above list of Chapter 17 amendments is non-exclusive and scheme rule amendments may need to be applied in certain circumstances.
How to comply with the Chapter 17 amendments
Consider the source of shares for your share scheme
With the diversity in plan management requirements and the respective compliance considerations, trustee arrangements have become one of the most common vehicles in facilitating the management of employee equity programs, especially when listed issuers plan to purchase existing shares instead of issuing new ones to eligible participants. Without issuing new shares, the above major changes of new Chapter 17 amendments may not be applied.
To better accommodate the Chapter 17 rule changes, a better understanding of the potential impact on trust deeds can be an advantage. Click here to explore the role of a share plan trust when deciding whether to use new or existing shares.
Review and amend your scheme rules
If your ESOP plans are using new issued shares, or a combination of new issuance and purchase, you may need to review, evaluate and amend your scheme rules to comply with the Chapter 17 changes. The changes required will depend on the source of shares that applies to your ESOP plans.
With more than 40 years of experience, we are committed to sharing insights into many aspects of share plans including, plan design, multi-jurisdictional share plan management, financial reporting services, trust set-up and management, multi-jurisdictional income exchange, executive services and more.
If you would like find out more about Scheme Rule amendments according to Chapter 17 amendments, please contact our team today.