Capital Markets Quarterly

Howse Williams' Capital Markets Quarterly aims to provide you an overview of the various regulatory and market updates in the last quarter, with summaries of some of the key amendments in the rules and guidelines, as well as important decisions made by the regulatory authorities in Hong Kong. We will also highlight some of the major market transactions over the last 3 months.


A) Regulatory Update


The Stock Exchange of Hong Kong Limited (the “Exchange”)


Amendments to Listing Rules

The Exchange has enhanced the regulations of share option schemes and share award schemes (collectively the “Share Schemes”) by implementing the proposals of the “Consultation Conclusions on Proposed Amendments to Listing Rules relating to Share Schemes of Listed Issuers and Housekeeping Rule Amendment” published on 29 July 2022 and amending Chapter 17 and other chapters of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). The amendments in the Listing Rules regarding Share Schemes which took effect on 1 January 2023 are significant such that listed issuers and listing applicants should pay careful attention and seek appropriate guidance in structuring their Share Schemes and other incentives for employees and service providers who contribute to the listed issuers on a longer term basis. A summary of the key changes to these Listing Rule amendments is set out in our separate corporate news alert available here. Frequently Asked Questions (“FAQs”) No.083-2022 to 101-2022, FAQ Series 8 and FAQ no.072-2020 were recently updated to clarify the Listing Rule amendments and the transitional arrangements for existing Share Schemes. 


With effect on 1 January 2023, a lower effective cash market trading fee rate was introduced such that the trading tariff of $0.50 payable on each purchase and sale transaction of securities has been removed and the ad valorem fee on all trades has been adjusted from the level of 0.005% to 0.00565% per side of the consideration of a transaction. The new trading fee structure is expected to attract more market participants and maintain the competitiveness of the Hong Kong market.  The relevant Listing Rules have been updated as regards the change in the ad valorem trading fee rate such that they now expressly refer to the trading fee rate as set out in the Rules of the Exchange.


Updates to Guidance Letters

As a result of the Listing Rule amendments relating to Share Schemes mentioned above, a couple of Guidance Letters have also been updated. They include HKEx-GL11-09 on waiver application from strict compliance with Rule 17.02(1)(b) and paragraph 27 of Appendix 1A of the Listing Rules regarding disclosure of pre-IPO share option schemes, and HKEx-GL97-18 on the extensive use of share incentive schemes for new listing applicants in the internet technology sector or that have internet-based business models.


Since the creation of a listing regime for special purpose acquisition companies (“SPACs”) pursuant to Chapter 18B of the Listing Rules in January 2022, the Exchange allows a shell company to raise funds through its listing for the purpose of acquiring a business at a later stage within a pre-defined period after listing (“De-SPAC Transaction”). Please see our separate corporate news alert here for a summary of the SPAC listing regime. FAQs No.102-2022 to 117-2022 have been released to assist listing applicants and listed issuers to understand and comply with the relevant Listing Rules. The Exchange’s Guidance Letter (HKEX-GL113-22) was updated in December 2022 to guide SPACs to comply with the applicable requirements in Chapter 14A of the Listing Rules together with the additional requirements under Rule 18B.56 of the Listing Rules for any De-SPAC Transaction.


Listing Decisions

Listing Decisions regarding Share Schemes have been revised and some of which have been withdrawn by the Exchange due to the Listing Rule amendments regarding Share Schemes mentioned above. However, the analysis and the conclusions in the revised Listing Decisions HKEx-LD103-1, HKEx-LD9-2011 and HKEx-LD89-2015 remain unchanged.


Consultation Paper on Specialist Technology Companies Listing Regime

With the initiative to invite a diverse range of companies to access Hong Kong’s market, the Exchange proposed to allow the listing of specialist technology companies, being companies primarily engaged in the research and development of, and the commercialisation and/ or sales of products and/ or services that apply science and/or technology within an acceptable sector of a specialist technology industry pursuant to the proposed rules which will be set forth under Chapter 18C of the Listing Rules. The initial five specialist technology industries are (i) next-generation information technology, (ii) advanced hardware, (iii) advanced materials, (iv) new energy and environmental protection and (v) new food and agriculture technologies (“Specialist Technology Companies”). Unique listing qualifications for commercial companies and pre-commercial companies (the two classifications of Specialist Technology Companies) was proposed. We support this move of creating a new listing channel for both commercial and pre-profit Specialist Technology Companies that is expected to draw high-growth early stage innovative companies and Chinese companies which are delisting in the United States of America to list in Hong Kong. A summary of the consultation paper with key proposals of the listing regime for Specialist Technology Companies is set out in our separate corporate news alert available here. The consultation period ended on 18 December 2022 and we are expecting the publication of the consultation conclusions by the Exchange later this year.


Consultation Paper on Expanded Paperless Listing Regime

In December 2022, the consultation paper to expand the paperless listing regime and other rule amendments was published by the Exchange aiming to advance the norm of paperless listing and improve efficiency for listed issuers. A number of documents currently required to be submitted to the Exchange are proposed to be removed. A new electronic online platform will be launched for communication between the Listing Division of the Exchange (the “Listing Division”) and listing applicants/ listed issuers so that all documents, emails and e-forms could be submitted through this online platform and electronic signature of submission documents will be enabled. In addition, the Exchange proposed to mandate all submission to be made through electronic means unless otherwise specified and electronic dissemination of corporate communications to securities holders by listed issuers after listing to the extent permitted under applicable laws and regulations. The deadline for responding to the consultation paper is 28 February 2023. A summary of the consultation paper with key proposals of the expanded paperless listing regime is set out in our separate corporate news alert available here.


Fast Interface for New Issuance (FINI)

Apart from the regulatory update, the Exchange has developed a new digital platform known as FINI to modernise the Hong Kong IPO settlement process, through which   IPO market participants and regulatory authorities will be able to interact seamlessly and the time gap between IPO pricing and trading will be reduced. Among market participants, sponsors will primarily use FINI to manage offering initiation and reference data, and deal access control for syndicate members/ advisers and provide certain regulatory submissions while overall coordinators will use it to confirm deal size, tranche allocations and final pricing, manage control list of distributors’ share allocations, provide certain regulatory submissions and placee information. 


FINI will be launched in June 2023 in order to replace the CCASS EIPO service among market participants and the Exchange. In order to get onboard to FINI, market participants are advised to complete the online user registration before 17 February 2023 and conduct pre-launch testing. Further details of this new IPO settlement platform are set out here.


2022 Analysis of ESG Practice Disclosure (the “ESG Analysis”)

In November 2022, the Exchange published the ESG Analysis setting out the findings of its latest review of listed issuers’ compliance with the Environmental, Social and Governance (“ESG”) Reporting Guide in Appendix 27 of the Listing Rules. Recommendations for disclosure in the ESG reports are made in relation to the board’s responsibility on governance of ESG matters, quantitative information on greenhouse gas emissions and supply chain risk management.


Listed issuers are reminded of the new deadlines for publication of ESG reports for the financial year commencing on or after 1 January 2022 which should be aligned with the publication of annual report. A copy of the ESG Analysis is available here.


The Exchange’s Listing Issuer Regulation Newsletter

Key regulatory updates with respect to the following topics are outlined in the newsletter: (a) the amendments of Chapter 17 of the Listing Rules in relation to share schemes and share award schemes of listed issuers and their principal subsidiaries discussed above, (b) the functions and Exchange’s expectation of the audit committee in the event of change of auditor, (c) compliance with the uniform set of shareholder protection standards for listed issuers incorporated in Bermuda and Cayman Islands, new corporate governance and ESG requirements; and (d) steps for secondary-listed issuers to be converted to a primary-listing on the Exchange. Listed issuers are also reminded to use the latest e-Forms for submission to the Exchange.

Among the key regulatory updates, listed issuers are reminded to pay attention in particular to the following:


  • with respect to a change of auditor, the Exchange expects the audit committee of a listed issuer to take the following steps: (i) maintain a dialogue with the auditors and keep abreast of and assess any contentious audit issues, (ii) understand the underlying reasons for the resignation of auditors, (iii) critically review the capabilities and resources of the incoming auditors and ensure that the extent of audit work required is worth the audit fees, and (iv) discuss with the incoming auditors to evaluate whether they understand the reasons for the resignation of the outgoing auditors and how their audit procedures can effectively address the audit issues. 


  • the new corporate governance requirements which will soon become effective including (i) disclosure requirements regarding gender diversity, gender ratio in the workforce and shareholder communication policy in the listed issuer’s corporate governance report for the financial year commencing on or after 1 January 2022, (ii) appointment requirement of new independent non-executive director (“INED”) no later than the annual general meeting to be held in 2023 of a listed issuer with all INEDs having served for more than nine years, and (iii) appointment requirement of a director of a different gender to single-gender boards by 31 December 2024.


A copy of the newsletter is available here.


News release date Issuer/directors involved - summary of conduct
28 December 2022

China New City Commercial Development Limited (Stock Code: 1321) and four current and former directors

  • Listed issuer failed to comply with the procedural requirements of notifiable and/or connected transactions under Chapter 14 and/or 14A of the Listing Rules when providing recurring advances to its controlling shareholder’s group which were unsecured and some of which were interest-free

  • The four directors breached their directors’ duties having failed to use their best endeavours to procure the listed issuer’s compliance with the Listing Rules

  • Listed issuer and the four directors were criticised and listed issuer was directed to review its internal controls for procuring Chapters 14 and 14A of the Listing Rules compliance

  • The four directors were also directed to attend training

12 December 2022

Raffles Interior Limited (Stock Code: 1376) and three current and former directors

  • Listed issuer did not disclose in its prospectus their intention to enter into a number of agreements for professional, consultancy and investment management services with excessive service fee paid to service providers

  • Former director led the decision-making. Service providers were all referred by the former director’s friends or parties connected with the listing and no comparisons with other service providers were made

  • Censures were made against the listed issuer, two current directors and one former director while Prejudice to Investors' Interests Statement was made against the same former director

  • The two current directors were directed to attend training

5 December 2022

REXLot Holdings Limited (Delisted, Previous Stock Code: 555) and five directors

  • Listed issuer provided inaccurate information in financial statements, made payments for projects which ultimately did not proceed with none or limited safeguards, and failed to punctually publish results and reports while a director failed to safeguard the listed issuer’s assets and interests

  • Censures were made against the listed issuer and the primary responsible director while Prejudice to Investors' Interests Statement was made against the same director

  • The four other directors were criticised and directed to attend

1 December 2022

Christine International Holdings Limited (Stock Code: 1210) and seven current and former directors

  • Listed issuer entered into an agreement and made certain prepayments to purchase food production equipment and food processing services with an entity of the former director’s sister despite knowledge of the latter’s financial difficulty
  • Listed issuer failed to address the issues on the non-completed purchases and wrote off the prepayments made due to subsequent connected counterparty’s deregistration
  • Former director failed to safeguard the listed issuer’s interests and assets, other directors failed to monitor and follow up while one former director failed to cooperate with the Exchange’s investigation
  • Censures were made against four former directors, two former directors and one director were criticised and Prejudice to Investors' Interests Statements were made against two former directors
  • Directors without Prejudice to Investors' Interests Statement made against them were directed to attend training
28 November 2022

Xinyuan Property Management Service (Cayman) Ltd (Stock Code: 1895) and four directors

  • Listed issuer failed to comply with the Listing Rules on notifiable and connected transactions subject to written agreement, announcement, circular and/or independent shareholders’ approval requirements
  • Directors knew or ought reasonably to have known about the relevant transactions as they were involved in the internal approval process and/or had significant roles
  • Directors failed to protect the listed issuers’ interest
  • Censures were made against the listed issuer, three directors and one former director and Prejudice to Investors' Interests Statements were made against one former director and one director
  • Directors have agreed to cease to hold any directorship and/or executive or management position in the listed issuer’s group
21 November 2022

China Bright Culture Group (Stock Code: 1859) and two current and former directors

  • Listed issuer failed to disclose in its prospectus and comply with the Listing Rules on the major transaction of an asset management agreement entered on the first day of listing with its joint global coordinator, joint bookrunner and joint lead manager of its IPO
  • Listed issuer deposited IPO proceeds as investment amount and made an upfront fee. Transaction was terminated the year after, listed issuer redeemed the investment amount but did not receive interest or return or refund of upfront fee
  • Censures were made against the listed issuer and one director and criticism was made against one former director
  • Both directors were directed to attend training
24 October 2022

Biosino Bio-Technology and Science Incorporation (Stock Code: 8247) and two former directors

  • Directors failed to respond to the Listing Division on an investigation in relation to repayment of certain loans granted to a subsidiary of the listed issuer prior to the disposal of the subsidiary
  • Censures and Director Unsuitability Statements were made against two former directors
5 October 2022

Good Resources Holdings Limited (Delisted, Previous Stock Code: 109) and one former director

  • Listed issuer subsidiary’s engagement in several concerning connected/ notifiable transactions without complying with the Listing Rules caused the delay in publication of its annual results, suspension in its trading, and ultimately cancellation of its listing
  • Former director attempted to conceal the transactions, committed serious breaches of his director’s duties, failed to protect the listed issuer’s assets and failed to cooperate with the Exchange’s investigation
  • Censure was made against the listed issuer and one former director and Director Unsuitability Statement was made against the same director


Securities and Futures Commission (the “SFC”)


Takeovers Bulletin No. 63


Breach of Rule 22 of the Code on Takeovers and Mergers ("Takeovers Code")

In October 2022, Gold Dragon Worldwide Asset Management Limited (“Gold Dragon”) as the investment manager of Seahawk China Dynamic Fund ("Seahawk Fund") was publicly criticised by the SFC and disciplinary action was taken against Gold Dragon due to its failure to report its dealings in the shares of Shanghai Dongzheng Automotive Finance Co., Limited ("Shanghai Dongzheng", Stock Code: 2718) in breach of Rule 22 and General Principle 6 of the Takeovers Code.


Immediately prior to the commencement of the offer period for Shanghai Dongzheng, Seahawk Fund owned or controlled 6.45% of the total number of H shares of Shanghai Dongzheng. As a result, Gold Dragon being the investment manager of Seahawk Fund owned or controlled more than 5 % of Shanghai Dongzheng’s H shares and was an associate of Shanghai Dongzheng subject to public disclosure requirements of its dealings in the relevant securities under Rule 22 of the Takeovers Code.


In this case, Gold Dragon overlooked the disclosure requirements under the Takeovers Code and did not have an adequate compliance system to ensure compliance with all regulatory requirements. Market practitioners and parties who wish to take advantage of the securities market in Hong Kong are reminded that associates with a 5% or more interest in an offeree company or offeror company must report their dealings in the relevant securities of the offeree company (and of the offeror company in the case of a securities exchange offer) during an offer period in accordance with Rule 22 of the Takeovers Code. In case of doubt as to the application of Rule 22 of the Takeovers Code, the SFC should be consulted.  


A copy of the Executive Statement is available here.


Practice Note 24

The new practice note 24 (“PN24”) sets out the SFC’s treatment on the appointment of an independent receiver and liquidator over a Hong Kong public company and when to commence and end offer periods in such circumstance such that false market concerns for an offeree company to be in an offer period when there is unlikely to be an imminent offer may be eliminated. In Summary, the SFC will only expect an offer period to commence upon a receiver or liquidator appointment with a possible change of control and a draft Rule 3.7 announcement by the offeree company be submitted for vetting if the receiver or liquidator indicates that it is actively looking for or already in discussion with a potential purchaser for/ over the controlling stake of a Hong Kong public company. Further, if there is a reason for an offeree company which is in an offer period over a prolonged period of time following a receiver or liquidator appointment to believe that an offer is unlikely to be imminent, it should consult the SFC to end the offer period.  A copy of the PN24 is available here.


B) Market Update


Hong Kong ranked third among the world’s largest fundraising platforms in 2022. In the last quarter of 2022, we have seen a resurgence of IPOs in Hong Kong as sentiments improved with the unwinding of Covid-19 quarantine and control. During the same period, there were 34 new Main Board and GEM IPO applications accepted by the Exchange and 34 IPOs launched in the market, a majority of which were from the new economy sector. Examples of some of the recent Main Board listings are:


Issuer Description
AIM Vaccine Co., Ltd. (Stock Code: 6660) the second largest vaccine company in China in terms of 2021 approved lot release volume (excluding COVID-19 vaccines) covering the full value chain from research and development to manufacturing and to commercialization. Its H-shares retail offering was over-subscribed by 2.2 times. To date, its market capitalisation reaches approximately HK$12.0 billion.
Flowing Cloud Technology Ltd (Stock Code: 6610) an augmented reality/ virtual reality (“AR/VR”) content and services provider ranking first in terms of revenue in the AR/VR content and services market in China in 2021. The IPO fund raised on its retail offering was HK$60.0 million and the estimated net proceeds was around HK$531.9 million.
LX Technology Group Limited (Stock Code: 2436) a device lifecycle management solution provider primarily engaged in the sales of refurbished de-commissioned IT devices and the provision of device and IT technical subscription services in China. Its retail offering has been over-subscribed by 5.2 times with an estimated net proceeds from the IPO of approximately HK$337.2 million.
360 DigiTech, Inc. (Stock Code: 3660) a China-based credit technology services platform that provides a comprehensive suite of technology services to assist its customers in the loan lifecycle and is secondary-listed in Hong Kong pursuant to Chapter 19C of the Listing Rules. Its American Depository Shares are currently listed and traded on The Nasdaq Stock Market. Making it the latest Chinese company to list closer to home, the IPO fund raised on retail offering was HK$28.0 million and the estimated net proceeds from the IPO was approximately HK$207.4 million.
Howking Tech International Holding Limited (Stock Code: 2440) a Chinese provider for data transmission and processing services for Internet of things applications and telecommunication equipment, serving a broad range of industrial customers. Its retail offering was significantly over-subscribed by 95.7 times.
3D Medicines Inc. (Stock Code: 1244) a bio-pharmaceutical company focusing on the research and development of oncology therapies for cancer patients, especially those who require long-term care and is listed as a biotechnology company under Chapter 18A of the Listing Rules. There are four cornerstone investors with an aggregate investment amount of HK$234.6 million. Its retail offering was over-subscribed by 5 times. 



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Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice. Please contact [email protected] if you have any questions about the article.