BACKGROUND

 

On 21 September 2026, The Stock Exchange of Hong Kong Limited (the "Exchange") published a Consultation Paper on Listing Framework Competitiveness Review (Phase 2) (the "Consultation Paper"), seeking market feedback on proposals to reform the post-listing regulatory framework governing notifiable transactions, connected transactions and spin-offs undertaken by Hong Kong listed issuers.

 

The Consultation Paper follows the first phase of the Exchange's Listing Framework Competitiveness Review, which focused principally on widening access to Hong Kong's listing market through reforms relating to weighted voting rights structures, overseas-listed issuers and initial listing requirements. The Phase 1 amendments took effect on 24 July 2026[1]. Phase 2 turns the focus to the continuing obligations of listed issuers after listing.

 

The proposals are intended to provide listed issuers with greater flexibility and efficiency in conducting corporate transactions, while maintaining robust investor protection and enhancing the competitiveness and attractiveness of Hong Kong as an international listing venue. The Stock Exchange encourages interested parties to provide views and comments on the Consultation Paper by way of a questionnaire available on https://www.hkex.com.hk by 30 November 2026.

 

For further details, please refer to the Consultation Paper published by the Exchange on http://www.hkex.com.hk.

 

SUMMARY OF KEY PROPOSALS

 

1. Notifiable Transactions[2]

 

The Consultation Paper proposes substantial changes to the notifiable transaction regime under Chapter 14 of the Main Board Listing Rules (GEM Rules Chapter 19). The broad effect would be to reduce the circumstances in which transactions require prior shareholder approval while imposing more extensive disclosure obligations at the announcement stage.

 

1. Percentage Ratios

 

Currently, listed issuers are required to assess the size of a transaction using five percentage ratios: the assets ratio, profits ratio, revenue ratio, consideration ratio and equity capital ratio.

 

Removal Of Profits Ratio

 

The Exchange proposes to remove the profits ratio. The Exchange considers that the profits ratio is particularly susceptible to anomalous results, for example where an issuer or target is loss-making or its profitability has been affected by exceptional circumstances. The proposal would also align the notifiable transaction regime more closely with the connected transaction regime, under which the profits ratio is already not applicable.

 

Modification Of Consideration Ratio

 

The Exchange also proposes to modify the consideration ratio. Currently, transaction consideration is compared against the listed issuer's market capitalisation. Under the proposed regime, the consideration would instead be compared with the higher of:

 

• the issuer's market capitalisation; and
• its net asset value ("NAV").

 

The change is intended in particular to reduce anomalous outcomes for asset-heavy issuers whose market capitalisation may be significantly below their underlying NAV.

 

2. Transaction classifications and materiality thresholds

 

Increase In Major Transaction Threshold

 

One of the most significant proposals is the increase of threshold for a major transaction from 25% to 50%, pursuant to which:

 

• Reclassification of transactions between 25% and 50%: transactions where any percentage ratio is 25% or more but less than 50% will be classified as discloseable transactions, subject to enhanced announcement disclosure requirement in lieu of the circular and shareholders’ approval requirements; and

 

• Removal of VSA and VSD classifications: transaction classifications of very substantial acquisition ("VSA") and very substantial disposal ("VSD") will be removed, with such transactions instead falling within the major transaction regime and subject to revised circular disclosure requirements.

 

However, certain existing safeguards would remain. In particular:

 

• Restriction on written shareholders’ approval: written shareholder approval would not be available where an applicable percentage ratio is 100% or more for an acquisition or 75% or more for other transactions; and
• PIE Auditor requirement for significant acquisitions: an accountants' report for an acquisition where any percentage ratio is 100% or more would continue to be required to be issued by a PIE Auditor.

 

It should be noted that the increased materiality threshold for classifying a major transaction will not apply to transactions involving provision of financial assistance and/or securities or other investment activities[3].

 

3. Transactions in the ordinary and usual course of business

 

Exemption for Acquisitions or Leasing of Assets in the Ordinary and Usual Course of Business which Constitutes a Major Transaction from Circular and Shareholders' Approval

 

The Exchange further proposes a new exemption for an acquisition or leasing of assets in a listed issuer's ordinary and usual course of business which would otherwise constitute a major transaction. If the exemption applies, the transaction would be exempt from the circular and shareholders' approval requirements, although an announcement would remain necessary.

 

The exemption would be available where:

 

1. Established principal business: the assets are acquired or leased to maintain or expand an existing principal business which has been reported as a continuing principal business activity for the preceding two full consecutive financial years; and

 

2. Board confirmation: the board confirms that the transaction is entered into in the issuer's ordinary and usual course of business, on normal commercial terms and is fair and reasonable and in the interests of the issuer and its shareholders as a whole.

 

4. Announcement requirements relating to notifiable transactions

 

Relaxation of Shareholders Approval Requirements and Enhanced Announcement Disclosure Requirements for All Notifiable Transactions

 

The proposed relaxation of shareholder approval requirements is accompanied by enhanced announcement disclosure requirements for all notifiable transactions, which the Exchange proposes to require announcements to contain additional information including:

 

• material terms and conditions of the transaction;
• adequate explanation in relation to the basis of consideration, including details of valuation (if any);
• key financial information of acquisition or disposal target, together with adequate explanation that help investors better understand the performance; and
• explanation of the impact of the transaction on the listed issuer.

 

The Exchange also proposes mandatory supplemental announcements following certain developments, including:

 

• an extension of a long-stop date;
• changes to the payment schedule;
• determination of previously unfixed consideration; and
• completion of the transaction.

 

5. Circular requirements relating to major transactions

 

Streamlining of Major Transaction Circular Requirements

 

The Exchange proposes to streamline major transaction circulars by removing or streamlining less relevant and burdensome disclosures, while enhancing transaction-specific information. Key changes include simplified financial disclosure for disposal targets, removal of certain auditor review, indebtedness and unrelated material contract requirements, while introducing transaction-specific risk factors and retaining relevant MD&A. Certain general information relating to the directors and chief executive may also be incorporated by reference, and an existing waiver for acquisitions of revenue-generating assets would be codified[4].

 

6. Exemption for securities transactions of a revenue nature conducted by securities house

 

In order to reduce the compliance burden of listed issuers that are subject to additional supervision of prudential regulators, the Exchange proposes to modify the exemption for acquisitions or disposals of securities by securities houses[5] in their ordinary and usual course of business by extending the exemption to PRC securities house that is regulated under the PRC Securities Law.

 

2. Connected Transactions

 

The Consultation Paper proposes targeted changes to the connected transaction regime under Chapter 14A of the Main Board Listing Rules (GEM Rules Chapter 20). The proposals would narrow the scope of certain connected transactions and introduce greater flexibility for continuing connected transactions, while enhancing transaction disclosure and retaining the existing framework for independent oversight and shareholder protection.

 

1. Scope of connected persons

 

Increase in the Connected Subsidiary Threshold

 

Currently, a non-wholly owned subsidiary may become a "connected subsidiary" where a connected person at issuer level holds or controls 10% or more of its voting power. The Exchange proposes to increase this threshold substantially to 30%.

 

The Exchange considers that transactions between an issuer and its subsidiary present a lower conflict-of-interest risk than transactions with external connected persons because the issuer retains control over, and consolidates the results of, the subsidiary. The proposed 30% threshold is intended to focus regulation on circumstances in which the connected person's interest is sufficiently significant to give rise to a meaningful risk of influence or conflict.

 

2. Annual caps for continuing connected transactions

 

Percentage-Based Annual Caps for Continuing Connected Transactions ("CCTs") Instead of Monetary Cap

 

Under the existing regime, annual caps for CCTs generally have to be expressed in monetary terms.

 

Under the proposals, where a CCT is of a revenue nature and conducted in the ordinary and usual course of business, the annual cap could instead be expressed as a percentage of the issuer's revenue or another financial item in its audited accounts. An issuer using a percentage-based cap would have to explain the basis on which the relevant financial metric has been selected and its internal controls for monitoring compliance with the cap.

 

This should provide greater flexibility for businesses where transaction volumes naturally fluctuate with the scale of the issuer's operations and a fixed monetary cap could therefore impose an artificial ceiling.

 

3. Other connected transaction reforms

 

A number of reforms proposed for notifiable transactions would also extend to connected transactions, including:

 

• consideration ratio: use of the higher of market capitalisation or NAV;
• Enhanced announcements: apply the enhanced disclosure requirements; and
• Incorporation by reference: permit certain directors’ and chief executive information to be incorporated by reference in circulars.

 

The Exchange also proposes to remove the special provision applying only to PRC issuers which currently treats certain joint venture partners of a connected person as associates[6].

 

3. Spin-offs

 

The Consultation Paper also proposes substantial reforms to the spin-off regime under Practice Note 15 ("PN15"). Importantly, the fundamental principle that "one business cannot support two listings" would be retained. The proposals are primarily directed at simplifying and accelerating the regulatory process rather than abandoning PN15's core protections.

 

1. Proposed introduction of s self-assessment route

 

Introduction of Self-Assessment Route for Spin-offs Without Prior Exchange Approval

 

A particularly significant proposal is the introduction of a self-assessment route under which a listed issuer ("ParentCo") could proceed with a spin-off without first obtaining the Exchange's approval under PN15.

 

The route would be available where the ParentCo satisfies PN15 and, at the time the entity to be spun-off ("SpinCo") submits its listing application:

 

• the ParentCo has a market capitalisation of at least HK$10 billion;
• its principal business(es) generated revenue of at least HK$1 billion in its latest audited financial year; and
• both the revenue and total assets attributable to the ParentCo (excluding the entity to be spun off) represent more than 50% of the issuer group.

 

The ParentCo's board would be required to submit a confirmation that the proposal complies with PN15 together with detailed calculations demonstrating satisfaction of the eligibility requirements. The self-assessment route would only be available to Main Board issuers, not GEM issuers.

2. Assured entitlement to be abolished

 

Removal of the Assured Entitlement Requirement for Spin-offs

 

Currently, PN15 requires ParentCos to have due regard to the interests of their existing shareholders by providing them with an assured entitlement to shares in the SpinCo, either by way of a preferential offering or a distribution in species. The percentage of shares in the SpinCo allocated to the assured entitlement tranche would be determined by the ParentCos’ directors and advisers, and all shareholders of the ParentCos would be treated equally[7].

 

The Exchange proposes to remove this requirement entirely, regardless of where the SpinCo is listed or whether the ParentCo has a primary or secondary listing in Hong Kong.

 

The Exchange notes that assured entitlement tranches have often been small, preferential offerings have frequently been undersubscribed and cross-border regulatory requirements can make such arrangements difficult to implement.

 

3. Moratorium period for spin-offs after listing

 

Shortening of the Spin-off Moratorium Period

 

Under the current PN15 framework, a spin-off would not normally be considered within three years following the ParentCo's listing[8].

 

The Exchange proposes to reduce this to one year, measured by reference to when the SpinCo submits its listing application.

 

New Exemptions for Spin-off Moratorium Period

 

It further proposes exemptions from the moratorium period requirement for the following issuers:

 

• secondary-listed issuers: listed under MB Rules Chapter 19C; and
• dual-primary listed issuers: which have already been listed on a PRC stock exchange[9] or Recognised Stock Exchange for at least two consecutive financial years immediately before listing in Hong Kong.

 

4. Other spin-offs reforms

 

The Consultation Paper also proposes to exempt listed holding companies from duplicative PN15 compliance where their listed subsidiaries undertake spin-offs, and to introduce prescribed disclosure requirements for spin-off announcements, including key details of the SpinCo, transaction structure, financial information, rationale and PN15 compliance.