Download Corporate Action Guidelines

Corporate Action Guidelines
Presentation for Listing Rules Seminar 2009
Iris Leung
Listing Operations
Hong Kong Exchanges & Clearing Limited
Agenda
• Background
• Guide on Book Closure
• Guide on Trading Arrangement
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Background
What are corporate actions?
• Corporate actions (CA) 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).
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Background
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)
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Background
Why CA disclosure so important?
•
A corporate action may affect how the securities are traded in the
secondary market and may trigger operational tasks to:
– the stock exchange (e.g. adjusting previous day closing price on ex-date or
setting up temporary trading counter for NPR);
– the clearing house / stock depository (e.g. setting calendar for entitlements,
adjusting stock master file, collecting and distributing entitlements to account
holders)
– 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)
•
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.
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Background
Consequences of inappropriate CA disclosure
• 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.
• 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.
• 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.
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Background
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 14day notice period for book closure)
– Letter to issuers (11 May 2007) on purpose of book closure and other
deadlines for shareholder actions
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Background
HKEx’s action
• 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.
• 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”)
• In 2009, the working group focuses on the development of
another new issuer guide on entitlements.
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Background
The Issuer Guides on CA 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
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Guide on Book Closure
Guide On Disclosure Of Record Date, Book Closure And Latest Time
For Lodging Transfers Of Shares
•
Available at HKEx website (http://www.hkex.com.hk/listing/epp/E_bk_close.doc)
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Guide on Book Closure
Highlights
• Purpose:
– Offer guidance about closure of member register to identify
shareholders who are entitled to a corporate action (e.g. attendance
and voting at AGM or collection of dividends).
• General principles:
– Shareholders should be given sufficient time of notification to take
part in the corporate action
– There should be timely disclosure of all relevant information relating
to the book closure to enable shareholders to easily interpret the
implications of the corporate action on their holdings
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Guide on Book Closure
Highlights (continued)
• What information the issuer should disclose?
– Purposes, record date/book closure period/latest time for lodging
transfers of securities
• What if the book closure timing information is not ready for
disclosure in the initial announcement?
– Provide best estimates on the time such information will be available
e.g. “The proposed distribution is subject to the consideration and approval at the
Company’s 2008 Annual General Meeting. The period of closure of register of members
for H shares would be set out in the separately published notice of AGM by the
Company.”
– Make supplementary disclosure when such information is ready and
make reference to the initial announcement
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Guide on Book Closure
Highlights (continued)
• What if the book closure timing information is altered after the
initial announcement?
– Inform the market as soon as possible and at least 6 calendar days
before the closure by a distinct announcement (MB Rule 13.66 /
GEM Rule 17.78)
– Clearly state the old and new book closure timing
– Refer to the initial announcement and the publication date
– Ensure the new book closure timing still offer sufficient notification
time to shareholders
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Guide on Book Closure
Highlights (continued)
•
How to properly schedule book closure arrangement?
– Comply with the general principle of sufficient time of notification
– Liaise with share registrar to ensure its readiness to cope with the expected
volume of share transfers, If necessary
– Special attention to scheduling if the issuer has already announced one or
more yet-to-be-expired book closures for other purpose(s).
• If there are still sufficient time of notification, pick the same book closure period of
the previous corporate action
• In all cases, the latest time for lodging share transfer of the new corporate action
must not be within the book closure period of the previous corporate action
• If new book closure period will effectively alter the book closure period of the
previous corporate action (e.g. extension), it must issue a distinct announcement of
altered book closure, make reference to the previous corporate action and clearly
state the latest time for lodging transfers of securities for all these corporate actions
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Guide on Book Closure
Book closure period and stock trading
Book closure period
Day 1 Day 2
Ex-date
•
•
•
Day 3
Day 4
.....
Last registration date
Under T+2 settlement system, stocks will trade ex-entitlement on the
business day immediately before the last registration date. The date is so
called “ex-date”.
The ex-date is the date on or after which the stock will be traded without the
specific entitlement (e.g. dividend).
Ex-date is an important reference date to investors and all market players.
Stock exchange, clearing house, stockbrokers, information vendors and
custodian banks all have ex-dates maintained in their market systems. Any
error of ex-dates will affect orderly trading of the stock.
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Guide on Book Closure
Example 1: Change of book closure dates
Company A announced alteration of its declared book closure period less
than 24 hours before the ex-date, leaving no time for stock exchange,
clearing house and market intermediaries to adjust their systems.
Date of
announcement
Book closure Period
Latest time for lodging
share transfers
20 May 20x1
15 – 19 July 20x1 (i.e. 13 July
20x1 as ex-date)
4:30pm on 14 July 20x1
12 July 20x1
(10:53 pm)
27 July 20x1 – 1 August 20x1
4:30pm on 26 July 20x1
Consequence: To ensure an orderly market, the securities of Company A
was suspended for trading on 13 July 20x1 to allow sufficient time for
market operators to adjust their systems to reflect the new ex-date.
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Guide on Book Closure
Example 2: Clarity of book closure dates
Company B announced a dividend payment and a bonus issue of shares.
However its announcement about book closure dates was as below:
“…In order to establish entitlements to the proposed final dividend, all transfers
accompanied by the relevant share certificates must be lodged with the Company’s
Hong Kong branch share registrar and transfer office… not later than 4:30pm on 25
May 2009.”
Consequence: The market is not certain whether the book closure period
will also apply to bonus issue of shares declared in the same
announcement. The Company and its agent (share registrar) received
queries from the Listing Division, HKSCC and others such as custodian
banks. All these troubles can be saved if the announcement specified
clearly that the book closure period applied to both final dividend and
bonus shares.
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Guide on Book Closure
Example 3: Overlapped book closure dates
Company C announced a book closure period to establish entitlements to
its final dividend. A few days later, it announced another book closure
period to qualify attendance and voting at a EGM. The two book closure
period, unfortunately, overlapped partially with each other.
20 April
announcement
26 April
announcement
Book closure for AGM and final dividend
Book closure for EGM
Consequence: Shareholders who are not aware of the EGM book closure
may mistakenly set the latest time for lodging share transfers for AGM and
final dividend as two days before the book closure period mentioned in 20
April announcement. However, in fact the register of members was closed
on that date due to the book closure period for EGM. As a result, investors
fail to register their rights for the entitlement to AGM and final dividend.
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Guide on Book Closure
Other issues
Issue
Consequences
Incomplete information: Issuer announces
entitlement but did not provide all the core
information required (e.g. book closure
period and the latest time for lodging
transfer of shares) and does not state when
and where such information will be provided
Shareholders and market
intermediaries have no clue when such
information will be available. Need to
check every announcement made by
the issuer.
Unclear purpose of the book closure: the
announcement mentioned a book closure
period but did not explain its purpose
Shareholders are not sure the purpose
of the closure of member register (e.g.
for AGM attendance or for dividend
payment?)
Unworkable date: the last registration date
stated in the announcement falls on a
Sunday
Shareholders may not be aware of the
fact, therefore miss the latest time for
transfer
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Guide on Trading Arrangement
Guide On Trading Arrangements For Selected Types Of Corporate Actions
• Available at HKEx website (http://www.hkex.com.hk/listing/epp/D_TA.doc )
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Guide on Trading Arrangement
Highlights
• Purpose:
– Outlines key issues and best practices in relation to schedule setting,
provision of information and trading arrangements for five selected
type of corporate actions:
• Rights issue
• Open offer
• Share consolidation / subdivision
• Change of board lot
• Change of company name or addition of Chinese name
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Guide on Trading Arrangement
Highlights (continued)
• For each type of corporate action, the Guide outlines
– Information to be disclosed
– Any requirements to be conformed to in scheduling the corporate
action timetable
e.g. 14-day offer period, trading period of Nil-paid rights should not be less
than 5 business days.
– Trading arrangements/logistics in relation to the securities under the
corporate action
– Detailed arrangements/logistics of the corporate actions the
shareholders (either holding shares directly or via nominee) should
know in order to exercise their rights
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Guide on Trading Arrangement
• The Guide also provides a sample timetable and a checklist for
technical and operational matters for each type of corporate
action
Sample timetable
Reference checklist
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Guide on Trading Arrangement
Issues
•
•
“Public holiday” errors in scheduling the timetable
Rights issues/open offers
– Not provide the calculation method for rights issue/open offer entitlement.
– Not mention whether nominee company (i.e. HKSCC Nominee) will be treated
as a single shareholder in the allocation of excess application for rights issues /
open offer
– Wrong commencement date of dealing of nil paid rights shares
– Wrong number of days between last day for splitting and last day for
acceptance of and payment for the rights/offer shares
•
Share consolidations / subdivisions
– Wrong board lot size of temporary counter for trading of old shares
– Wrong date for the re-opening of the original counter for trading of new shares /
start of parallel trading
– Longer / shorter period for the parallel trading
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Thank you !
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