The Hong Kong Stock Exchange (HKEX) is proposing new procedures to allow trading, clearing and settlement services for both securities and derivatives markets, as well as Northbound Trading under Stock Connect, to continue regardless of weather conditions. If the procedures set out in the latest consultation paper published on 30 November 2023 will be adopted as proposed, market closure during severe weather conditions will become a matter of the past from July 2024.
This consultation for Severe Weather Trading (SWT) is the latest addition to a list of proposals that follows soon after the 2023 policy address of the Chief Executive. We have highlighted in our earlier client alerts the treasury share proposal and the guidance letter on irrevocable non-discretionary share buy-back programmes.
The consultation is open for comments until 26 January 2024.
Severe weather conditions, including typhoon signal 8 and above, black rainstorm warning and extreme conditions, in general occur several times a year in the Hong Kong SAR, causing impromptu and mandatory stock market closure until these conditions are lowered or lifted. Systemic stock market closures due to these conditions is unique in Hong Kong where other major markets are mostly determined on a case-by-case basis.
The HKEX has indicated that, with the support of the Hong Kong SAR Government and other financial regulators including the Hong Kong Monetary Authority, a task force has been organised to consider a broad range of issues to facilitate SWT such as electronic channels to fulfil funding requirements, enhancement to market infrastructure, remote access by Exchange and Clearing participants and their risk and settlement obligations on a SWT day.
The HKEX proposes that a SWT day will be a “business day” for the requirements and operations under the Listing Rules, except in situations where there are practical difficulties in complying with a rule requirement such as physical services or where attendance of a party is necessary and there are no feasible alternatives to that. The HKEX is proposing to amend the Listing Rules to accommodate these situations. Examples of actions where extension of time or other special arrangements during severe weather conditions may be required include:
- postponement of share registration and book close dates, and
- prospectus registration and publication, and opening and closing of the application lists in a public offer period for issuers using Mixed Media Offer.
Observation: unless and until the registration of a prospectus with the Companies Registry may be performed online, a public offer will be delayed due to the closure of the Companies Registry during severe weather conditions. Note that if the severe weather conditions only affect a scheduled listing date, and not before that day, the listing of securities of a public offer and the first day of dealing may proceed as scheduled.
From the perspective of listed issuers, a SWT day should generally operate “business as usual” for the purposes of Listing Rule requirements because the HKEX is of the view that itself, listed issuers and other relevant parties should be able to perform their obligations under the Listing Rules. The HKEX has indicated that its online platforms/systems (including the HKEXnews webpage and the announcements/documents uploading windows) will operate as normal on a SWT day.
The consultation paper does not contain the amendments to the Listing Rules for this latest HKEX proposal. The market will need to wait for the release of the conclusions to apprehend the actual implications of the proposal1. Nevertheless, the HKEX has prepared a table in Appendix II to the consultation paper as an illustration of whether, and how, severe weather may affect some common corporate action events of listed issuers.
The recent changes or proposals regarding stamp duty reduction, liberalisation of share repurchases by (and treasury shares of) listed issuers, and weather related upgrades are positive changes from the Hong Kong regulators to help with trading volumes and development of a deeper and more liquid equities market and more possibilities in the OTC derivatives space.
For further information, please contact:
Donnelly Chan, Partner, Linklaters
1 In particular, it was stated in the consultation that certain existing arrangements under the Listing Rules providing for extension of any time periods due to disruptions caused by severe weather conditions should no longer be necessary and may therefore be removed.