On 18 June 2024, the Securities and Futures Commission (SFC) issued a circular on the updated arrangements concerning severe weather trading (SWT) on the Hong Kong securities and derivatives markets. Effective 23 September 2024 (the “effective date”), on a day with severe weather (SWT day), the Hong Kong Exchanges and Clearing Limited (HKEX) will maintain normal operations to the greatest extent possible with trading, clearing and settlement services and operations continuing in both the securities and derivatives markets.
In accordance with the SFC’s circular, management companies of listed funds will be required to ensure normal operations as far as possible on a SWT day. They should ensure the operational readiness of all relevant fund service providers, closely monitor the funds’ operations and activities, and keep investors informed of any material information concerning the funds as a result of SWT. In view of the SWT arrangement, we note that operators of listed funds have started to conduct system testing to ensure that SWT can be implemented from the effective date.
Fund documentation, particularly definitions concerning business day and dealing day, should be reviewed and amended if necessary, and notification should be given to holders to inform them of related changes. For Hong Kong domiciled funds, a business day is often defined with reference to days on which banks in Hong Kong are open for normal banking business. As bank branches will remain closed on any SWT day, the relevant definition in the fund documents will likely need to be amended, to clearly stipulate the days on which dealing may be conducted going forward.
For unlisted funds, operation on an SWT day is voluntary and should be based on the company’s business needs and operational readiness. If the management company chooses to offer dealing on a SWT day, it should amend fund documents and provide notification to investors. A further consideration for unlisted funds is that they are offered through distributors (mainly banks), and therefore management companies should also have regard to the practice of different distributors (both in relation to the transmission of dealing orders and arrangement for settlement of proceeds). Proper disclosure should be made in fund documents to keep investors informed of the arrangements in relation to dealing on a SWT day.
For further information, please contact:
Ming Chiu Li, Partner, Deacons
mingchiu.li@deacons.com
