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Hong Kong – SEC OKs Use Of Social Media To Announce Material Information, But HK Unlikely To Follow Suit .

23 May, 2013

Legal News & Analysis – Asia Pacific – Hong Kong – Capital Markets

On April 2, 2013 the US Securities and Exchange Commission (the “SEC“) cleared the way for US reporting companies to use social media outlets such as Facebook and Twitter to announce material information in compliance with Regulation Fair Disclosure provided investors have been previously alerted about which social media the company will use. There is as yet no indication that Hong Kong’s regulators intend to follow suit, despite the widespread and growing use of social media in Hong Kong and throughout Asia.

Under Rule 13.09 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules“) and Part XIVA of the Securities and Futures Ordinance (the “SFO“), companies listed in Hong Kong are required to keep investors and the public informed about new developments that could materially impact the price of their shares in a timely manner. Currently, the only acceptable method that companies can use to fulfill these disclosure obligations is by means of public announcement, in both Chinese and English, uploaded to the HKEx website (as well as the company’s own website).

Under the SFO, every “officer” – generally meaning either a director, manager or secretary, or any other person involved in the management of the company – of a Hong Kong listed company is required to take all reasonable measures to ensure that proper safeguards exist to prevent a breach of the disclosure requirements in the SFO. If officers have not taken reasonable measures, then they can be found personally liable for any breach of the disclosure obligations and subject to fines and imprisonment if they fail to disclose price-sensitive information in a timely manner. The SFO also provides that anyone in breach of a disclosure requirement is liable to pay compensation by way of damages to any person for any monetary loss sustained as a result of the breach.

It is unlikely that Hong Kong will follow in the footsteps of the US any time soon, so Hong Kong listed companies need to ensure they have a clear policies and procedures on disclosure and regularly remind senior management about it.  These should, at a minimum, remind directors and officers of companies that any price-sensitive information should be published in the first instance by way of announcement on the HKEx website and not on their Facebook pages or Weibo accounts. Judgment needs to be exercised when determining if information is price-sensitive or not, but regulators will always have the benefit of being able to review disclosures (and any corresponding impact on share price or trading volume) in hindsight. Erring on the side of caution is therefore advisable. The policies and procedures should also include reasonable mechanisms to ensure that price-sensitive information is promptly identified and brought to the attention of senior management and the board, in order for them to determine whether it ought to be the subject of a formal public announcement.

While no companies or officers have been prosecuted yet under Part XIVA of the SFO, it is only a matter of time before it happens. In the meantime, and in the absence of any regulatory changes to bring Hong Kong disclosure practice in line with the SEC’s recently-approved practice, directors and senior management of Hong Kong listed companies should be careful not to look to their US counterparts when deciding how to disseminate important information to their shareholders and other stakeholders. 

For further information, please contact:
Christopher W. Betts, Partner, Skadden
christopher.betts@skadden.com

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