Jurisdiction - Hong Kong
Reports and Analysis
Hong Kong – Consultation Conclusions Securities and Futures (Professional Investor) (Amendment) Rules 2011.

15 February, 2012






The Securities and Futures (Professional Investor) (Amendment) Rules 2011, which expands the evidential requirements for qualifying as a professional investor under the Securities and Futures (Professional Investor) Rules (the “Professional Investor Rules”), came into effect on December 16, 2011. The key amendments are as follows: 
  • firms are now permitted to adopt a principles-based approach so that they may use methods that are appropriate to satisfy themselves that an investor meets the relevant assets or portfolio threshold at the relevant date to qualify as a professional investor;
  • the existing methods set out in sections 3(a) to 3(c) of the current Professional Investor Rules have been preserved;
  • “relevant date” is used as the time reference for ascertaining whether an investor meets the relevant assets or portfolio threshold to qualify as a high net worth professional investor; and
  • the scope of section 3(d) of the existing Professional Investor Rules has been further extended to all three types of high net worth professional investors under sections 3(a) to 3(c); namely, trust corporations, individuals and corporations/partnerships.
The SFC will not specify the methods by which firms can satisfy themselves that their clients have the required assets or portfolio levels at the relevant date. Firms are expected to keep proper records of their assessment process so as to demonstrate that they have exercised professional judgment and have reached a reasonable conclusion that their clients meet the relevant thresholds. 
Listing of debt issues for professional investors only 
On November 11, 2011, new rules for listing debt securities (including convertible bonds) offered to professional investors came into effect, which introduced the following key changes:
  • abolishing the checklist-based disclosure requirement for offering documents and replacing it with a general obligation to include information that is customary for offers of debt securities to professionals;
  • streamlining the application and approval process;
  • authorizing the Head of Listing to approve listing applications and permitting the delegation of such authority within the Listing Division;
  • for routine applications, issuing the Listing Eligibility Letter five business days after receiving a listing application;
  • amending the definition of professional investor (as regards persons in Hong Kong) to align it with the Securities and Futures Ordinance; extending it to include professional investors outside Hong Kong; and removing certain rules which were only relevant to retail investors.

Although the definition of professional investor in the new rules is aligned with the definition under the SFO, the new definition specifically excluded investors prescribed under Section 397 of the SFO, which primarily relates to high net worth individuals and corporations that meet stipulated size requirements.  After the introduction of the new definition, the Exchange received market feedback on the practical difficulties that would be caused by the exclusion of investors under Section 397, and accordingly the Exchange has now advised practitioners that relief would be granted by waivers on a case by case basis.
Corporate governance reforms
In October 2011, the Exchange published the consultation conclusions on the Corporate Governance Code. 
The implementation dates are as follows: 
  • most Rule amendments were effective on January 1, 2012;
  • the Code and certain Rules will be effective on April 1, 2012;
  • the new Rule requiring independent non-executive directors to be at least one-third of the board must be complied with by December 31, 2012; and 
  • the new Rule requiring company secretary training will be staggered according to the date of appointment of each individual. 
The main revisions include:
  • New Rules and Code Provision on directors’ duties and time commitments;
  • New Rule that independent nonexecutive directors must form at least one-third of an issuer’s board;
  • New Code Provision on director training and the issuer must disclose in the Corporate Governance Report how each director has complied with the Code Provision on training;
  • New Code Provision on separate shareholder resolution to re-elect an independent non-executive director who has served more than nine years;
Board committees 
  • New Rules on establishment, composition and terms of reference of remuneration committee;
  • New Code Provisions on establishment, composition and terms of reference of nomination committee;
  • New Code Provisions on establishment and terms of reference of corporate governance function;
  • Revised Code Provision on terms of reference of audit committee it should review arrangements for employees to raise concerns on financial reporting and internal controls;
  • New recommended best practice that audit committee should establish a whistle blowing policy and system for employees and third parties to raise concerns in confidentially;
  • New Rule requiring disclosure of chief executive’s remuneration; 
  • New Code Provision on disclosure of senior management’s remuneration by band;
  • New recommended best practice on board evaluation;
  • Revised Rules to remove 5% threshold for voting on a resolution in which a director has an interest; and
  • New Code Provision that management should provide members of the Board monthly management accounts or management updates.
  • New Rule requiring shareholder approval for appointment and removal of an auditor before the term of its office ends;
  • New Rule requiring publication of an issuer’s constitutional document on the HKExnews website and on the issuer’s website; issuers must also disclose any significant changes in the issuer’s constitutional documents during the year in their Corporate Governance Report;
  • New mandatory disclosure requirement on shareholders’ rights; and
  •  New Code Provision that an issuer should establish a shareholder communication policy and publish procedures for election of directors on its website. 
Company Secretary 
  • New Rule requiring company secretaries to attend 15 hours of professional training;
  • New Code section on the company secretary.


For a copy of the consultation conclusions, please follow the link: http://www.hkex.com.hk/eng/newsconsul/mktconsul/Documents/cp2010124cc.pdf


For a copy of the relevant FAQs, please follow the link:
The Exchange has also published presentation materials and webcasts for seminars it held recently on “Corporate Governance Code and Rule Amendments” and “Other Recent Rule Amendments and Practical Compliance Issues for Listed Issuers.” For the full materials and webcast, please follow the link:


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