Jurisdiction - Hong Kong
Reports and Analysis
Hong Kong – HKEx Publishes Revised Connected Transaction Rules.

6 August, 2014



On 21 March 2014, The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) published amendments to the connected transaction rules under the Rules Governing the Listing of Securities on the Stock Exchange and the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange (collectively the “Listing Rules”). The revised rules will take effect from 1 July 2014.

The revised rules follow a public consultation launched by the Stock Exchange in April 2013. The Stock Exchange has also taken the opportunity to rewrite the connected transaction rules in plain language and to align the definitions of “connected person” and “associate” used in various parts of the Listing Rules with those used for connected transactions where their purposes are to protect minority shareholders or avoid conflicts of interest.

Unless an exemption applies, a connected transaction is subject to the requirements of announcement, annual review and independent shareholders’ approval. The revised rules aim to ease the compliance burden of listed issuers by simplifying the requirements and introducing new exemptions. Key changes include:

Exemptions For Connected Persons At The Subsidiary Level 

Connected persons include directors, chief executives and substantial shareholders (10% or more) of a listed issuer or any of its subsidiaries. Under the Listing Rules, there are two levels of connected persons: “connected person at the issuer level” and “connected person at the subsidiary level”. Taking into account that a connected person at the subsidiary level is less likely to be able to influence the decisions of a listed issuer, the Stock Exchange has amended the rules so that:


  • a transaction on normal commercial terms entered into between a listed issuer and a connected person at the subsidiary level will be exempt from the independent shareholders’ approval requirement; and
  • a director, chief executive or substantial shareholder of an insignificant subsidiary will be excluded from the definition of “connected person”. With the exclusion, transactions between a listed issuer and persons connected with insignificant subsidiaries would fall outside the connected transaction regime.

Increase Monetary Limit For De Minimis Transaction Exemption

Currently, a full exemption applies where a connected transaction is entered into on normal commercial terms and the relevant consideration ratio, assets ratio, revenue ratio and equity capital ratio are all:


  • less than 0.1%;
  • less than 1%, and the transaction is a connected transaction only because it involves connected persons at the subsidiary level; or
  • less than 5%, and the total consideration is less than HKD 1m.

The monetary limit of HKD 1m set out above will be increased to HKD 3m under the revised rules.

Removing The 1% Cap For The Exemption On Provision Of Consumer Goods or Services 

The Stock Exchange has also modified the exemption which applies to a listed issuer buying or selling consumer goods or services. Under the current rules, the value of the transaction must be less than 1% of the listed group’s total revenue or total purchases in order for the exemption to apply. The Stock Exchange has removed the 1% cap so that the exemption will apply irrespective of the transaction size so long as the other qualifying conditions aresatisfied, e.g. the transaction must be on normal commercial terms and the goods or services must be of a type ordinarily supplied for private consumption.

Exemptions For Indemnity Or Insurance Against Directors’ Liabilities 

New exemptions have been introduced allowing listed issuers to grant indemnities to directors and to purchase insurance for directors against liabilities incurred in the course of performing their duties, provided that the indemnity or insurance is permitted under Hong Kong law and the law of the place of incorporation of the issuer.

Relaxing The Rules With Regard To Transactions With Third Parties 

Under the existing rules, connected transactions include certain acquisitions or disposals of interest in a target company from or to a third party where a shareholder of the target company is a director, chief executive or controlling shareholder (30% or more) of the listed issuer or any of its subsidiaries. The Stock Exchange has simplified the rules so that:


  • a disposal of interest in the target company by the listed issuer will no longer constitute a connected transaction; and
  • for acquisitions, the only type of transactions caught by the connected transaction rules is where a substantial shareholder of the target company is (or is proposed to be) a director, chief executive or controlling shareholder at the issuer level or an associate of any of them.

The revised connected transaction rules are available at:

Main Board:



Growth Enterprise Market: http://www.hkgem.com/listingrules/amendments/e20140701a.pdf




For further information, please contact:


Matthew Bersani, Partner, Shearman & Sterling
[email protected]

Peter Chen, Partner, Shearman & Sterling
[email protected]


Colin Law, Partner, Shearman & Sterling
[email protected]

Kyungwon (Won) Lee, Partner, Shearman & Sterling
[email protected]


Paloma Wang, Partner, Shearman & Sterling
[email protected]

Shuang Zhao, Partner, Shearman & Sterling
[email protected]


Shearman & Sterling Capital Markets Practice Profile in Hong Kong


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