HKEx Consultation Paper on Amendments to Listing Rules relating to Share Schemes

HKEx Consultation Paper on Amendments to Listing Rules relating to Share Schemes

HKEx Consultation Paper on Amendments to Listing Rules relating to Share Schemes 1920 1080 Emma

On 29 October 2021, the Stock Exchange of Hong Kong Limited (the “HKEx”) published a consultation paper on Proposed Amendments to Listing Rules relating to Share Schemes of listed issuers.

HKEx is seeking market views on its proposal to extend Chapter 17 of the Listing Rules to also govern share award schemes, in view of the increasing adoption of these schemes. Chapter 17 currently provides a framework that governs share option schemes only. For share award schemes, listed issuers must seek shareholders’ approval for each grant of new shares at a general meeting, or issue new shares under a general mandate. The proposals would allow more flexibility for listed issuers to grant new shares under share award schemes.

HKEx also proposes changes to specific requirements in Chapter 17, such as the definition of eligible participants and the requirements for scheme mandate refreshments, to align them with the purpose of share schemes and to improve disclosure of grants of share options and share awards.

Generally, share schemes are established to reward and incentivise participants to contribute to the long-term growth of the listed issuer and to align their interests with those of the listed issuer and its shareholders. The proposals would place more emphasis on the role of the remuneration committee in overseeing the operation of share schemes to ensure that grants of share awards or options meet the purpose of the schemes.

Key proposals include:

Share Schemes involving issuance of new shares of listed issuers:

  • Extend Chapter 17 to govern all share schemes involving grants of share awards and grants of options to acquire new shares of listed issuers;
  • Define eligible participants of Share Schemes to include Employee Participants, Related Entity Participants and Service Providers. Share Grants to Related Entity Participants and Service Providers must be approved by the remuneration committee with reasons for grants clearly disclosed;
  • Scheme mandate

(i)           Apply a Scheme Mandate Limit of not exceeding 10% of a listed issuer’s issued shares to all Share Schemes of the listed issuer and require the listed issuer to set a Service Provider Sublimit within the Scheme Mandate Limit and disclose the basis for determining the sublimit;

(ii)          Require independent shareholders’ approval for refreshment of scheme mandate within a three year period;

  • Require approval by shareholders for Share Grants to an individual participant in excess of the 1% Individual Limit;
  • Require a minimum vesting period of 12 months, unless a shorter vesting period is approved by the remuneration committee in respect of Share Grants made to Employee Participants specifically identified by the listed issuer;
  • Require disclosure of details of Share Grants by the listed issuer to the following participants to be made on an individual basis: (i) a Connected Person; (ii) a participant with Share Grants in excess of the 1% Individual Limit; (iii) a Related Entity Participant or Service Provider with Share Grants in excess of 0.1% of the listed issuer’s issued shares over any 12-month period;

Share Schemes funded by existing shares of listed issuers

  • Require disclosure of the terms of the scheme and details of the grants of existing shares consistent with that applicable to Share Schemes funded by issuance of new shares;

Share Schemes of subsidiaries of listed issuers

  • Extend Chapter 17 to govern subsidiaries’ share award schemes that are funded by new or existing shares of the subsidiaries.

Note that:

  1. “Share Schemes” refer to both share option schemes and share award schemes.
  2. “Employee Participants” refer to directors and employees of the listed issuer or any of its subsidiaries (including persons who are granted shares or options under the scheme as an inducement to enter into employment contracts with these companies).
  3. “Related Entity Participants” refer to directors and employees of the holding companies, fellow subsidiaries or associated companies of the listed issuer.
  4. “Service Providers” refer to the persons who provide services to the listed issuer group on a continuing and recurring basis in their ordinary and usual course of business which are material to the long term growth of the listed issuer group.
  5. “Share Grants” refer to grants of share awards and/or share options to acquire new shares of the listed issuer (in respect of a listed issuer’s Share Schemes) or grants of share awards and/or options to acquire new or existing shares of the subsidiary (in respect of a subsidiary’s Share Scheme).
  6. “Scheme Mandate Limit” refers to the limit on Share Grants under all share schemes of a listed issuer (or, for a subsidiary scheme, its subsidiary) approved by its shareholders.
  7. “Service Provider Sublimit” refers to a sublimit under the Scheme Mandate Limit for Share Grants to Service Providers.
  8. “1% Individual Limit” refers to the limit on Share Grants to an individual participant over any 12-month period, which, without shareholders’ approval, must not exceed 1% of the issued shares of the listed issuer (or, for a subsidiary scheme, its subsidiary).
  9. “Connected Person” refers to a director, chief executive or substantial shareholder of the listed issuer or an associate of any of them.

The deadline for responding to the consultation paper is 31 December 2021.

Contact us today for advice on share option and share award schemes for Hong Kong listed companies.

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