Governance & Securities Law Focus: Asia Edition – July 2014

In this newsletter, we provide a snapshot of the principal Asian, US, European and selected international governance and securities law developments of interest to corporates and financial institutions.

ASIAN DEVELOPMENTS

HKEx Publishes Revised Connected Transaction Rules

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...