For share offerings in connection with listing applications governed by the Main Board Listing Rules and GEM Listing Rules, paragraph 17.1A and paragraph 21 of the Code of Conduct will apply to all listing applications submitted on or after 5 August 2022 (Effective Date). This includes listing applications which lapsed or were withdrawn and are then re-filed on or after the Effective Date. 

With regard to the “Sponsor Coupling” requirement¹, we have agreed with the Stock Exchange of Hong Kong Limited (SEHK) to put in place the following transitional arrangements to minimise disruption to the industry due to the termination and reappointment of sponsors:

1. For listing applications submitted before the Effective Date which subsequently lapse and are re-filed after the Effective Date (but within three months from the lapse), the “Sponsor Coupling” requirement will be deemed satisfied provided that the relevant independent sponsor and overall coordinator (OC) have been appointed before the Effective Date and at least two months before the re-filing (regardless of whether the appointments were made at the same time) and both appointments remain valid at the time the listing application is re-filed.

    

2. For initial listing applications submitted on or after the Effective Date, the “Sponsor Coupling” requirement is deemed satisfied provided that:
   
   
   1. the relevant independent sponsor was appointed and the related engagement letter was submitted to SEHK before the publication of the Listing Rules amendments on 22 April 2022;
   2. the relevant OC was appointed before the Effective Date and at least two months before the submission of the listing application (regardless of whether the appointments were made at the same time); and
   3. both appointments remain valid at the time of submission of the listing application.

Where applicable, any subsequent re-filing should be done within three months of the lapse of the previous listing application for the “Sponsor Coupling” requirement to be deemed satisfied.

For more information, please refer to no.20 to 21 of SEHK’s FAQ No. 077-2022 on consequential changes to the Listing Rules to complement the new Code of Conduct provisions on bookbuilding and placing activities in equity capital market and debt capital market transactions and the sponsor coupling proposal published on 22 April 2022 (click here).

For debt offerings and share offerings other than those in connection with listing applications, intermediaries are required to comply with paragraph 21 of the Code of Conduct when engaging in transactions (i) announced or (ii) for which they are appointed as a capital market intermediary (CMI), on or after the Effective Date.

¹ Under paragraphs 17.1A and 21.4.1(b) of the Code of Conduct.

For orders placed on an omnibus basis, information about the underlying investor clients (ie, name and unique identification number) should only be used, disclosed or provided for the purposes of discharging the responsibilities of CMIs and OCs under the Code of Conduct during the bookbuilding process for a specific share or debt offering transaction. 

CMIs and OCs are strictly prohibited from using, disclosing or providing information about the investor clients for any other purposes. Failure to do so may constitute a breach of the Personal Data (Privacy) Ordinance (Cap. 486) or the Code of Conduct or both, which may subject CMIs and OCs to regulatory action.

CMIs and OCs are required to put in place proper policies, procedures and controls to ensure that prior consent is obtained from investor clients, where applicable, before disclosing information about them and that the information will only be used for the purpose specified.

CMIs should provide the names and unique identification numbers of the investor clients that are in their files, while specifying the types of the identification documents provided for orders placed on an omnibus basis. When the investor identification-related Code of Conduct requirements² come into effect, for investor clients that have provided information pursuant to the new requirements, a CMI should provide the investor clients’ names and unique identification numbers based on the requirements. To the extent possible, the first type of unique identification number set out in the list below should be provided. Where the investor client does not hold this type of identification document, the next type of unique identification number on the list should be provided instead:

1. In the case of an individual investor client: (1) HKID card number; (2) national identification document number³; (3) passport number;
   
   
2. In the case of a corporate investor client: (1) legal entity identifier (LEI) registration document number; (2) company incorporation number; (3) business registration number; (4) other equivalent identity document number.

Such information should be provided to the OC for the sole purpose of identifying and eliminating duplicated orders, inconsistencies and errors. The same information may also be provided to the issuer upon request and with notification that the recipient should use this information only for specified purposes.

²  See the Consultation Conclusions on proposals to (1) implement an investor identification regime at trading level for the securities market in Hong Kong and (2) introduce an over-the-counter securities transactions reporting regime for shares listed on the Stock Exchange of Hong Kong
(https://apps.sfc.hk/edistributionWeb/api/consultation/conclusion?lang=EN&refNo=20CP7).

³  In the case of a client with multiple national identities, the intermediary will have the discretion to select and provide any of the client’s available national identity information.

Under paragraph 21.4.4(a)(i) of the Code of Conduct, an OC should properly consolidate orders in the order book by taking reasonable steps to identify and eliminate duplicate orders, inconsistencies or errors. If orders from the same investor are identified amongst omnibus orders from different CMIs, the OC should make enquiries with the CMIs which have placed orders on behalf of the investor to ascertain the sizes of the orders and identify if they are duplicates and whether they need to be revised. The CMIs should ensure that allocations to the orders placed through them are in accordance with the CMIs’ allocation policies. The OC should ensure that the total allocation to the investor is consistent with the transaction’s overall allocation recommendation.

Yes. Where the performance of any bookbuilding or placing activity is delegated to an overseas affiliate or a group company of a CMI (eg, where orders from investor clients in an overseas market are collated by the CMI’s overseas affiliate or group company), the CMI will remain responsible for complying with paragraph 21 of the Code of Conduct in the performance of such bookbuilding and placing activities.

In the absence of any appointment to conduct bookbuilding or placing activities (including actively marketing an offering to its clients) by the issuer or a CMI, an execution-only non-syndicate CMI may receive a rebate from another CMI without being required to comply with the provisions of paragraph 21 of the Code of Conduct other than paragraphs 21.3.3, 21.3.5 and 21.3.7. 

CMIs should maintain sufficient records documenting the rationale underlying allocations made to investor clients. For example, investors may be grouped into different categories based on their size, the nature of their businesses (such as hedge funds or high-net-worth individuals), their understanding of the issuer client’s business and industry or their level of engagement with the issuer or CMIs during the offering process. OCs are expected to maintain sufficient documentation explaining the basis of the allocation to each category as well as any deviations within a single category.

OCs cannot discharge their record keeping obligations by simply providing the allocation policy to the issuer client without documenting the justifications for the allocation recommendation or simply obtaining the issuer’s sign-off on the final allocation.

No. Pursuant to paragraph 21.1.1 of the Code of Conduct, paragraph 21 is applicable to a licensed or registered person which engages in providing services to issuers, investors or both in respect of an offering of shares or debt securities which involves bookbuilding or placing activities or advising, guiding and assisting the issuers with these activities. In situations where there are no bookbuilding or placing activities, “Sponsor Coupling” is not required. It should also be noted that the “Sponsor Coupling” requirement only applies to a placing of shares in connection with a new listing on the Main Board. 

In such circumstances, the sub-underwriter is effectively paid a fee indirectly by the issuer. As the sub-underwriter has taken up the shares as a placee rather than for the purpose of distributing shares to its investor clients, it is an investor client for the purpose of paragraph 21.3.7(a)(i), which prohibits a CMI from enabling any of its investor clients to pay, for each of the shares allocated, less than the total consideration as disclosed in the listing document. As a result, the CMI should not pay any rebate provided by the issuer to the sub-underwriter, regardless of how the rebate is structured or named (including any indirect payment of sub-underwriting fees by the issuer). 

Execution-only non-syndicate CMIs are only required to comply with the requirements governing:

• Management supervision, ie, paragraph 8(a) of the GEM Placing Guideline;
• Assessment of investor clients, ie, paragraphs 8(c) and 8(d)of the GEM Placing Guideline;
• Order book, ie, paragraph 8(e) of the GEM Placing Guideline;
• Offering of preferential treatments to investor clients, ie, paragraph 8(b)(iv) of the GEM Placing Guideline; and
• Record keeping, ie, paragraph 8(f) of the GEM Placing Guideline. 

Any Hong Kong syndicate members who are not exercising control over the whole order book for a global or Asia-Pacific debt offering, regardless of whether they have control over part of the offering, are deemed Hong Kong non-OC syndicate CMIs, and not OCs, for the purposes of paragraph 21 of the Code of Conduct.

As Hong Kong non-OC syndicate CMIs, they have to observe all the requirements in paragraph 21.3 of the Code of Conduct and would be deemed as compliant with the relevant sub-paragraphs of paragraph 21 of the Code of Conduct provided that the following expectations set out below are observed:

• A13: expectation for appointment of non-OC syndicate CMIs;
• A14: expectation for assessment of investor clients;
• A15: expectation for order book and orders placed on an omnibus basis; and
• A16: expectation for book update.

If an issuer client refuses to formally appoint Hong Kong non-OC syndicate CMIs under a written agreement before they conduct bookbuilding and placing activities in a debt offering, Hong Kong non-OC syndicate CMIs should inform the issuer client of their obligations under paragraph 21 of the Code of Conduct and request the issuer client to formally appoint them under written agreements to specify their roles and responsibilities, fee arrangements and fee payment schedule. If the issuer client refuses to do so, proper documentation should be maintained to demonstrate that reasonable steps have been taken. 

Hong Kong non-OC syndicate CMIs in a syndicate may not be able to directly identify whether their investor clients have any associations with the issuer client if relevant information is not provided by syndicate members in overseas jurisdictions or an overseas issuer client. Nonetheless, they are expected to take reasonable steps to assess relationships based on available information obtained through, for example, (i) an assessment of the issuer client and debt offering; (ii) the public domain; and (iii) representations (including deemed representations) provided by investor clients.

Moreover, if Hong Kong non-OC syndicate CMIs identify any investor clients which have associations with the issuer client, they should provide sufficient information to enable overseas syndicate members with substantial control of the global or Asia-Pacific offering to assess whether orders placed by these investor clients may negatively affect the price discovery process. Proper documentation should be made to demonstrate that reasonable steps have been taken. 

If information about the underlying investor clients is not required by overseas syndicate members for orders placed on an omnibus basis, Hong Kong non-OC syndicate CMIs are not required to obtain such information from their investor clients.

Otherwise, Hong Kong non-OC syndicate CMIs should duly provide information about the underlying investor clients to overseas syndicate members, and they should take reasonable steps to ensure that such information will only be used for placing orders in the debt offering.

Nonetheless, in the scenario whereby the debt offering is entirely and solely within the control of Hong Kong OCs, Hong Kong OCs and CMIs should not accept omnibus orders if the information about underlying investor clients is not provided. 

In general, Hong Kong non-OC syndicate CMIs should follow proper prevailing market practice for information disclosure in debt offerings. Where applicable, Hong Kong non-OC syndicate CMIs are expected to make reasonable efforts to request and update the status of the order book and other relevant information from overseas syndicates and disclose it to Hong Kong CMIs and targeted investors. If such information is not received from overseas syndicate members, proper documentation should be maintained to demonstrate that reasonable steps have been taken to obtain the information.

No. Paragraph 21 of the Code of Conduct only covers intermediaries which conduct bookbuilding or placing activities in Hong Kong.

As stipulated in paragraph 21.3.10(b)(i) of the Code of Conduct, to properly manage potential or actual conflicts of interest and associated conduct risks when Hong Kong OCs have a proprietary interest in debt offerings, priority should always be given to satisfying investor clients’ orders over the proprietary orders of the OCs and their group companies. As such, Hong Kong OCs should not make allocation recommendations to the issuer which give their own proprietary orders and those of their group companies priority over investor clients’ orders. 

However, allocation to proprietary orders could be prioritised over investor clients’ orders based on the issuer client’s allocation preference, provided that the issuer client has made specific instructions to this effect and its preference is duly documented and recorded.    

Hong Kong OCs and CMIs should make the disclosure to targeted investors of rebates made to CMIs no later than the time of the dissemination of the deal “launch message” and upon becoming aware of the information from overseas syndicate members.

As stipulated in paragraph 21.3.9(f) of the Code of Conduct, CMIs should document rebates offered by the issuer client and the payment details. As such, each of the Hong Kong OCs and CMIs (including non-syndicate CMIs, eg, private banks), regardless of whether it is responsible for settlement, is expected to maintain a proper record of how much rebate it has received, if applicable. 

If Hong Kong OCs or CMIs intend to carry out risk management transactions, they should take reasonable steps to disclose them to the issuer client along with their potential price effect on the debt offering.