Listing Rule Amendments to cover Share Award Scheme

August 2022

It is common for listed companies to have some kind of share award or share option schemes to reward and incentivize their employees. Currently, Chapter 17 of the Listing Rules governs the implementation of share option schemes, but not for share awards. The Stock Exchange of Hong Kong Limited (“Exchange”) issued the Consultation Paper in October 2021 on its proposals to extend the scope of Chapter 17 of the Listing Rules.

On 29 July 2022, after receiving generally supportive feedback from the market, the Exchange published the Proposed Amendments to Listing Rules relating to share schemes of Listed Issuers (“Consultation Conclusions”).

According to the Consultation Conclusions, Chapter 17 will be expanded to govern all share schemes involving not only granting of options to acquire new shares of issuers, but share awards as well (“Share Grants”).

Some of the other key changes to Chapter 17 of the Listing Rules will include:

I. Share Schemes Funded by Issuance of New Shares of Listed Issuers

(1) Define eligible participants of share schemes (“Eligible Participants”) to include employee participants, related entity participants and service providers;

(2) Scheme Mandate

  • Apply a scheme mandate limit of not exceeding 10% of an issuer’s issued shares to all share schemes of the issuer and require the issuer to set a service provider sublimit within the scheme mandate limit and disclose the basis for determining such sublimit in its circular to shareholders;
  • Require independent shareholders’ approval for refreshment of scheme mandate within a three-year period;
  • Remove the current Listing Rules’ requirement that the number of outstanding options of the issuer should not exceed 30% of the issued shares from time to time;

(3) Require approval by shareholders for Share Grants to (i) an individual participant in excess of the 1% individual limit; and (ii) a Connected Person in excess of the de minimis threshold. Furthermore, all Share Grants to Connected Persons must be approved by independent non-executive directors;

(4) Require a minimum vesting period of 12 months. Share Grants to employee participants may be subject to a shorter vesting period under specific circumstances as set out in the scheme document. Share Grants to directors and senior management with a shorter vesting period must be approved by the remuneration committee;

(5) Require disclosure of (a) details of Share Grants by the 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 issuer’s issued shares over any 12-month period; and (b) the number of shares available for future grant under the scheme mandate and the service provider sublimit;

(6) Require disclosure in the Corporate Governance Report of matters relating to share schemes to be reviewed and/or approved by the remuneration committee during the financial year;

II. Share Schemes Funded by Existing Shares of Listed Issuers

(7) Require disclosure in annual reports of (a) the terms of each share scheme; and (b) information relating to grants of existing shares during the year. Additional disclosure is required for grants of existing shares to (i) directors on an individual basis; and (ii) five highest paid individuals in aggregate. Details of grants to other participants can be disclosed on an aggregated basis;

III. Share Schemes of Subsidiaries of Listed Issuers

(8) Apply Chapter 17 to share schemes of a subsidiary whose revenues, profits or total assets accounted for 75% or more of that of the issuer under the percentage ratios in any of the latest three financial years. Share Grants under share schemes of other subsidiaries will be subject to Chapters 14 and/or 14A requirements.

Effective Date and Transitional Arrangements

The amended Listing Rules have been approved by the Board of the Exchange and the SFC and will become effective on 1 January 2023.

Transitional arrangements will be provided for the existing share schemes that are valid as at the effective date of the proposed Listing Rules amendments. In summary:

  • The new disclosure requirements (including announcements of grants of options or awards and disclosures in interim or annual reports published) would take effect from 1 January 2023.
  • Issuers may make Share Grants only to Eligible Participants defined under the amended Listing Rules effective from the financial years commencing on or after 1 January 2023.
  • For share award schemes adopted by listed issuers before 1 January 2023, the issuers may continue to make Share Grants to Eligible Participants using their existing scheme mandates or advanced mandates up to the date of the second annual general meeting after 1 January 2023 or adoption of new scheme mandate or amendment of the terms of the existing schemes to comply with the new Chapter 17.

Details of the Consultation Paper and the Consultation Conclusions can be found on the HKEX’s website.