Hong Kong securities regulator tightens takeover rules to compensate scammed investors

Changes to the regulation will be gazetted and take immediate effect on Friday

PUBLISHED : Friday, 13 July, 2018, 11:53am
UPDATED : Friday, 13 July, 2018, 10:58pm

Hong Kong investors will be compensated by individuals and companies that committed malpractice in corporate takeovers as the Securities and Futures Commission makes changes to the regulation which will be gazetted and come into immediate effect on Friday.

The change aims to increase investor protection and to bring Hong Kong in line with international standards practised in markets such as London and Singapore.

The SFC issued on Friday conclusions from the consultation on proposed amendments to the Codes on Takeovers and Mergers and Share Buy-backs. The commission said it received 26 submissions, in which most respondents showed support for the range of proposals that were put forward to solicit feedback between January until April 19.

Hong Kong overhauls city’s takeover code to strengthen protection for small shareholders

The change is a major overhaul of the regulation as it empowered the SFC to require offenders of the takeover rule to compensate investors. The regulator could only previously ban companies or individuals from trading in the local stock market if there was any wrongdoing.

The amended code also raised the threshold for independent shareholder approval of a whitewash waiver to 75 per cent from the previous 50 per cent.

In a takeover, once a shareholder owns more than 30 per cent of a company, an offer must be made for the rest of the shares, unless the SFC grants an exception, or a whitewash waiver.

“The changes to the takeovers rules aim to protect shareholders and ensure a fair and informed market,” said SFC chief executive Ashley Alder. “They are also in line with our front-loaded approach to prevent breaches before they occur.”

Hong Kong Securities Association chairman Gary Cheung said tightened regulation would enhance investor protection.

“It’s good news for small investors who didn’t get any financial compensation from those who had previously breached the takeover regulations,” Cheung said.

The tougher requirement for a whitewash waiver, he said, could also allow individual investors to have more of a say in a deal.

“Many whitewash waivers would have been approved easily when the threshold was set at 50 per cent,” Cheung said.

“The new rule would make it harder for the waiver to be approved ... but [it is] good news for individual investors who now have more power to intervene in the whitewash waiver approval process.”