SFC released consultation conclusions on the proposed code of conduct on bookbuilding
02 December 2021
02 December 2021
In February this year, the Securities and Futures Commission of Hong Kong (SFC) published a consultation paper (Consultation) on the insertion of a new paragraph 21 in the Code of Conduct for Persons Licensed by or Registered with the SFC (Code). The amendments set out standards of conduct expected of intermediaries involved in bookbuilding or placing activities in either equity (ECM) or debt capital markets (DCM). Details of the Consultation were covered in our recent webinar, the slides for which can be foundhere. The conclusions (Conclusions) of the Consultation were published on 29 October 2021 and the revised Code will become effective on 5 August 2022. This briefing sets out a summary of the issues and clarifications covered in the Conclusions.
The Consultation specified the types of activities and offerings that are intended to be caught under the proposed Code.
ECM | DCM |
---|---|
✓ Offeringslistedin Hong Kong For ECM transactions, the Code would regulate activities conducted in connection with an offering listed in Hong Kong. |
✓交流tivitiesconducted in Hong Kong ✓ Convertible and exchangeable bonds Excludes: × club deals In respect of DCM, any bookbuilding or placing activities conducted in Hong Kong in connection with all types of debt offerings (except for club deals, private placements and pre-priced deals) will be considered in-scope. 香港证监会has clarified that convertible and exchangeable bonds would fall within the scope of DCM activities for the purposes of the Code. |
✓ marketing | |
---|---|
香港证监会has also clarified that marketing pursuant to bookbuilding activities would be captured. |
Although there is a nine-month transition period after gazettal of the changes, financial institutions who undertake ECM and DCM transactions should now consider:
Ashurst have a full service team of ECM, DCM, regulatory and compliance specialists in Hong Kong to advise financial institutions in terms of their compliance with the changes to the Code.
我们在下面的表中提出要求的关键uirements. While some of the proposals were well-received, market participants also sought clarifications on certain definitions and raised concerns on practical challenges and potential conflicts that may arise. We have also included in the table the SFC's response to those comments.
proposed requirements | sfc's response | ||||||
---|---|---|---|---|---|---|---|
Early Appointment and written agreement |
|||||||
Overall Coordinators (OCs) and Capital Market Intermediaries (CMIs) should be appointed:
This is applicable to ECM and DCM offerings. In the case of IPO transactions, the arrangements with OCs will have to be submitted to the SFC before the Listing Committee Hearing. |
Requirement refined for non-OC CMIs in IPOs. ForIPOs: the SFC agrees不to require appointment ofnon-OC syndicate CMIsand the determination of their fees be reported to the SFC. This will provide flexibility for the issuer to appoint more syndicate CMIs at a later stage, as may sometimes be the case especially in smaller scale IPO as reflected in the comments received. |
||||||
Assessment of the issuer and the offering | |||||||
CMIs should take reasonable steps to:
|
Requirements remain applicable. | ||||||
Advice to the issuer | |||||||
It was originally proposed that an OC should provide advice to the issuer on: (i) syndicate membership and fee arrangements; |
Requirement to advise on (i) removed(but new requirement for IPO OCs imposed). 香港证监会agrees that:
This is in response to reservations expressed by respondents about the potential conflicts of interest that may arise. |
||||||
(ii) marketing strategy; and (iii) pricing and allocation. |
Requirements to advise on (ii) and (iii) remain applicable. 香港证监会does not agree with some respondents' view that this requirement may create disincentive for CMIs to secure a higher price. It maintains that requiring OCs to advise the issuers on pricing and allocation would balance the interests of different parties and promote effective price discovery. 香港证监会clarifies that the issuer will still have the final say on price and allocation and OCs are only required to follow the marketing and investor-targeting strategy agreed with issuer and provide explanation where there are deviations from it. |
||||||
Rebates and preferential treatment | |||||||
A CMI should not offer any rebates to its investor clients or pass on any rebates provided by the issuer. There are also specific requirements on disclosure and prevention of differential pricing. |
Rebates may be offered by issuers to intermediaries butcannot be passed on to end-investors. CMIs are不required to policeprivate banks' rebate arrangements. Private banks (as execution-only non-syndicate CMIs) are required to comply with the requirement not to pass on rebates to investor clients. |
||||||
Assessment of investor clients | |||||||
CMIs should take reasonable steps to identify:
|
OCs are no longer required to providerelevant information to CMIs. 相反,口服避孕药now required to advisethe issuer of theinformation to be providedto the CMIs. Definition of"association"in the context of debt offerings clarified. 香港证监会agrees that it would be more direct and efficient for the issuer to disseminate relevant information to the CMIs for the purposes of identifying these investors. 香港证监会clarifies that in the context of debt offerings, "associated" investors are defined as investors who are directors, employees or major shareholders of the issuer, CMIs or their group companies. |
||||||
这本书的透明度 | |||||||
CMIs have the responsibility to ensure that:
For orders placed on an omnibus basis, CMIs will have to disclose to OCs and the issuer information about the underlying investors. CMIs should not place knowingly inflated orders. X-orders are prohibited. |
Concerns over client poaching recognised. Scope of information on omnibus orders limited toclient's name and identification number. Information can only be used fororder allocation(and not for client poaching). No other exemptionsgranted. Suggestions for exemptions (for example for legitimate reasons such as orders from sovereigns and central banks and illegality) are not accepted by the SFC because disclosure of investor identity is considered fundamental to ensuring transparency during the bookbuilding process. For the same reason, the SFC does not accept suggestions that the order book should only be made transparent to issuers and maintains that OCs should disseminate material information related to the offering in a timely manner to all syndicate CMIs. |
||||||
Conflict of interest | |||||||
CMIs should:
|
On what constitutes"proprietary orders", the SFC clarifies that:
|
||||||
Record keeping | |||||||
OCs and CMIs must keep robust audit trail, including, among other things:
|
No quantifiable definitionof changes or information that have to be recorded. 香港证监会does not seem to agree with some respondents' view that this requirement would be burdensome. |