The Stock Exchange of Hong Kong Limited (HKEx) has recently amended the Main Board Listing Rules (Listing Rules) to implement its proposals in the Consultation Conclusions on Proposed Amendments to the Listing Rules relating to Share Schemes of Listed Issuers and Housekeeping Rule Amendment as published on 29 July 2022. The complete amendments can be found here.

The key changes to the Listing Rules are set out below and the new requirements will take effect from 1 January 2023.

Share Schemes funded by issuance of new shares

Currently, Chapter 17 of the Listing Rules applies to share option schemes, but not share award schemes. The amendments will extend Chapter 17 of the Listing Rules to govern both share award schemes and share option schemes (together, Share Schemes).

While under the original Chapter 17 there are no restrictions as to the categories of participants, the amendments define eligible participants of Share Schemes to be:

• Employee Participants – directors and employees of the issuer or any of its subsidiaries;
• Related Entity Participants – directors and employees of related entities (i.e. the holding companies, fellow subsidiaries or associated companies of the issuer); and
• Service Providers – persons who provide services to the issuer group on a continuing and recurring basis in its ordinary and usual course of business, which are in the interests of the long-term growth of the issuer group. Service Providers shall exclude (i) placing agents or financial advisers providing advisory services for fundraising, mergers or acquisitions; and (ii) professional service providers such as auditors or valuers who provide assurance, or are required to perform their services with impartiality and objectivity.

Chapter 17 currently limits grants of share options from all share option schemes of an issuer to 10% of its total issued shares. Under the rule amendments, the current 10% scheme mandate limit shall apply to all Share Schemes, and a scheme mandate refreshment within a three-year period will require independent shareholders’ approval. The rule amendments also require the issuer to set a sub-limit in respect of grants to Service Providers and disclose the basis for determining the sub-limit in circulars. This sub-limit must be separately voted upon by shareholders. The current limit that the options outstanding do not exceed 30% of the issued shares will be removed.

The rule amendments further require shareholders’ approval for share grants to:

• an individual participant in excess of 1% of the shares in issue over any 12-month period; or
• a connected person in excess of the de minimis threshold (in excess of 0.1% of the issued shares of the issuer over any 12-month period).

The current HK$5 million de minimis threshold for grants of options to INEDs or substantial shareholders will be removed.

The rule amendments will require a minimum vesting period of 12 months, except for Employee Participants who may be subject to a shorter vesting period under specific circumstances set out in the scheme document. Where the share grants to Employee Participants have a shorter vesting period, the rule amendments provide the following additional requirements:

• the scheme document must set out the specific circumstances where options or awards may be granted with a shorter vesting period;
• such arrangements must be clearly disclosed in the circular;
• there must be an explanation from the issuer’s board of directors (and the remuneration committee where the arrangements may apply to share grants to the issuer’s directors and senior management) as to why the arrangements are appropriate and how the share grants align with the purpose of the scheme; and
• the grant announcement must state the relevant circumstances that are specifically permitted by the scheme when a share grant is made with a shorter vesting period (and the remuneration committee’s views on why it is appropriate when the share grants are made to the issuer’s directors and senior management).

In relation to Share Schemes funded by issuance of new shares, the rule amendments shall retain the current requirement that the exercise price of share options be not less than the market price of the underlying shares at the time of grant. As for the grant price of shares under share award schemes, no restriction will be imposed.

The rule amendments now require disclosure of share grants on an individual basis where the grantee is: (i) a connected person; (ii) a participant with share grants in excess of the 1% individual limit; and (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. Share grants to other participants can be disclosed in aggregate by category.

Share Schemes funded by existing shares

In relation to Share Schemes funded by existing shares of the issuer, the rule amendments require disclosure in annual reports of: (i) a summary of each Share Scheme; and (ii) information relating to grants of existing shares to:

• each director of the issuer on an individual basis;
• the five highest paid individuals on an aggregated basis; and
• other participants (including non-Employee Participants) on an aggregated basis.

Share Schemes of subsidiaries

The rule amendments shall apply Chapter 17 of the Listing Rules to Share Schemes of a principal subsidiary only. A principal subsidiary is one with revenue, profits or total assets accounting for 75% (or more) of that of the issuer in any of the latest three financial years. Share Schemes of other subsidiaries will be subject to requirements under Chapters 14 and/or 14A of the Listing Rules.