HKEx released Consultation Conclusions on Reduction of Minimum Spreads and New Corporate Governance Code
In December 2024, The Stock Exchange of Hong Kong Limited (the “Exchange“) released two consultation conclusions (the “Consultation Conclusions“) following two consultation papers (the “Consultation Papers“) on the (i) Proposed Reduction of Minimum Spreads in the Hong Kong Securities Market; and (ii) the Review of the Corporate Governance Code and related Main Board and GEM Listing Rules aiming to (a) enhance market microstructure with a goal to improve market liquidity and global competitiveness of the Hong Kong market by facilitating bid-ask spread reduction and transaction costs savings; and (b) strike an appropriate balance between advancing good corporate governance practices in Hong Kong as an international financial centre and addressing the practical concerns of listed issuers.
Proposed Reduction of Minimum Spreads in the Hong Kong Securities Market
Feedback on the Consultation Papers demonstrate overall market support for the proposed minimum spreads reduction of the applicable securities in the Hong Kong securities market.
In phase 1, the minimum spreads of the price band between HKD10 and HKD20 of the applicable securities will be reduced from HKD0.02 to HKD0.01, and those between HKD20 and HKD50 will be reduced from HKD0.05 to HKD0.02. In phase 2, the minimum spread of the price band between HKD0.5 and HKD10 will be reduced by 50%.
Phase 1 is now planned for launch around mid-2025 to give adequate preparation time for the market. The implementation details including the relevant rule changes and implementation timetable will be announced in due course. Phase 2 will be implemented tentatively around mid-2026 if no undesirable impact is observed in the assessment of results from the phase 1 implementation, and subject to market readiness.
Review of Corporate Governance Code and Related Listing Rules
Sound corporate governance is considered by investors as an essential foundation for a business’s long-term success, particularly as markets become more dynamic, competitive and uncertain. The new measures reflect Exchange’s continued focus on improving board effectiveness and help to ensure that new and diverse experiences and perspectives are available in the boardroom, with the aim of improving issuers’ decision-making when tackling known and emerging challenges and opportunities. The new requirements will take effect on 1 July 2025, with transitional arrangements in place for certain amendments. The Exchange will publish updated guidance in the first half of 2025 to assist issuers in complying with the new requirements. Key amendments include:
Designation of lead independent non-executive director (“Lead INED”) – Issuers without an independent board chair should designate one INED as a Lead INED.
Director Training – Every director of the issuers must receive continuous professional development in each financial year of the issuers.
Board Performance Review – An issuer should conduct a formal evaluation of the board’s performance at least every two years.
Disclosure of Board Skills Matrix – An issuer should maintain and disclose in the corporate governance report a board skills matrix (which should include the existing board skills mix, how the skills, experience, and diversity of the board serve the company’s purpose, values, strategy and desired culture, and plans to acquire further skills).
INED Term Limit – The Exchange will not consider a director to be independent if the individual has been an INED of the issuer for a period of nine years or more.
Board and Workforce Diversity – Issuers should appoint at least one director of a different gender to the nomination committee. Separate disclosure of the gender ratio of senior management and the workforce.
Dividends – Issuers must have a policy on payment of dividends and should disclose it in the annual report.
