COVID-19 and Price Sensitive Information (Inside Information)

Part XIVA of the Securities and Futures Ordinance (SFO) sets out the statutory duty for listed issuers’ to disclose price sensitive information (referred to in the legislation as inside information). For a detailed discussion on these disclosure obligations, please see Charltons’ Guide for Listed Companies on Inside Information,

The World Health Organisation (WHO) declared COVID-19 a pandemic on 11 March 2020. The direct and indirect impacts of COVID-19 on companies and/or the resultant exposure of companies to certain risks likely to impact it, may give rise to inside information. Where such information is regarded as inside information, the listed issuer must be ready to disclose this inside information where necessary.

An example may be where the listed issuer has potential exposure from a force majeure event as a result of COVID-19. If such information pertaining to the force majeure event is considered inside information, the listed issuer ought to make the necessary disclosures under Part XIVA of the SFO.

As part of the assessment of what information will be considered inside information within the meaning of Part XIVA of the SFO, the listed issuer must consider whether the information is likely to have a material effect on the price of its listed securities. The information that is likely to have a material effect on the price of a listed issuer’s securities will vary between listed issuers and be fact dependent.

The HKEx and the SFC released a Joint Statement on 4 February 2020[1] reminding listed issuers of their duty of disclosure under Part XIVA of the SFO (the Joint Statement).

The Joint Statement noted that if a listed issuer’s business operations, reporting controls, systems, processes or procedures are materially disrupted by the outbreak of COVID-19 and/or the related travel restrictions, management should assess whether this has resulted in inside information arising. Should this be the case, the listed issuer must make the necessary disclosures as soon as reasonably practicable, independent of any applicable Listing Rule. For a full summary of the Joint Statement, please see Charltons’ February 2020 Newsletter.

The disclosure of inside information under Part XIVA of the SFO is of course still subject to the safe harbours that are provided for under section 307D of the SFO.