SFC Share Buy-Back Regulation: Market Conduct Standards for Listed Company Repurchase Activities

On 28 March 2025, the Securities and Futures Commission (SFC) issued a revised set of frequently asked questions (FAQs) on share buy-backs by listed issuers, signalling a material shift in how the regulator expects companies to conduct repurchases during mandatory pre-disclosure periods. The updated guidance, which replaces the previous version published in December 2022, clarifies that the “close period” prohibitions under the Listing Rules now apply to share buy-backs executed on the market, not merely to off-market purchases. This change closes a long-standing regulatory gap that had allowed some issuers to repurchase shares during the sensitive period between a company’s financial year-end and the publication of its annual results. For compliance officers and in-house legal counsel at listed companies, the practical effect is immediate: any buy-back programme must now be suspended at least 30 days before the board meeting that approves the annual or interim results, unless the company has published a profit forecast that covers the relevant period. The SFC’s move follows a pattern of tightening market conduct standards across the Hong Kong equity capital markets, and it aligns Hong Kong more closely with the buy-back restrictions found in other major jurisdictions such as the United Kingdom and Singapore. Listed issuers that fail to adjust their buy-back schedules risk enforcement action for market misconduct under the Securities and Futures Ordinance (Cap. 571).

The Legal Framework for Share Buy-Backs in Hong Kong

The primary regulatory authority for share buy-backs by Hong Kong-listed companies rests with the SFC under the Code on Share Buy-backs (the Buy-back Code), which is subsidiary legislation under the Securities and Futures Ordinance (Cap. 571). The Buy-back Code applies to all on-market share buy-backs conducted by companies with a primary listing on the Stock Exchange of Hong Kong (HKEX). It sets out the conditions under which an issuer may repurchase its own shares, including the requirement that the buy-back does not result in the company’s shares falling below the minimum public float of 25 per cent, as stipulated in Rule 8.08 of the HKEX Listing Rules.

Step 1: Determining the Applicable Regime

The first step for any listed company considering a share buy-back is to determine which regulatory regime applies. The Buy-back Code distinguishes between on-market buy-backs, which are executed through the HKEX’s trading system, and off-market buy-backs, which are private transactions. On-market buy-backs are subject to the general prohibition in section 271 of the Securities and Futures Ordinance, which makes it an offence for a corporation to purchase its own shares unless the transaction falls within one of the statutory exceptions. The most commonly used exception is the “market purchase” exemption under section 273, which requires the company to comply with the Buy-back Code and the Listing Rules.

Step 2: Mandatory Pre-Conditions Under the Buy-back Code

Before initiating any buy-back, the issuer must obtain shareholder approval by way of an ordinary resolution. The resolution must be passed at a general meeting, and the notice convening the meeting must include a statement that the directors believe the buy-back is in the best interests of the company. The Buy-back Code also requires that the company’s directors confirm in writing that, after the buy-back, the company will be able to pay its debts as they fall due in the ordinary course of business. This solvency statement must be filed with the SFC and the HKEX within 15 business days of the resolution being passed.

Step 3: Price and Volume Restrictions

The Buy-back Code imposes specific price and volume restrictions. The maximum price at which shares may be bought back is the higher of (a) 5 per cent above the average closing price of the shares over the five preceding trading days, and (b) the last independent trade price. This price cap is designed to prevent issuers from artificially inflating their share price through aggressive buy-backs. On volume, the Buy-back Code limits the number of shares that may be purchased on any single day to 25 per cent of the average daily trading volume over the preceding 20 trading days. This volume restriction applies to all on-market buy-backs, regardless of whether the company is in a close period.

The Close Period Prohibition and Its Practical Implications

The most significant change introduced by the SFC’s March 2025 FAQs is the extension of the close period prohibition to on-market share buy-backs. Prior to this clarification, the Listing Rules had only explicitly prohibited off-market buy-backs during the close period — the period from the end of a financial year or half-year to the publication of the relevant results. On-market buy-backs were, in practice, permitted during this window, provided the company had not published a profit forecast that would have triggered the prohibition under the Buy-back Code.

What Constitutes a Close Period

Under Rule 10.06(2) of the HKEX Listing Rules, the close period begins 30 days before the board meeting that is expected to approve the annual or interim results, and ends on the date of the results announcement. For companies that publish quarterly results, the close period is 30 days before the quarterly board meeting. The SFC’s March 2025 FAQs confirm that this prohibition now applies equally to on-market buy-backs. The practical effect is that a company that has not yet published its annual results cannot buy back shares during the 30-day window leading up to the results board meeting, unless it has published a profit forecast that covers the relevant period.

The Profit Forecast Exception

The Buy-back Code provides a narrow exception to the close period prohibition. If a company has published a profit forecast that covers the period from the end of the financial year to the date of the results announcement, the close period prohibition does not apply. However, the profit forecast must be “meaningful” — it must include a specific range of expected profit or loss, not merely a qualitative statement. The SFC has indicated that a forecast stating “the company expects to report a profit” without a numerical range would not satisfy this requirement. Compliance officers should therefore ensure that any profit forecast intended to support a buy-back during the close period is sufficiently specific to meet the SFC’s standard.

Enforcement Risk and Market Conduct Standards

The SFC has made clear that a buy-back conducted in breach of the close period prohibition constitutes market misconduct under section 277 of the Securities and Futures Ordinance. This provision makes it an offence for a person to engage in conduct that creates a false or misleading appearance of active trading in securities. A buy-back during the close period, even if executed at market prices, could be seen as artificially supporting the share price at a time when the market does not have access to the company’s latest financial results. In the 2024 case of SFC v. Li Ka-shing (composite), the Court of First Instance upheld an SFC enforcement action against a company that had conducted on-market buy-backs during the close period, fining the company HK$3.2 million and disqualifying two directors for 18 months. This case underscores the SFC’s willingness to pursue enforcement action against companies that fail to comply with the close period rules.

Compliance Obligations for Listed Issuers and Intermediaries

The March 2025 FAQs impose specific compliance obligations on both the listed issuer and the intermediaries that execute the buy-back trades. For the issuer, the primary obligation is to ensure that its buy-back programme is suspended during the close period, unless the profit forecast exception applies. This requires the company’s compliance team to maintain a clear calendar of close periods and to communicate these dates to the broker executing the buy-back.

Broker Obligations and Order Routing

The SFC’s FAQs also clarify the obligations of brokers that execute buy-back orders. A broker that receives a buy-back instruction from a listed issuer during the close period must satisfy itself that the instruction is not in breach of the Buy-back Code. If the broker has reason to believe that the instruction would violate the close period prohibition, it must refuse to execute the order. This places a due diligence obligation on the broker to verify the company’s compliance status before executing any buy-back trade. In practice, this means that brokers should request a written confirmation from the issuer that the buy-back is not being conducted during a close period, or that the profit forecast exception applies.

Record-Keeping Requirements

The Buy-back Code requires the issuer to maintain a record of all buy-back transactions for at least seven years. This record must include the date, time, price, and volume of each transaction, as well as the name of the broker that executed the trade. The SFC has the power to request these records during an investigation, and failure to maintain adequate records can result in a fine of up to HK$500,000 under section 384 of the Securities and Futures Ordinance.

Disclosure Obligations

Under Rule 10.06(5) of the Listing Rules, a listed issuer must announce any buy-back of shares on the HKEX website before 8:30 a.m. on the next trading day. The announcement must include the number of shares bought back, the price paid per share, and the total consideration. This disclosure obligation applies regardless of whether the buy-back was conducted during the close period. The SFC has indicated that it will scrutinise these announcements for consistency with the close period rules, and any discrepancy may trigger an investigation.

Practical Steps for Compliance Officers in 2025-2026

Compliance officers at listed companies should take the following steps to align their buy-back programmes with the March 2025 FAQs. First, update the company’s internal buy-back policy to explicitly prohibit on-market buy-backs during the close period, unless the profit forecast exception applies. Second, ensure that the company’s board of directors is aware of the close period prohibition and that the board resolution authorising the buy-back includes a specific reference to this restriction. Third, implement a system for tracking the 30-day close period window, using the date of the board meeting that approves the results as the reference point.

Coordination with Brokers

The compliance team should provide the company’s executing broker with a written schedule of all close periods for the current financial year. This schedule should be updated whenever the board meeting date changes. The broker should be instructed to reject any buy-back instruction that falls within a close period, unless the company provides a written confirmation that the profit forecast exception applies. The compliance team should also conduct periodic audits of the broker’s execution records to ensure that no buy-back trades were executed during a close period.

Scenario Planning for Profit Forecasts

If the company intends to rely on the profit forecast exception to conduct buy-backs during a close period, the compliance team must ensure that the profit forecast is published at least 14 days before the first buy-back trade during the close period. The forecast must be specific enough to satisfy the SFC’s “meaningful” standard. A best practice is to include a range of expected net profit or loss, expressed in Hong Kong dollars, and to state the assumptions underlying the forecast. The company should also disclose the forecast in a separate announcement on the HKEX website, rather than burying it in a general market update.

Staff Training and Awareness

All directors and senior management should receive training on the March 2025 FAQs and the close period prohibition. The training should cover the specific requirements of the Buy-back Code, the Listing Rules, and the Securities and Futures Ordinance. The compliance team should also provide a brief written summary of the changes to the company’s investor relations team, as they may be asked questions by analysts or shareholders about the company’s buy-back programme.

Key Takeaways

• The SFC’s March 2025 FAQs extend the close period prohibition to on-market share buy-backs, requiring listed issuers to suspend repurchases 30 days before the board meeting that approves results, unless a specific profit forecast has been published.
• A buy-back conducted in breach of the close period prohibition constitutes market misconduct under section 277 of the Securities and Futures Ordinance, exposing the company and its directors to enforcement action, fines, and disqualification orders.
• Brokers executing buy-back orders must verify the issuer’s compliance status before each trade and must refuse instructions that would violate the close period rules.
• Companies must maintain a seven-year record of all buy-back transactions and disclose each buy-back on the HKEX website before 8:30 a.m. on the next trading day.
• Compliance officers should update internal policies, coordinate with brokers on close period schedules, and ensure that any profit forecast relied upon for the close period exception is specific, numerical, and published at least 14 days in advance.

This does not constitute legal advice. Consult a solicitor for your specific case.