SFC Corporate Transaction Regulation for Listed Issuers: Disclosure of Major Acquisitions and Disposals

In March 2025, the Securities and Futures Commission (SFC) and The Stock Exchange of Hong Kong Limited (HKEX) jointly published a consultation paper proposing significant amendments to the disclosure regime for major corporate transactions. The key change targets the current “size test” thresholds under Chapter 14 of the Main Board Listing Rules (the “Listing Rules”), which have not been substantively revised since 2012. Market participants have long argued that the existing percentage-based triggers, particularly the 5% threshold for notifiable transactions, capture routine operational deals, creating unnecessary compliance burdens. The proposed recalibration, expected to be finalised in early 2026, would raise the de minimis threshold to 10% for certain transaction categories. This reform directly impacts how listed issuers classify and disclose acquisitions and disposals. For compliance officers and legal teams, understanding the precise mechanics of these changes is no longer optional. The following article outlines the current regulatory framework, the proposed amendments, and the practical steps required for compliant disclosure.

The Current Regulatory Architecture for Major Transactions

Classification Under Chapter 14 of the Listing Rules

The Listing Rules classify transactions into four categories based on the “size tests” set out in Rule 14.04(9). These tests compare the transaction value, asset value, consideration, and gross revenue of the target against the listed issuer’s corresponding figures. The four categories are: notifiable transactions (5% or more but less than 25%), major transactions (25% or more but less than 100%), very substantial acquisitions (100% or more), and reverse takeovers (effectively a change of control). Each category triggers different disclosure and shareholder approval requirements. For example, a major transaction requires both an announcement and a circular, plus shareholder approval. A notifiable transaction above 5% but below 25% generally requires only an announcement. The SFC’s 2025 consultation proposes raising the notifiable transaction threshold from 5% to 10% for transactions that do not involve connected parties. This change alone would remove approximately 30% of current notifiable transaction filings, according to HKEX data cited in the consultation paper (SFC/HKEX, “Consultation Paper on Proposed Amendments to the Listing Rules Relating to Major Transactions”, March 2025, para. 34).

The Role of the SFC in Oversight

The SFC does not directly approve individual transactions. Its oversight role under the Securities and Futures Ordinance (Cap. 571, “SFO”) focuses on market misconduct, insider dealing, and false or misleading disclosure. Section 277 of the SFO empowers the SFC to investigate and prosecute persons who make false or misleading statements in connection with transactions that may affect the price of listed securities. This means that even if a transaction falls below the formal notifiable threshold, the SFC can still act if the issuer’s disclosure is materially inaccurate or incomplete. In practice, the SFC has issued several enforcement actions in 2023 and 2024 against issuers that failed to disclose material terms of major acquisitions, including contingent liabilities and earn-out arrangements. These cases illustrate that compliance with the Listing Rules’ numerical thresholds is a floor, not a ceiling.

Interaction with the Hong Kong Codes on Takeovers and Mergers

Transactions that involve a change of control or a partial offer are subject to the Hong Kong Codes on Takeovers and Mergers (the “Takeovers Code”), administered by the SFC’s Takeovers Executive. Rule 26.1 of the Takeovers Code requires a mandatory general offer when a person acquires 30% or more of the voting rights of a listed company. This is a separate regime from the Listing Rules. A very substantial acquisition under Chapter 14 may not trigger the Takeovers Code if no change of control occurs. Conversely, a small transaction that results in a mandatory offer trigger will require compliance with the Takeovers Code regardless of the Chapter 14 classification. Compliance officers must map both regimes simultaneously.

Step-by-Step: Disclosure Requirements for a Major Acquisition

Step 1: Determine the Transaction Classification

The first step is to calculate each of the five size tests: assets, profits, revenue, consideration, and equity capital (for issuers). The Listing Rules require the issuer to use the latest published audited accounts. If the target is a company, the tests apply to the target’s figures. If the target is an asset, the tests apply to the asset’s value. The issuer must apply all five tests. If any one test triggers a threshold, the transaction falls into the corresponding category. For example, if the assets test yields 30% but the profits test yields 22%, the transaction is a major transaction because the assets test exceeds 25%. The SFC’s 2025 proposal would add a sixth test for “gross cash consideration” to prevent issuers from structuring transactions to avoid classification by manipulating the consideration figure.

Step 2: Prepare the Announcement

For a notifiable transaction (current threshold: 5%), the issuer must publish an announcement as soon as reasonably practicable after the terms are agreed. Rule 14.34 requires the announcement to include: the identity of the target, the consideration and its basis, the principal terms of the agreement, and a description of the business to be acquired or disposed of. The announcement must also state whether the transaction is conditional on any regulatory approvals, such as from the SFC or the HKEX. For a major transaction, the announcement must additionally include a valuation of the target assets if the transaction exceeds 25% on the assets test. The SFC’s 2024 enforcement report noted that approximately 40% of warning letters issued in 2023 related to inadequate disclosure of consideration mechanisms, such as earn-outs or deferred payments (SFC, “Enforcement Report 2024”, p. 12).

Step 3: Circulate the Circular and Obtain Shareholder Approval

For a major transaction or very substantial acquisition, the issuer must send a circular to shareholders within 21 business days of the announcement. The circular must contain the information required by Appendix D1A of the Listing Rules, including a letter from the board, an independent financial adviser’s opinion, and a valuation report. Shareholder approval is required. The circular must be approved by the HKEX before dispatch. The HKEX typically takes 5 to 10 business days to review a circular. Issuers should factor this timeline into their transaction schedule. The Takeovers Code imposes a stricter timeline: if a mandatory offer is triggered, the offer document must be posted within 21 days of the announcement.

The 2025-2026 Regulatory Shift: What Changes and Why

Raising the De Minimis Threshold

The most significant proposed change is the increase of the notifiable transaction threshold from 5% to 10% for transactions that are not with connected persons. The SFC and HKEX estimate this will reduce the number of notifiable transaction announcements by approximately 30% annually (SFC/HKEX, March 2025, para. 45). The stated rationale is to reduce compliance costs for routine, low-impact acquisitions and disposals that do not materially affect the issuer’s financial position. However, the proposal includes a carve-out: transactions with a connected person (as defined in Chapter 14A of the Listing Rules) will remain subject to the 5% threshold. This preserves the enhanced scrutiny for related-party transactions.

New Disclosure Requirements for Contingent Consideration

The 2025 consultation also proposes a new mandatory disclosure item for any transaction where the consideration includes a contingent element, such as an earn-out or a performance-based payment. The issuer must disclose the maximum potential consideration, the basis for calculating the contingent payment, and the period over which it is measured. This addresses a gap identified in the SFC’s 2023 thematic review of M&A disclosure, which found that 35% of sampled announcements did not adequately describe contingent consideration mechanisms (SFC, “Thematic Review of M&A Disclosure”, 2023, p. 8).

Enhanced Disclosure for Asset Valuations

For major transactions and very substantial acquisitions, the proposed rules would require the valuation report to include a sensitivity analysis showing how the valuation changes under different assumptions. This applies to both property valuations and business valuations. The HKEX has indicated that it will issue new practice notes on acceptable valuation methodologies, drawing on the International Valuation Standards (IVS) 2024 edition. Issuers should expect more detailed scrutiny of valuation reports during the circular review process.

Practical Steps for Compliance Officers and Legal Teams

Step 1: Conduct a Pre-Transaction Regulatory Audit

Before entering into a definitive agreement, the compliance team should prepare a size test calculation using the issuer’s most recent audited accounts and the target’s available financial information. If the transaction involves a contingent consideration, the team should model the maximum possible consideration under all realistic scenarios. This calculation determines the transaction’s classification and the corresponding disclosure obligations.

Step 2: Prepare a Disclosure Checklist

The checklist should map every mandatory disclosure item under the Listing Rules, the SFO, and the Takeovers Code (if applicable). Key items include: consideration mechanism, valuation methodology, regulatory approvals required, conditions precedent, and any material risks. The checklist should be updated as the transaction progresses. The SFC’s 2024 enforcement report highlighted that several enforcement actions arose from issuers failing to disclose material conditions precedent, such as regulatory approvals from overseas authorities.

Step 3: Engage with the HKEX Early

For major transactions and very substantial acquisitions, the issuer should consider submitting a draft circular to the HKEX for confidential review before the announcement. The HKEX offers a pre-vetting service for complex transactions. This reduces the risk of the HKEX requiring substantial revisions after the announcement, which can delay shareholder meetings and transaction completion. The HKEX’s Listing Division has indicated that it will prioritise reviews for transactions that involve new or complex valuation methodologies.

Step 4: Monitor the 2026 Implementation Timeline

The consultation period for the proposed amendments closed on 30 June 2025. The SFC and HKEX have indicated that the final rules will be published in the fourth quarter of 2025, with implementation expected in the first quarter of 2026. Issuers should treat the proposed rules as a signal of the regulator’s expectations. Even before the rules take effect, the SFC may use its existing powers under the SFO to challenge inadequate disclosure that the proposed rules would have required.

Actionable Takeaways

1. Recalculate your transaction thresholds using the proposed 10% de minimis rule — even before it takes effect, this signals the regulator’s view on what constitutes a material transaction.
2. Disclose contingent consideration in full — the SFC’s 2023 thematic review confirms that incomplete disclosure of earn-outs is a primary enforcement target.
3. Prepare a dual-regime compliance map for any transaction that could trigger both Chapter 14 of the Listing Rules and the Takeovers Code.
4. Engage the HKEX for pre-vetting on any transaction involving a valuation that exceeds 25% of the issuer’s asset value.
5. Update your internal disclosure checklist to include the proposed sensitivity analysis requirement for valuation reports, effective from Q1 2026.

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