The Hong Kong stock exchange has sent listed firms a guidance letter discouraging them from paying out bonus shares amounting to twice the existing issued capital or more, so as to avoid disruptions in the market.
Market observers expect the guideline to reduce speculative activity, but some are concerned that it is an attempt to reduce the autonomy of firms in making commercial decisions.
Significant price and volume fluctuations often occur during the adjustment period between the “ex-date”, before which an investor must be a shareholder to qualify for bonus shares, and the date the shares are allotted.
Such a period usually lasts for two to three weeks.
Listed companies are obliged to make it as short as possible and ensure a fair and orderly process is in place, the exchange said.
The bourse will only allow large issuances of bonus shares to take place when the issuing company is unable to split shares to enhance their liquidity and reduce the share price owing to rules in its place of incorporation or another exchange on which it is listed, the guidance letter said.
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