Part of the Hong Kong Stock Loan Regulatory & Eligibility Guide — view the full guide
A director who borrows against shares in his or her own listed company meets two sets of rules at once: the Model Code on dealings, and SFO Part XV on disclosure. Both treat a pledge as more than a private financing arrangement.
This note sets out how the Model Code applies to a pledge, when a director may not deal, what clearance is needed, and what the rules do and do not say about a lender enforcing during a restricted period. It is orientation, not legal advice.
Does the Model Code treat a pledge as dealing?
Yes. Paragraph 7(a) of the Model Code defines dealing to include the "creation of pledge, charge or any other security interest" in the issuer’s securities, and none of the exemptions in paragraph 7(d) covers pledges.
The Code’s full title is the Model Code for Securities Transactions by Directors of Listed Issuers. It became Appendix C3 to the Main Board Listing Rules on 31 December 2023, replacing Appendix 10. A breach of its required standard is treated as a breach of the Listing Rules, and an issuer may adopt its own code on terms no less exacting.
The definition also reaches securities of "any entity whose assets solely or substantially comprise securities of the listed issuer", so a pledge over a holding vehicle can be caught. Rule A.6 applies the same restrictions to dealings by a director’s spouse or minor children, and to any dealing in which the director is treated as interested under Part XV. GEM issuers follow the same standard in GEM Rules 5.46 to 5.68.
The carve-out for security given to an authorised institution for a bona fide commercial loan comes from Rule 10.07, the post-listing lock-up rule, not from the Model Code. Our note on financing locked-up shares covers that rule.
What are the blackout periods?
A director must not deal on the day results are published, in the 60 days before annual results, or in the 30 days before half-year or quarterly results, or, if shorter, from the period end to publication, unless the circumstances are exceptional.
That is Rule A.3(a). The issuer must tell the Exchange in advance when each such period starts, and the period covers any delay in publishing a results announcement. The Code itself never says "blackout"; HKEX’s FAQs call it the black-out period.
HKEX’s FAQs add detail. The latest a black-out can start is 60 or 30 days before the publication deadline, even if results are expected later; the "if shorter" period starts the day after the financial period ends; and if publication is postponed, the black-out runs until the results are published.
Other times are closed too. A director may not deal while holding inside information about the securities (Rule A.1), and directors aware of negotiations for notifiable or connected transactions must refrain until the information is announced.
What clearance and notification are needed?
Before dealing, a director must notify the chairman, or a director designated by the board, in writing and receive a dated written acknowledgement. The response is due within five business days of the request, and clearance lasts no more than five business days.
That is Rule B.8; the chairman notifies the board or a designated director in his or her own case. Rule B.9 requires the issuer to keep a written record that the notice was given and acknowledged, and the director to receive written confirmation. Clearance does not cure inside information that develops afterwards.
In exceptional circumstances, Rule C.14 allows a disposal that would otherwise be prohibited if the director satisfies the chairman or designated director that it is the only reasonable course of action. The issuer must then notify the Exchange and publish an announcement immediately after the sale or disposal.
After any dealing, Part XV applies separately, as the last section explains. The issuer also reports each year on whether its directors complied with the Code (Rule D.15).
What if the lender enforces during a blackout?
The Model Code does not say. Neither the Code nor HKEX’s FAQs address a lender enforcing or force-selling a director’s pledged shares, so the director’s position is a question for Hong Kong counsel before it arises.
HKEX has addressed the steps around enforcement. Its FAQ on the Model Code says that topping up a pledge during a black-out to meet a margin requirement is dealing, allowed only if the circumstances are exceptional, the top-up is "the only reasonable course of action available to the director to avoid forced sale of the pledged shares", and Rule C.14 is followed. Repaying the loan so that the pledge is released is not dealing.
The practical answer is to plan before the facility is signed: leave headroom and a cure period that do not depend on dealing in a black-out, and agree with counsel what happens if a margin call falls inside one. Our note on enforcement and forced sale explains how a default plays out.
Does SFO Part XV also apply to a director’s pledge?
Yes, with no minimum size. A pledge changes the nature of a director’s interest unless the lender is a qualified lender, and the director must then notify within three business days.
The SFC’s Outline of Part XV says that directors, unlike substantial shareholders, have no 5% threshold, and that providing an interest in shares as security, or steps taken to enforce one, change the nature of a director’s interest. A pledge to a qualified lender, such as a bank or licensed broker, is the exception (SFC: Part XV disclosure of interests).
Directors file on Form 3A, and the issuer keeps a register of directors’ interests. The statutory wording should be confirmed with counsel against the Securities and Futures Ordinance itself. Our note on SFO Part XV disclosure for stock loans covers the regime in more depth.
This article is educational and is not legal or regulatory advice. Whether a director may create, top up or release a pledge, and what must be filed, depends on the facts and on the issuer’s own code, and is a question for the director’s Hong Kong legal counsel. Hong Kong Stock Loans acts as an arranger and introducer in collaboration with SFC-licensed counterparties.
At a glance
| Step | Model Code requirement | Timing |
|---|---|---|
| 1. Check for inside information | No dealing while in possession of inside information (A.1, A.2) | At all times, including after clearance |
| 2. Check the black-out | No dealing on results days or in the periods before results, unless exceptional (A.3(a)) | 60 days before annual results; 30 days before half-year or quarterly results; or, if shorter, from period end |
| 3. Seek clearance | Written notice to the chairman or a designated director; dated written acknowledgement (B.8) | Response within five business days; clearance valid no more than five business days |
| 4. Keep the record | Issuer keeps a written record; director receives written confirmation (B.9) | With each clearance |
| 5. Exceptional circumstances | Only reasonable course of action; clearance still needed; issuer notifies the Exchange and announces (C.14) | Announcement immediately after the sale or disposal |
| 6. Disclose under SFO Part XV | Not a Model Code step: Form 3A where the pledge changes the nature of the director’s interest | Within three business days |
Hong Kong Stock Loans
Educational; not advice. Editorial standards · Disclosures
