|
Page 1 of 2
 The territory's
oligarchs force the Hong Kong Stock Exchange to retreat
In hastily backing away
from a plan to extend the blackout period on directors’ share
trading, Hong Kong’s stock exchange has exposed the weakness of
its regulatory clout and the cabal of influential tycoons used to
calling the shots have the satisfaction of knowing that they can
ensure that ‘Asia’s world city’ is free from
implementing international best practices in the regulation of its
financial affairs.
The formidable lobbying
power of the oligarchs has never been in question but rarely has it
secured such a rapid response and rarely have business leaders so
blatantly combined to ensure the right to engage in dubious practices
to the distinct disadvantage of their minority shareholders.
Just before the New
Year the directors of 238 listed companies published a statement
condemning the stock exchange’s plan to extend the blackout
share trading from the closing of their books to the release of their
results. The modest proposal, to replace an existing blackout period
of just one month prior to results announcements, was designed to
crack down on insider trading.
In effect the most
prominent leaders of Hong Kong’s business community lobbied to
ensure that possibilities for insider trading should be preserved and
within the space of just 24 hours they managed to get the stock
exchange to backtrack.
In a rather
unconvincing statement announcing the retreat, the exchange’s
listing committee said it would not withdraw the new rule but
postpone its implementation until April; it remains to be seen what
will happen then but the most unlikely outcome is that the exchange
will implement its ban without modification. Meanwhile the exchange’s
retreat means it has disregarded a motion by legislators endorsing
the extension of the trading blackout period and it ignored the
results of its own consultation exercise which came down decisively
in favor of reform.
Why then were the
directors of Hong Kong’s leading companies so keen to thwart a
measure that would have helped to diminish the chances of insider
information being responsible for share price movements prior to the
announcement of company results?
One answer may be found
in the fact that 34 percent of disclosed directors’ trading has
occurred within the timeframe of the new blackout period.
But the suspicion
lingers that Hong Kong directors seem to feel entitled to use insider
knowledge when trading in the shares of their own companies. It is
not simple to judge when this access to privileged information slips
over into an area where criminality occurs.
The Stock Exchange has
declined to conduct studies on the extent of insider trading prior to
the announcement of price-sensitive announcements but it is widely
known in Hong Kong that barely a single announcement of this kind has
been made by a listed company that was not preceded by
a significant movement in the company’s share price suggesting,
at the very minimum, that some insider knowledge was responsible for
the movement.
Studies of this
phenomenon have been entirely confined to academic circles. Three of
the biggest pieces of research by scholars have found clear evidence
of insider trading connected to share price movements surrounding
company announcements. The Hong Kong academics, Louis Cheng, T.Y.
Leung and Rickey Szeto, looked at 3,177 instances of price movements
in the period from 1993 to 1999 and concluded that there was
widespread insider trading around earnings and dividend
announcements. Coincidently, although published later, was a study
covering the same period by three other academics: Eric Chang, Jun
Zhu and J. Michael Pinegar which found that insider trades in Hong
Kong were far more widespread than in the US and were rewarded with
abnormally high profits. Meanwhile another research paper, by
Elizabeth Wong at Stanford University, found ‘strong evidence
that points towards suspicious insider-trading activities’
among the companies listed in Hong Kong which are controlled in the
Chinese mainland.
<< Start < Prev 1 2 Next > End >>
 |
Economics/Business 
Subscribe to this comment's feed
Show/Hide comments
Show/Hide comment form
