SFC sounds hi-tech alarm
The Securities and Futures Commission is taking a pro-active role in monitoring speculative fever over technology plays, which could see the watchdog asking companies to warn investors their stocks might involve a false market.
The move reflects a change in the SFC's regulatory philosophy towards market manipulation, from trying hard to take cases to court afterwards, to giving enough transparency to the public in time for them to act, according to an SFC source.
'We are not particularly against technology plays, we are only against those shares surging unusually over a short period,' the source said.
On Monday, technology play Process Automation (Holdings) announced the SFC had informed it that its stock had been targeted by 'professional investors who might have created a false market'.
There had been two similar announcements by SAR companies, the source said. The first had been made by Leading Spirit Conrowa Electric, now Leading Spirit Electric, in April last year.
In the past, it was rare for the SFC to disclose progress in specific market manipulation investigations because the Securities and Futures Commission Ordinance limited its capacity to comment.
Market manipulation is a criminal offence, requiring a high standard of proof.
'We have changed the regulatory philosophy, because with past experience, we found it was very difficult to get enough evidence for a successful prosecution for market manipulation,' the source said.
There had been only two successful SFC prosecutions in recent years.
Some brokers said the SFC and the stock exchange were suspending stocks with exceptional price and turnover movement more frequently than in the past.
Companies such as MAE Holdings and China Properties were being asked to reveal as much detail of any deals or rumours as possible, broker sources said.
Within three recent weeks, MAE had surged from $1.264 to as high as $2.775, while China Properties had surged from $1.53 to $3.825.
'Once a share price rises sharply or its turnover increases, the regulators will ask the company to explain or even suspend its trading,' one broker said.
The policy had made investors and even market makers hesitate to trade these speculative stocks, he added.
Some brokers said trading in technology-related stocks, which had recently accounted for more than 50 per cent of the market's daily turnover, had dropped to 30 per cent.