Under proposed reform, investors will be able to sue investment banks for inaccuracies in prospectuses
Investment banks that bring new companies to the stock market could be sued by shareholders for any inaccurate statements made in the company listing prospectuses, under proposals unveiled by the Securities and Futures Commission.
The proposal is one of several sweeping reforms suggested in a consultation paper released yesterday. The securities watchdog says the reforms are aimed at improving investor protection and bringing regulations into line with practice in other leading financial markets.
As reported in a preview of the proposals by the South China Morning Post on Friday, the commission has also called for public feedback during the three-month consultation process on a proposal to outlaw pre-deal research reports, which it fears may inflate market expectations before the listing of a company.
Under the existing Companies Ordinance, only directors and 'promoters' of companies are liable, but no clear definition is provided for 'promoter'. The SFC proposal calls for changes to ensure that investors can also sue sponsors - as they can be directors and senior managers - for compensation if they have suffered investment losses due to misleading information in the prospectus.
'After the directors and senior management of the company, the sponsor is usually the next most knowledgeable person concerning the company and its business and the next best place to obtain relevant information,' the SFC paper said.
The commission also proposes to change the present requirement that only investors who can prove they had read a misleading prospectus can claim damages. Under its proposal, investors who trade in the shares after their listing may sue for damages if they can demonstrate that they received inaccurate prospectus information through other media, such as newspaper reports.