Business sector unites against longer blackout

PUBLISHED : Monday, 29 December, 2008, 12:00am
UPDATED : Monday, 29 December, 2008, 12:00am

Pressure is building on the Hong Kong stock exchange after a collection of listed companies, industry associations and top corporate executives published an open letter in all local newspapers today protesting against an amendment that extends the stock trading 'blackout period'.

Under the amendment, which is scheduled to be implemented next month, directors and key shareholders of listed firms are banned from trading their companies' shares between the end of a reporting period and an actual earnings announcement, replacing the existing one-month blackout before the results.

A total of 238 listed companies including blue chips Cheung Kong (Holdings), Swire Pacific, Li & Fung and units of the Kuok Group such as Shangri-La Asia, Kerry Properties and SCMP Group, which publishes the South China Morning Post, have signed the letter.

Others who signed the letter included 22 individuals such as Bank of East Asia chairman and chief executive David Li Kwok-po, Orient Overseas (International) Limited chairman Tung Chee-chen, and Wing Hang Bank chairman and chief executive Patrick Fung Yuk-bun.

Six associations including the Chamber of Hong Kong-listed Companies, Hong Kong Stockbrokers Association and Real Estate Developers Association of Hong Kong also objected to the amendment.

As many companies announce earnings three months or more after the end of a financial period - both yearly or half-yearly - the new measure will in effect extend the blackout period to as long as seven months from two, given that firms are required to report earnings twice in a financial year.

For companies reporting quarterly results, the blackout period could even stretch up to nine months.

The signatories to the open letter claimed that the change would damage the viability and health of the Hong Kong market and undermine the legitimate rights and functions of directors as investors, thus discouraging individuals from becoming directors of listed companies.

The move, could even act as a deterrent to the existing and future listings on the Hong Kong bourse, the signatories said.

The letter says such a rule can help 'corporate snipers' to destroy value for shareholders because an extended blackout period would reduce trading volumes further.

The signatories believe the existing rules on insider trading already provide adequate scrutiny and safeguards of directors' dealings.

They have urged the regulators to suspend the plan and launch another round of consultations rather than concluding the consultation process in haste without seeking feedback from most listed firms.

The Legislative Council will call a special meeting tomorrow to discuss the alternatives to the proposed blackout period extension.

The council has invited executives of the stock exchange and the Securities and Futures Commission to attend the meeting.