Tribunal proposed to handle non-disclosure by listed firms
Listed Hong Kong companies that fail to disclose price-sensitive information to the market should be dealt with by a government-appointed tribunal rather than face criminal charges in court, says the head of the Chamber of Hong Kong Listed Companies.
Chairman Lo Ka-shui said that 'criminal courts need to prove a case beyond reasonable doubt. In cases of non-disclosure it is difficult to produce such a level of evidence and turning non-disclosure into a criminal offence is going too far'.
A body similar to the Insider Dealing Tribunal that accepts a lower level of evidence than is required in a criminal case would be more effective than a government proposal to make non-disclosure of price-sensitive information under listing rules a criminal offence, Mr Lo said.
The Financial Services and the Treasury Bureau said in March it planned to consult the market at the end of this year on whether it should give rules relating to the disclosure of price-sensitive information statutory backing under the law.
This will mean that breaches of the rules will face a range of actions by the Securities and Futures Commission including bringing the case to be heard in criminal courts.
Paul Chan Mo-po, legislator for the accountancy sector, said such statutory backing was necessary to enhance market transparency to protect investors.
However, Mr Lo said few overseas markets made non-disclosure a criminal offence and the tribunal he proposed as an alternative could also impose fines or ban company officers guilty of failing to make disclosures from serving as directors, which would be tougher penalties than those imposed under the current regime.
At present, the Hong Kong Stock Exchange's listing rules amount to a contractual agreement with listed companies and the maximum penalty for a breach of the rules is only a public reprimand as the exchange cannot impose fines.
The present system has led to a poor observance of disclosure rules, say critics, who cite the example of red-chip conglomerate Citic Pacific delaying disclosure of its huge foreign-currency derivative loss in October last year by six weeks.
However, companies are not convinced that it is necessary to make non-disclosure of price-sensitive information a criminal offence.
The proposed statutory backing to the listing rules in 2004 did not make much progress owing to strong opposition from listed companies.
The Chamber of Hong Kong Listed Companies, which now has 200 companies as members, is pushing a softer option.
Mr Lo said the coming consultation should also make clear what type of price-sensitive information should be disclosed and the timing of such disclosures.
'For example, should companies make an announcement if someone verbally expresses an interest in buying its shares during a casual conversation or only after they accept a formal offer?' Mr Lo said.
Permanent Secretary for Financial Services and the Treasury (Financial Services) Au King-chi said that the government welcomed any suggestions on the proposed disclosure reform.
'Many market players have advised us that criminal sanctions would provide sufficient deterrence against intentional non-disclosure of price-sensitive information and hence it would be effective in promoting a continuous disclosure culture,' Ms Au said.
'We believe that any proposal for criminal offences should be proportionate to the seriousness of the offence and provide sufficient safeguards to prevent abuse.
'We would draw reference from domestic and international experience and we look forward to hearing market views in the coming consultation on the proposed legislation,' she said.
Christopher Cheung Wah-fung, chairman of the Hong Kong Securities Professionals Association, said the chamber's counter proposal to use a tribunal to handle the non-disclosure issue would be acceptable.
'A heavy fine is painful enough to require companies and directors to make continuous disclosure. It is not necessary to go as far as to send rule-breakers to jail,' Mr Cheung said.
'The key issue of any reform plan is to increase market transparency and investor protection. Maybe the government can consider setting up the tribunal first to see if it can improve the disclosure culture of listed companies.'