Issue much too sensitive all round
The devil is in the details may be an old saying, but for the government it holds special relevance as it continues with the lengthy task of reforming company listing rules.
For the past decade-and-a-half, the Hong Kong government has sought to introduce a law requiring listed companies to disclose price-sensitive information. Tough penalties would apply for the failure to do so.
Companies are regularly criticised in Hong Kong for not giving enough information to the market in a timely manner. The lack of penalties for not doing so may be the reason why. The stock exchange can currently only mete out a public reprimand under the listing rules.
The planned law, first considered by the government in the mid-1990s, was supposed to be as simple as adding a line in the statute book. But government officials soon found it was a bit more complex than that.
'Initially, we thought this was a simple, easy and quick change,' one government official recalled. 'We thought we could simply add one line' in the proposed Securities and Futures Ordinance.
But then the legal eagles pointed out a problem: the listing rules contain many other requirements for publicly-traded companies which, if they all became law, would burden them with too many legally enforceable obligations. Because of this problem, the Securities and Futures Ordinance implemented in 2003 did not include the section on price-sensitive information.
The government had another go a year later. But a consultation paper issued in 2004 did not make much progress owing to strong opposition from listed companies. Executives complained it would be too easy for them to commit the offence, leading to heavy fines and a jail term. They also were concerned that the Securities and Futures Commission would become too powerful.
Secretary for Financial Services and the Treasury Chan Ka-keung last April indicated another round of consultation would be held this year.
But after almost a year we have not seen any action from the government, although listed companies have already started new lobbying efforts against the law.
The Chamber of Hong Kong Listed Companies chairman Lo Ka-shui opposes putting those who breach the disclosure rules before a criminal court as they would need to prove a case beyond reasonable doubt. He proposed a body similar to the now-defunct Insider Dealing Tribunal that accepted a lower level of evidence.
But as we know, the Insider Dealing Tribunal lacked teeth and could only ban directors from the boardroom or impose a fine. Even the power to fine was later quashed by the Court of Final Appeal.
Hong Kong may well need to follow the example in Europe and Britain where failure to disclose information is treated as a civil rather than criminal offence.
The government official said it is also important to clearly define what was price-sensitive information and when disclosure should be made.
For example, the illness of the chairman of a blue-chip company is definitely a price-sensitive piece of information but what about those further down the executive ranks.
And what about acquisition proposals? Should companies make an announcement even if someone just mentions it as a joke at a party?
In contrast to what the government thought 15 years ago, the price-sensitive disclosure issue involves more than adding one line to the law book.
