Trading secrets law in Legco by July

PUBLISHED : Saturday, 12 February, 2011, 12:00am
UPDATED : Saturday, 12 February, 2011, 12:00am

A law that would see listed companies and their directors fined up to HK$8 million if they fail to disclose insider information likely to affect share prices will finally be submitted to the Legislative Council in July.

It is hoped the law will come into effect in the second half of 2012.

Under the law, non-disclosure of price-sensitive information would for the first time be treated as a breach of the law.

Companies and directors would face civil action by the Market Misconduct Tribunal, which could impose a fine up to HK$8 million. Directors and other senior management may also face other penalties, including trading bans or serving as a director.

The proposal is a watered down version of the government's first attempt to introduce the law in 2003, when it was proposed that directors breaching the disclosure rule could be jailed for 10 years and fined HK$10 million.

And following a consultation, the government relaxed some of the planned reforms. They include allowing mainland or overseas firms a waiver on some disclosure if they are prohibited by their governments from doing so.

'Hong Kong now has more listings from the mainland, Russia, Italy and Brazil and we needed to make this change as these overseas companies may need to follow their country's requirements,' said Au King-chi, Permanent Secretary for Financial Services and the Treasury.

The law also relaxes the time a company can release information to a 'reasonable practicable' time frame instead of a 'practicable time'.

The new regulation is aimed at matching international practices and covers information such as takeover and merger news, a substantial change in financial results, sudden loss of assets or other corporate movements.

'This is to establish a continuous disclosure culture,' Au said. 'This will bring us into line with Britain, the EU and Australia.'

At present, companies that fail to tell investors about such information are only guilty of breaching the stock exchange's listing rules, resulting in just a reprimand.

The government held a consultation on the issue last year, drawing 110 written submissions. Most of the listed companies supported the change but 20 per cent opposed it.

The law change could face a rocky reception as Democratic Party legislators have criticised the fact it does not include criminal sanctions.

Legislator Paul Chan Mo-po, who represents the accountancy sector, agreed making non-disclosure a civil penalty was the right approach. But he said the HK$8 million fine might be too low by today's standards.

He also hoped the Securities and Futures Commission would consider carefully before giving mainland and overseas companies a waiver.

Au said the government had decided on the HK$8 million fine as the market had diverse views on the issue. 'Some people wanted it to be HK$3 million, which is too low, while some wanted an unlimited fine. As such, the HK$8 million seems to be the right balance,' Au said.

Hong Kong Institute of Directors chairman Kelvin Wong Tin-yau supports the reform, saying the fine would discourage non-disclosure as directors valued their reputation.