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Jake Van Der Kamp

A law that would see listed companies and their directors fined up to HK$8 million if they fail to disclose inside information likely to affect share prices will finally be submitted to the Legislative Council in July.
SCMP, February 12 
 It tempts me to fit an old Singapore joke to Hong Kong circumstances. This is a fine town. There is a fine for this and a fine for that and a fine for almost everything else.
You know how it is when you listen to the radio news and forget to turn it off before the requisite two government announcements come on after the final news item. Whatever it is they tell you, they invariably end with the warning that you face a fine of HK$500,000 or 10  years in jail.
What tender-hearted public officials we have. Is it possible to live here any longer and not be made a criminal every day by some new  do-gooder piece of legislation?
This particular piece of do-goodism is as fine as a fine town can make it. The fine will be HK$8 million (plus HK$10 million for the lawyers). Oh, what a fine town we have. Fortunately, however, they have dropped the provision for imprisonment.
They had to drop those jail sentences because jail requires higher standards of proof than fines and these higher standards would be difficult to meet. There is a problem. Although the new law will require company directors to publish all price-sensitive information as soon as reasonably practicable, it cannot provide a definition of what constitutes price-sensitive information.
Simple, you say.
Okay, go ahead and try. You will soon find that the term 'price sensitive' is loaded with subjective judgment. You can describe it in roundabout ways and you can give examples, but it always eludes the sort of definition that company directors can fall back on if in doubt and you can't send people to jail for getting wrong what you can't get right.
The Securities and Futures Commission tried last year with a big consultation paper and failed, missing  so completely that even in the consultation paper it had to admit that  the test 'is a hypothetical one' and 'has necessarily to be an assessment'.
But since when has failure stopped regulators? These people are resolute in their pursuit of virtue and so they have tried again in a 'Consultation Conclusions' paper.
And they have further muddied what they sought to make clear. On the basis of court judgments elsewhere, the definition is now to include 'information a reasonable investor would be likely to use as part of the basis of his investment decisions'.
Great, and can we now please define 'a reasonable investor'? What degree of likelihood  does 'likely' envision? What if intuition is the basis of the investment decision? It often is.
Here is one of the crown gems of 'Consultation Conclusions' - '...electronic news and wire services cannot automatically be accepted as generally known information as these sources do not necessarily disseminate information to the wider investing public.'
Much  preferred is a notice to the stock exchange. This would satisfy the requirements. Everyone reads stock exchange notices. People just can't wait for them to come out. Why, you should see the huge crowds down at the exchange's doors every day, clamouring for these bestsellers.
But, come to think of it, this new legislation may actually do more to make us a fee town than a fine town. What will happen is the regulators will slap a fine on a company out of their superior knowledge of what constitutes price-sensitive information and endless appeal procedures will then start. Only the lawyers will win. Oh, what a fee town we have.
The hard political fact of the matter is that this law is to go through as the price of the SFC abandoning earlier proposals to tighten the window for director dealing. It's just horse trading.
But our public officials like to talk it up big, too big sometimes. The new law, for instance, will allow some mainland and overseas companies a waiver from disclosure in certain circumstances.
'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.
Russia is the listing of Rusal, which the SFC tried to stop by prohibiting retail investors from it. Italy is a possible secondary listing by Prada, although nothing has come of it yet. Brazil is a mere Hong Kong depositary receipt by a company called Vale. You could perhaps buy a cup of coffee with the value of its daily turnover but not if you go to Starbucks.
 Full disclosure means not understating things, you see. Can't have that.



Another fine kettle of fish from our tender-hearted public officials