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Safeguards apply to dual share law, SEC ex-chief says

Refraining from direct advice for HK, Mary Schapiro tells of protections for investors in US

PUBLISHED : Friday, 22 November, 2013, 3:02am
UPDATED : Friday, 22 November, 2013, 3:02am

The United States allows companies to have a dual share structure but has additional measures to protect shareholders' interests, Mary Schapiro, the former chairwoman of the Securities and Exchange Commission, told the South China Morning Post.

Schapiro, who will meet Securities and Futures Commission chief executive Ashley Alder and other executives in Hong Kong today, declined to comment on what the local regulator should do in relation to calls for the introduction of dual share structures but gave an overview on her experience.

Tension over such structures is mounting after the SFC last month refused to provide a waiver to mainland e-commerce giant Alibaba's plan to use a partnership structure that will allow its 28 partners - mainly founders and senior executives - to nominate a majority of directors.

The SFC said this violated the one share, one vote principle.

Alibaba may consider having its initial public offering - which could be as high as US$15 billion - conducted in the US, where a dual share structure is allowed.

"It is not to say whether the US way or the Hong Kong way is better. While the US allows some tech companies to have a super-voting share structure, it has a lot of compensation mechanisms to protect the interest of small shareholders," Schapiro said.

These measures include the fact that directors have a fiduciary duty to protect shareholders' interests.

The US law allows investors to take class-action lawsuits against a company or directors to protect their rights, while Hong Kong law does not.

Documentation was also more demanding in such structures, Schapiro said. Additionally, super-voting rights may also have an expiry date.

"The US market is taking a broader view of corporate governance to ensure fair treatment to shareholders and the transparency of the company," she said.

Schapiro, who left the SEC late last year after serving for four years as its first woman chairman, is now managing director of consultancy firm Promontory.

Separately, she would like to see more regulation over dark pools, which are electronic trading systems that allow investors to trade large block of shares with no need to disclose information related to the trade.


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