Tiger Asia was looking after its clients, not insider dealing
Jake Van Der Kamp
The firm [Tiger Asia] and the executives were charged for insider trading and market manipulation in December 2008 and January 2009 by short selling shares of China Construction Bank and Bank of China ahead of the placement announcements, pocketing a profit of HK$38.5 million.
South China Morning Post, May 1
Let's get on this horse again. Leaving aside the fact that the Securities and Futures Commission wants to punish Tiger Asia for dealing on inside information without first proving it guilty, was there any insider dealing here anyway?
I'm sure that the basics of what the SFC tells us are true: a broker called up Tiger Asia early on January 6, 2009, and offered it shares in a placement of CCB shares held by Bank of America, telling it at the same time how many shares there would be in the placement and indicating a price range for the stock.
Instead of buying, however, Tiger Asia decided to sell the stock and quietly put in short sale orders with different brokers. The bet was prescient: the CCB share price tanked, and Tiger Asia covered its position to earn a tidy profit.
A misdeed, screamed the SFC: "This information was confidential and price sensitive and Tiger Asia and the three senior officers knew this."
It is a curious view of events, the sort one might expect of third-rate Australian lawyers who move to Hong Kong because they can't find real jobs at home and who know little about investment, having never bought any shares in their lives. I wonder if the SFC hires any of this breed.
If this information was confidential it would be a matter between Tiger Asia and Bank of America, a private agreement between two private parties. Let the two take each other to court in a civil action if they want. It has nothing to do with the Hong Kong public.
That is to say, it should have nothing to do with us. But we may have to accept that our regulators have hoodwinked our legislators and judges into thinking that there are matters of great public interest at stake here rather than just the empire-building interests of regulators.
It's what you get when judges let precedents be established by a regulators' cabal, headquartered in a magnificent Madrid palace, which sets less store by justice than by the number of criminal sentences inflicted.
In this case, however, why was it legal to base a Buy decision on this information but criminal to base a Sell decision on it? I have a slight problem with the logic here.
Let's put this into context. In January 2009 the stock market was in a very sensitive state, having suffered a serious crash months earlier. The entire market also knew that lock-up periods imposed by Beijing on the stakes in Chinese banks of several large international banks were coming to an end.
Bank of America, with a 19.1 per cent stake in CCB, had tried to make a big placement of CCB shares only a month earlier but had called it off at the last moment, which may have helped the market to a gesture of recovery.
But now, only weeks later, Bank of America was going through this placement exercise again. It clearly needed the money, having just bought the troubled Merrill Lynch, and it would still have a huge overhang of shares after the placement. There was every reason to think that this might undermine CCB's share price.
Thus, the fact that Bank of America was making a placement was price-sensitive information. Yet the bank dithered about, leaking this news selectively to sound out the market for the best price it could get, which raises another question: if the SFC saw nothing wrong with this time-consuming, discriminatory way of handling a sensitive placement, why should only Bank of America be allowed to take advantage of it to get the best price it could? Why should this be fine for the bank but criminal for anyone else?
There was no insider dealing here. This was just prudent fund management by professional investors who have always had a good name and looked after their clients' interests as they ought to.